Spend wisely, not more, on IT

Spend_more_wisely_150x84Recent research from the banking sector suggests that more IT investment doesn’t necessarily boost profits, but targeted investments in particular areas might. Here is a brief excerpt from an article written by Matthias Hoene for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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McKinsey’s proprietary benchmarking survey conducted annually with a dozen regional and superregional banks in the United States supports the axiom that investing more in IT is not as important as investing smartly. The latest responses gleaned from a small set of executives in each bank (almost 40 executives in total) covered a range of variables, including the amount banks spent on application development, the level of functionality executives believed IT provided to the business (measured as an index of IT effectiveness), and banks’ overall profitability. The data showed no significant correlation (only 14 percent) between the amount spent on general application development and the banks’ bottom lines. However, it does appear that investing in particular areas of IT functionality — specifically, in automation and in customer analytics and big data — is correlated with higher profitability. Investment in the automation of back-office processes or in the capability to perform sales analytics, for instance, can yield meaningful efficiencies1 (exhibit). The upshot? Executives should spend wisely, not necessarily more, on information technologies.

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Here is a direct link to the complete article.

Matthias Hoene is a solution partner with McKinsey, based in McKinsey’s Munich office.

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