Financial-Services Companies Expected To Boost IT Spending in '05

IT budgets at financial-services companies will grow at a healthy clip in 2005. IT spending by financial-services firms will jump from $350 billion in 2004 to $375 billion in 2005, a 7% increase, with smaller companies accounting for much of that growth, according to survey results released Thursday by Meta Group.

By comparison, IT spending across all industries will increase between 4% and 5% next year.

In recent years, banks, insurance companies, and securities trading firms have focused on maximizing the efficiency of IT infrastructure assets through cost-saving moves such as consolidating operations inherited through mergers and acquisitions, or co-locating data-center operations with other financial-services companies. Now the emphasis is on creating strategic initiatives that can drive revenue growth or boost market share.

Many of the hot-button issues that impact IT budgets--regulatory compliance, outsourcing, more spending on new application development versus maintenance--apply to all industries but are more pronounced in financial services. In outsourcing, for example, financial-services firms spend about 20% of their IT budgets on external service providers, well above the average for other industries. And they do a lot better job in managing those providers, says Jed Rubin, co-author of the Meta Group report.

Yet along with those hefty budget hikes come heightened pressures on IT departments to provide transparency and visibility into their operations. Business managers want to be sure their company's IT dollars are being used to advance business strategies. To that end, IT departments are tying the costs of computer hardware, software, and other IT infrastructure expenses more closely to specific business goals. CIOs are acutely aware of the need to "relate actual costs incurred to business benefits achieved," Rubin says.