In the financial-services world, VaR is a common moniker for Value-at-Risk. In the technology world, VAR has a very different meaning: value-added reseller, a big tent that covers companies calling themselves solution providers, systems integrators and even consultants. Yet for business-technology leaders in financial services, the decision to work with VARs encompasses both definitions: What value are they getting in return for the risk of bringing in outside talent.
In a time marked by demands for both speed and cost controls, turning to third parties for technology work is an increasingly attractive option. Wall Street & Technology and sibling CMP Media publication VARBusiness have partnered to explore the range of ways in which investment-industry CIOs are working with VARs, highlight the top priorities for using IT outsiders and present a case study of a VAR at work in the financial-services arena.
The highest-profile examples are the multibillion-dollar outsourcing megadeals such as the one Bank of America signed with Plano, Texas-based EDS for its voice and data networks and help-desk support, and the deal by Zurich Financial to hand off application development and management to Computer Sciences Corp. of El Segundo, Calif. But, while outsourcing of technology functions is considered a VAR engagement, VARs also provide in-house services and application development for IT departments that are looking for specialized expertise or to supplement staff so a firm can ramp up or down to meet project needs without hiring and firing.
Industry specialization is increasingly important. VARBusiness finds that 55 percent of VARs surveyed for its VAR 500 listing say they target the financial services/banking/accounting vertical industry. It's a stat perhaps best appreciated by its flip side: Close to half of the VARs aren't targeting one of the largest and most tech-intensive industries, suggesting it's hard to dabble in financial services without industry-specific knowledge.
Still, VARs are responding to demand for more flexible solutions, and they're gaining a foothold even among financial institutions that had historically kept IT work in-house for competitive advantage. "It's getting easier for financial institutions to find the technology they are looking for," says Virginia Garcia, senior analyst in the financial services strategies group at TowerGroup.
According to Garcia, one of the top problems that financial institutions are wrestling with is one as "old as time itself": data integration. But there are some new causes, such as Basel II regulatory requirements related to understanding an institution's risk throughout the company. Spending on data integration related to Basel II alone is expected to reach $1.5 billion globally this year, she notes. "There are so many major initiatives going on that are at the core very complicated by the data integration," she says. "I believe most [financial services firms] are turning to third-party providers to help with this complicated matter."
Some other areas Garcia considers hot prospects for calling in the VARs include regulatory compliance with, for example, Sarbanes-Oxley (and Basel II for operational risk management); data-integrity technologies; services-oriented architectures; middleware; branch renewal on the retail side, such as teller workstations and applications; outsourcing and core IT replacement projects; specific tech-enabled strategies such as cross-selling securities and insurance; commercial lending applications in wholesale banking; modernizing commercial loan and cash management applications; fraud prevention; and business continuity planning. Outsourcing is getting the most publicity of late but, Garcia says, there are two main reasons financial firms outsource IT work: "Either large banks need to cut costs out of their IT budgets, or smaller ones can get access to things that they couldn't otherwise afford - sophisticated technology and regular updates at a much lower cost," she explains.
John Parker, CIO of St. Louis-based full-service brokerage firm A.G. Edwards & Sons, thinks his IT organization is the "right size for our business," so he doesn't have plans to outsource any significant segment of technology work. He sees it more as a way to smooth out the peaks and valleys in the workflow. "From time to time, we do outsource projects or parts of projects that exceed our existing capacity, allowing our IT personnel to work on more strategic projects and opportunities," he says. A.G. Edwards also regularly uses application service providers (ASP) to help run applications for the business, and it uses third parties to help support A.G. Edwards' remote locations across the country.
Christian Hudson, CIO of Swiss American Securities, headquartered in New York, has turned to VARs to buy and implement software packages, but it's not the norm at his organization. Generally, he says, he only turns to VARs if he thinks the company needs help in three basic areas: installation, testing or training.