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Recession Struggles Not Over For IT Departments

Financial services companies still face several “business killers” from ineffective use of IT according to analyst Gartner

There are some sigNs that economies around the world are beginning to recover from recession but IT departments cannot afford to relax yet as technology and innovation is key to staving off the threats that persist for financial services companies according to analyst Gartner.

Speaking at the analyst firm’s IT Expo 2009 event in Cannes this week, research vice president Peter Redshaw said that financial services companies could still face “business killers” which could derail any recovery they may be enjoying as economies begin to show signs of improvement.

“It has been a tumultuous year for banks and financial services providers and some will continue to face a rocky path for the next two years – a critical period when leading banks will take action to deal with both the recession and a possible recovery and thereby establish an unassailable lead over laggards,” said Redshaw. “IT departments have been fighting frantically to help keep their organisations’ heads above water and they’d be forgiven for thinking that the worst is over. That may be true but it is no time to relax.”

Among the threats identified by the analyst company include the fact that only 30 per cent of financial services companies in North America, 53 per cent in APAC and 66 per cent in Europe have a formal approach to innovation in their businesses. “Financial Services Providers [FSPs] must create a more outward-facing set of objectives for IT and a culture that has incorporated innovation best-practices at its core,” said Redshaw. “IT strategies and projects need to be risk-aware but they also need to be innovative and bold. Most importantly, IT departments at FSPs will need to support a new operating model from their board that is designed to cope with a world that has low growth, small margins, high volatility and heavy regulations.”

Another issue facing financial services companies include focusing too much on short-term tactics and ignoring longer-term IT strategies. “FSPs need to avoid two extremes: first, assuming that unpredictability means that strategies are worthless, so they become purely reactive and tactical; second, assuming that unlimited flexibility is a desirable state,” the analyst stated.

The ability to manage risk has also been an ongoing issue throughout the financial crisis and Gartner believes that financial services organisations should take a more proactive stance towards regulation. “FSPs can’t wait for instructions from regulators; ignorance is not an excuse for inactivity,” said Mr Redshaw. “New legislations should be factored in when FSPs define new products, build up new sales and service channels or decide on organisational changes; however they shouldn’t lead to a situation where the risk-tail wags the dog.”

Last week, data recovery specialist Kroll Ontrack said that it had witnessed a 100 percent increase in demand for its services recently. This, it says, mirrors the last recession, and it seems that the surge is being blamed on cost cutting excerises, such as shrinking IT departments and budgets. The result, says Kroll, is that companies are cutting corners and human error is causing prolific data loss.

Earlier this month, Gartner stated that the IT industry is beginning to emerge from the recession but the proper recovery won’t begin in a “sustainable” way until next year at the earliest.