THE CHALLENGE: Ramping up for growth while keeping costs in check is a challenge for any manager. When it comes to the IT department, the key to balancing the two initiatives is working with the firm's various business units to help them prioritize their needs.
Things are heating up in the capital markets. Information from the Securities Industry Association's June monthly statistical review shows that by the first quarter of this year, "Nearly every product and service line showed solid, and in some cases, exceptional growth."
Total trading gains in Q1 were up 11 percent from Q4 last year; commissions and fee income rose 7.6 percent over the previous quarter; underwriting revenue increased 10.7 percent from Q4 and a whopping 43.6 percent from the first quarter of 2003; and mutual fund sales rose 8.7 percent. Gross revenues in the first quarter hit $58.68 billion and the industry was on target to hit $232.1 billion in gross revenues by the end of the year. That's the highest total since 2001, when the industry raked in almost $282 billion in gross revenues. And employment in the industry continues to rise, with more than 780,000 people now earning a living in securities.
By the same token, however, expenses are also on the rise: In Q1, expenses hit $51.09 billion, up 5.9 percent from Q4 2003.
All of this activity comes at a time when the securities industry is holding firm on technology budgets. According to TowerGroup, global securities industry spending on information technology is expected to be $71.5 billion in 2004. That's an anemic 1.4 percent increase over 2003 and far below the spending highs of $86.2 billion in 2000. For IT managers, the challenge is to juggle the growth and the increasing demand on their departments resources with fiscal responsibility.
Jonathan Beyman, chief of operations and technology at Lehman Brothers in New York, says today's environment is not much different from the usual climate. "People always request technology," he says, calling technology an "addictive drug." "Whatever you provided yesterday, from a user standpoint, isn't enough for tomorrow."
The key for a firm in these market conditions, Beyman suggests, is prioritization. "If you've got 20 guys screaming for something, you're not going to do 20 new things," he notes. This means forcing the decision-makers in the various business units to justify their budgets and set their IT objectives. "I push a lot of that back on the businesses."
Beyman says that doesn't mean people can't spend money, but they need to have a well-thought-out business case for big projects. That can only be developed once a business line has done it's homework.
More With Less
Joshua Levine, chief technology and administrative officer at E*trade Financial Corp. in New York, says, "It's been true for the past two to three years that IT shops have had to do more with less. Last year the pressure may not have been as strong as in the previous year, but it was still there." The way firms are dealing with those pressures, he says, is "through productivity and by being smarter."
In E*trade's case, Levine recognized the value of cheap computing early. While the cost of proprietary computing systems was moving upward several years ago, the cost of Intel/AMD processing power was dropping. "The Intel and AMD architecture has undergone tremendous deflation," Levine says, which prompted E*trade to move to Linux. "We do much more computing now for a lot less."
He adds, "We don't need to have everything completely customized." According to Levine, that saves resources "for the real battles" and the technology spend that results in revenue generation.
While E*trade has experienced growth in the past year with an uptick in trading volume, "It's not germane to the computing side," Levine says. "The issue is not about whether there's more money available - it's where can we add value, where can we save money? From a technology perspective, technology is a cost, and all costs should always go down."
Levine explains that one thing working in his firm's favor over more established firms is that "We have an easy environment. It's pretty straightforward - we don't have multi-departmental issues and people doing different things in different areas."