Ernst & Young’s 2012–2013 Global Banking Outlook shows that increased competition among banks and nontraditional new entrants, such as other financial services providers or technology companies, has created risk for industry participants unless they are able to adapt and execute a credible strategy for managing IT costs. With spending under heavy scrutiny, banks must think about software differentiators and technology expenditures differently. Instead of being a cost to manage, IT spend must be viewed as an investment necessary to support growth and new business development.
Banks have a secret arrow in the cost-control quiver—open source software (OSS). OSS is in wide use on Wall Street—Red Hat Enterprise Linux runs the NYSE, for example—but for many institutions, OSS use is tactical and ad hoc, largely because it’s viewed as a disparate set of solutions to specific problems rather than as an integrated platform. The increasingly popular use of projects such as SpringSource, JBoss, MySQL, ActiveMQ, and Camel, which offer open source equivalents to commercial application servers, databases, message brokers, and integration brokers, and the IBM-backed Eclipse tool set, are being used widely by enterprises and financial services institutions.
Despite the popularity of these projects and tool sets, few banks have taken the step of betting the enterprise on OSS, whether at the application level or by providing development teams with methods and technologies to integrate OSS components into proprietary apps. The difficulty of integrating disparate projects, security issues, and a lack of organizational and cultural support have been traditional barriers to OSS adoption in financial services. Another barrier is the need to govern and manage the use of OSS to ensure compliance with both internal and external standards and regulations.
Where OSS shines, and where it will finally break through, is in its flexibility, adaptability, strong community support for innovation, security, and low cost. Increasingly enterprise architects are working through architecture review boards to make the case that OSS is, in fact, ready for prime time. A successful outcome will require EAs and IT to adopt a unified approach to development management, while changing the institutional perception of the relationship between cost and value.
IT: COST CENTER OR SOURCE OF INNOVATION?
IT spend can account for up to 20 percent of an institution’s fixed costs. Some organizations go so far as to measure IT spend as a percentage of revenues, a somewhat controversial approach. In fact, in 2011, Gartner reported most enterprises allocate 3.5 percent of revenue to IT spend, but noted that in technology-enabled industries like financial services the number is closer to 6 percent. An alternate approach is to measure and forecast IT investment based on contributions to enterprise productivity and innovation.
Regardless of approach, however, most analysts and institutions agree: controlling IT costs must be a continuous initiative. Accomplishing this means managing the cost of ongoing development and maintenance, which can account for as much as 50–70 percent of IT’s time. Here again, a centralized approach to development management is EA’s best friend.
CHALLENGES TO A UNIFIED APPROACH TO DEVELOPMENT MANAGEMENT
Among the significant challenges to OSS use via centralized development management are structural issues:
- Bank IT groups tend to be naturally siloed, leading to reduced cooperation and sharing across departments. Such common barriers reduce the potential for realizing the benefits of sharing code and methods across organizational boundaries as well as the efficiency of centralized governance and management.
Cultural challenges stem from the multigenerational, distributed workforce characteristic of most development organizations. OSS is a preferred development method for younger developers and enterprise architects due to its collaborative nature. A larger OSS development community contributes not only to working better, faster, and more cost effectively, but also to producing code of higher quality and better security.
Centralized governance, architecture, and development management provide consistency cross-silo while demonstrating to developers that the entire organization shares challenges, enabling them to break out of old thinking and be more innovative.
FIVE BENEFITS TO A UNIFIED APPROACH TO DEVELOPMENT MANAGEMENT
For many financial services organizations, the key to successful OSS implementation requires a unified approach to development management. This strategy acknowledges that IT really serves three constituencies: business process owners, information specialists, and technology implementers. Such an approach delivers clear benefits:
1. A robust, engaging, centralized IT strategy. When a unified approach is accepted across the organization, it solves a number of problems. It mitigates the risk of rogue IT purchasing seen since the advent of cloud computing and BYOD. IT’s efforts can be diverted from spending on core infrastructure and focused on end-user driven projects such as business intelligence, analytics, collaboration systems, and customer relationship management systems.
2. Cost-effective approach that supports business goals: A centralized development management process should include governance and management of OSS across the development life cycle while building in compliance, from search and selection to implementation, integration, and validation, in addition to a software catalogue and inclusion in a bill of materials enabling organizations to benefit from code reuse and standardization.
3. Differentiation from competitors: Banks must differentiate themselves both internally, through development of innovative software, processes, and policies, and externally, through customer-facing services (e.g., mobile banking), which feature ease of use. Some 90 percent of mobile apps are OSS-based, and savvy bank EAs have charted a path to development for mobile using OSS components.
4. Motivated development teams: Developers don’t want to spend the bulk of their time maintaining old systems—they want to develop challenging and valuable software. OSS, which powers the cloud, big data, and also mobile, provides developers with a wealth of options for developing innovative new systems that will help banks differentiate their service offerings. A centralized development management function recognizes that OSS is where developers want to work, especially millennials.
5. Increased innovation with less risk: Creating differentiated service offerings requires an innovative approach to software development. EAs create centralized development management strategies to bridge the gap between business strategies and technical requirements, using IT to drive business adaptability while reducing the complexity of existing IT systems and improving the innovation and agility of new systems. Leveraging OSS components, rather than reinventing the wheel, helps to free developers to spend time innovating and assembling rather than writing code.
IT ARCHITECTURES, GOVERNANCE AND MANAGEMENT
To compete in fast-changing global financial markets, banks must create an IT architecture with appropriate governance and management that spans:
- Generational expectations. Use of OSS as a core development tool helps bridge the gap between managing millennials and graybeards. There are inevitable differences between developers in multigenerational work forces, but a consistent and measured approach to architecture and governance can smooth over generational differences.
- Cultural expectations. Using OSS vs. proprietary solutions not only meets the needs of developers (especially younger ones), but it also offers EAs and banks the flexibility and agility to solve problems more quickly, and at lower cost, than would be possible with most commercial/proprietary systems.
- Organizational expectations. Achieving more, better, and faster with less cost and risk is a mantra for today’s CIOs. High-impact projects such as workforce mobilization, big data management, BI, and analytics and cloud computing are simpler to develop and manage using OSS with an appropriate, centralized development management approach.
Today, creating a best-practices approach to developing an IT architecture to support a bank’s business goals requires CIOs, enterprise architects, and developers to unite in their efforts to centralize development management while leveraging the considerable power and benefits of OSS and open development methods. Open source software is both commoditizing commercial software and providing building blocks to speed development of new banking applications. By turning to OSS, banks can reduce their software costs and rapidly develop new applications, trading platforms, and applications—while writing less code and producing more functionality at less cost.