1、How Financial Firms Decide on Technology( Abstract )The financial services industry is the major investor in information technology(IT) in the . economy; the typical bank spends as much as 15% of non-intereste expenses on IT. A persistent finding of research into the performance of financial institu

2、tions is that performance and efficiency vary widely across institutions. Nowhere is this variability more visible than in the outcomes of the IT investment decisions in these institutions. This paper presents the results of an empirical investigation of IT investment decision processes in the banki

3、ng industry. The purpose of this investigation is to uncover what, if anything, can be learned from the IT investment practices of banks that would help in understanding the cause of this variability in performance along with pointing toward management practices that lead to better investment decisi

4、ons. Using PC banking and the development of corporate Internet sites as the case studies for this investigation, the paper reports on detailed field-based surveys of investment practices in several leading institutionsHow Financial Firms Decide on Technology(Part One )信息技術對金融服務業的影響正在增加，不僅僅表現在銀行的 15

5、%無息開支上，而且對金融服務業的運做和戰略也有很強的影響。一個對金融機構的長期研究表明， 不同的機構的效率和表現也不同。 其決定的因素有以下一些其中的一個因素就是對投資的決定和管理。 SBS 是一個失 敗的例子，但是成功的公司也不少。本文注重解答以下的問題：1 .銀行對IT投資的評估和管理過程？2 .在對IT的管理過程中，理論和實際操作的結合如何？3 .IT投資的管理和銀行性能的關系如何？IntroductionInformation technology(IT) is increasingly critical to the operations of financial services

6、firms. Today banks spend as much as 15% of non-interest expense on information technology. It is estimated that the industry will spend at least $ billion on IT in 1998, and financial institutions collectively account for the majority of IT investment in the . economy. In additon to being a large co

7、mponent of the cost structure, information technology has a strong influence on financial firms operatons and strategy. Few financial products and services exist that do not utilize computers at some point in the delivery process, and a firms'information systems place strong constraints on the t

8、ype of products offered, the degree of customization possible and the speed at which firms can respond to competitive opportunities or threats.A persistent finding of research into the performance of financial institutions is that performance and efficiency varies widely across institutions, even af

9、ter controlling for factors such as size(scale), product breadth(scope), branching behavior and organizational form. stock versus mutual for insurers; banks versus saving & loans). Given the central role that technology plays in these institutions, at least some of this variation is likely to be

10、 due to variations in the use and effectiveness of IT investments. While some authors have argued that the value of IT investment has been insignificant, particularly in services, recent empirical work has suggested that IT investment, on average, is a productive investment. Perhaps more importantly

11、, there appears to be substantial variation across firms; some firms have very high investments but are poor performers, while otheres invest less but appear to be much more successful. Brynjolfsson and Hitt found that as much as half the returns to IT investment are due to firm specific factors.One

12、 potentially important driver of differences in IT value, and of firm performance more broadly, is likely to be the decision and management peocessed for IT investments. Horror stories of bad IT investment decisions abound. Consider the example of the new strategic banking system(SBS) at Banc One(Am

13、erican Banker 1997). Banc One Corp. and Electronic Data Systems Corp. agreed last year to end their joint development of this retail banking system after spending an estimated $175 million on it. As stated in the American Banker article, SBS"was just so overwhelming and so complete that by the

14、time they were getting to market, it was going to take too long to install the whole thing," said Alan Riegler, principal in Ernst & Young's financial services management consulting division. However, not all the stories are negative. New IT systems are playing a vital role in reshaping

15、 the delivery of financial services. For example, new computer-telephony integration(CTI) technologies are transforming call center operations in financial institutions. By investing in technology, more and more institutions are moving operations from high-cost branch operations to the telephone cha

16、nnel,where the cost per transaction is one-tenth the cost of a teller interaction. This IT investment not only reduces the cost of serving existing customers, but also extends the reach of the institution beyond its traditional geographic boundaries.In this paper, we utilize detailed case studies of

17、 six retail banks to investigate several interrelated questions:1 .What processes do banks utilize to evaluate and man age IT in vestme nts2 .How well do actual practices align with theoretical arguments about how IT investments shouldbe managed3 .What impact does that management of IT investments h

18、ave on performaneeHow Financial Firms Decide on Technology(Part Two )For the first question, we develop a structured framework for cataloging IT investment practices and then populate this framework using a combination of surveys and semi-structured interviews. We then compare the results of this ex

19、ercise with a synthesis of the literature on IT decision making to understanding how practices vary across firms and the extent to which this is consistent with "best practices" as described in previous literature. Finally, we will compare these processes to internal and external performan

20、ce metrics to better understand which sets of practices appear to be most effective.To make these comparisons concrete, we examine both the general decision process as well as the specific processes used for two recent IT investment decisions :the adoption of computer-based home banking (PC banking)

21、, and the development of the corporate web site. These decisions were chosen because they were recent and are related but provide some contrast; in particular, PC banking is a fairly well defined product innovation, while the corporate web presence is more of an infrastructure investment which is le

22、ss well-defined in terms of objectives and business ownership.Overall, we find that while some aspects of the decision process are fairly similar across institutions and often conform to "best practice" as defined by previous literature, there are several areas where there is large variati

23、on in practice among the banks and between actual and theoretical best practice. Most banks have a strong and standardized project management for ongoing systems projects, and formal structures for insuring that line-managers and systems people are in contact at the initiation of technology projects

24、. At the same time, many banks have relatively weak processes(both formal and informal) for identifying new IT investment opportunities, allocating resources across organizational lines, and funding exploratory or infrastructure projects with long term or uncertain payoffs.The reminder of this paper

25、 is organized as follows. Section 2 describes the previous literature on performance of financial institutions and the effects of IT on performance. Section 3 describes the methods and data. Section 4 describes the current academic thinking on various components of the decision process and compares

26、that to actual practices at the banks we visited. Section 5 describes the results of our in-depth study of PC banking projects and the summary, Section 6 contains a similar analysis for the Corporate Web Site and discussion and conclusion appear in Section 7.How Financial Firms Decide on Technology(

27、Part Three )Previous LiteraturePerformance of Financial InstitutionsThere have bee n a nu mber of studies that have exam ined the efficie ncy of the banking in dustry and the role of various factors such as corporate con trol structure (type of board, direct ors, in sider stock holdi ngs, etc.), eco

28、no mies of scale (size), econo mies of scope (product breadth), and branching strategy; see Berger, Kashyup and Scalise (1995) and Harker and Zenios (forthco ming) for a review of the banking efficie ncy literature. While there is substa ntial debate as to the role of these various factors, there is

29、 one un ambiguous result: that most of the (in) efficie ncy of banks is not expla ined by the factors that have bee n con sidered in prior work. For example, Berger and Mester (1997) estimate that as much as 65-90% of the x-i nefficie ncy remai ns un expla ined after con troll ing for known drivers

30、of performa nee. A similar story also appears in in sura nee where "x-efficie ncy" varies substa ntially across firms whe n size, scope, product mix, distributi on strategy and other strategic variables are con sidered. It has bee n argued that one must get "i nside the black box"

31、; of the bank ot con sider the role of orga ni zati on al, strategic and tech no logical factors that may be missed in studies that rely heavily on public finan cial data.In formati on Tech no logy and Busin ess ValueEarly studies of the relati on ship betwee n IT and productivity or other measures

32、of performa nee were gen erally un able to determ ine the value of IT con clusively. Lovema n (1994) and Strassma nn (1990) ,us ing differe nt data and an alytical methods both found that the performa nee effects of computers were not statistically sig ni fica nt. Barus, Kriebel and Mukadopadhyay (1

33、995), using the same data as Lovema n, found evide nee that IT improved some in ternal performa nee metrics such as inven tory trunover, but could not tie these ben efits to improveme nts in bottom line productivity. Although these studies had a nu mber of disadva ntages (small samples, no isy data

34、) which yielded imprecise measures of IT effects, this lack of evide nee comb ined with equally equivocal macroec ono mic ananl yses by Steve n Roach (1987) implicitly formed the basis for the "productivity paradox". As Robert Solow (1987) once remarked, "you can see teh computer age

35、everywhere except in the productivity statistics."More recent work has found that IT in vestme nt is a substa ntial con tributor to firm productivity, productivity growth and stock market valuati on in a sample that contains a wide range of in dustries. Brynjolfss on and Hitt (1994,1996) and Li

36、chte nberg (1995) found that IT in vestme nt had a positive and statistically sig ni fica nt con tributi on to firm output . Brynjolfss on and Yang (1997) found that the market valuati on of IT capital was several times that of ordi nary capital. Brynjolfss on and Hitt also found a stro ng relati on

37、 ship betwee n IT and productivity growth and taht this relati on ship grows stron ger as Ion ger time periods are con sidered. Collectively ,these studies suggest that there is no productivity paradox, at least whe n the an alysis is performed across in dustries using firm-level data. The differe n

38、ces betwee n these results and earlier studies is probably due to the use of data taht was recent , more comprehe nsice ,and more disaggregated (firm level rather tha n in dustry or economy level).Most previous sutdies have considered the effects of technology across firms in multiple industries, al

39、though a few studies have considered the role of technology in specifically in the banking industry. Steiner and Teixiera surveyed the banking industry and argued that while large investments in technology clearly had value,little of this value was being captured by the banks themselves; most of the

40、 benefits were being passed on to customers as a result of intense competition. Alpar and Kim examined the cost efficiency of banks overall and found that IT investment was associatied with greater cost efficiency although the effects were less evident when financial ratios were used as the outcome

41、measure. Prasad and Harkere examined the relationship between technology investment and performance for 47 retail banks and found positive benefits of investments in IT staff.While these studies show a strong positive contribution of IT investment on average, they do not consider how this contributi

42、on (or level of investment )varies across firms. Brynjolfsson and Hitt found that "firm effects" can account for as much as half the contribution of IT found in these earlier studies. Recent results suggest that at least part of these differences can be explained by differences in organiza

43、tional and strategic factors. Brynjolfsson and Hitt found that firms that use greater overall IT benefits. Bresnehan, Brynjolfsson and Hitt found a similar result for firms that have greater levels of skills and those that make greater investments in training and pre-employment screening for human c

44、apital . In addition, strategic factors also appear to affect the value of IT. Firms that invest in IT to create customer value . improve service, timeliness, convenience, variety) have greater performance than firms that invest in IT to reduce costs.While these studies are begining to explore how t

45、he performance of IT investment varies across firm, particularly due to organizational and strategic factors, little attention has been paid to the technology decision making process.How Financial Firms Decide on Technology(Part Four )IT Investment DecisionsWhile there is no concise definition of &q

46、uot;best practice" in IT investment decisions, there are a number of consistent arguments advanced in the IT management literature that can be synthesized into an understanding of the conventional wisdom.For the pruposes of discussion it is useful to subdivide the process of IT management into

47、seven discrete, but interrelated processes. The first six processes are oriented around the proposal, development and management of IT projects, while the last process is about maintaining the capabilities of the IT function and its interrelationships with the rest of the business:of IT opportunitie

48、sopport un itiesIT projectsmake-buy decisi onIT projectsIT projectsand Develop the IT Fun cti onThis subdivisi on loosely corresp onds to many of the major issues in IT man ageme nt such as outsourci ng, li ne man ageme nt-IT alig nment, software project man ageme nt, and evaluat ing IT in vestme nt

49、s.In additi on, this list loosely corresp onds to frameworks for the man ageme nt of IT. The primary differe nee is that this list views the IT man ageme nt process as man agi ng a stream of projects rather tha n focus ing on the fun ctio n of the IT departme nt overall or the role of the CIO, the t

50、ypical perspective in the previous literature. For example, a com mon framework used to alig n IT to bus in ess starategy, the critical success factors(CSF) method, in clude three workshops: the first to ide ntify and focus objectives, the sec ond to decide and prioritize on systems in vestme nt, an

51、d the third to develop, deploy and reevaluate prototype systems. Boynton, Jacobs and Zmud(1992) ide ntify five critical IT man ageme nt processes: sett ing strategic direct ion, establish ing in frastructure systems, sca nning tech no logy, tran sferri ng tech no logy and develop ing systems. Rockar

52、t, Earl and Ross(1996) propose eight imperatives for the IT orga ni zati on which can be grouped into man agi ng the IT-bus in ess relati on ship, buildi ng and man agi ng systems and in frastructure, man agi ng ven dors, and creat ing a high performa nee IT orga ni zati on. Thus, while previous wor

53、k has subdivided the process in differe nt ways, collectively the studies cover all the seve n processes we exam ine.We will discuss each of the in dividual points in detail below.Ide ntifica nt of Opport un itiesHistorically, the IT function was primarily reactive, resp onding to requests by bus in

54、 ess un its. A bus in ess un it. A bus in ess un it man ager would ide ntify a n eed for a new system or a repair/e nhan ceme nt to an existi ng system and com muni cate this n eed to the IT fun ctio n. The IT pers onnel would the n evaluate the idea for tech nical feasibility and develop a project

55、proposal in clude an in itial determ in ati on of resource n eeds, cost, and delivery time. While this makes effective use of IT pers onnel in evaluati ng particular ideas, it provides only a limited role for IT pers onnel to aid in the iden tificati on of tech no logy-based bus in ess opport un iti

56、es.For that reas on, some authors have suggested that the IT function should play a larger role in the ide ntificati on of tech no logical opport un ities. For example, Davenport and Short (1990) emphasize that IT capabilities should inform bus in ess n eeds as well as the bus in ess un its placi ng

57、 dema ndson the IT function. Fockart, Earl and Ross and Boynton, Jacobs and Zmud ide ntify the role of "tech no logy sca nning" and "tech no logy educati on" as an importa nt comp onent of a cen tralized IT departme nt; they argue that in formatio n systems specialists should be

58、repon sible for evalusti ng new tech no logies for bus in ess applicability since bus in ess un its will gen erally lack the resources or the tech no logical capability to perform these evaluati ons themselves. Moreover, cen tral IT is best positi oned to educate the end uses to make them good "

59、;custmers" of the cen tral IT group.In the banking in dustry, IT may be able to play an additi onal role in coord in at ing tech no logy. Because banks and other finan cial firms are ofte n man aged with largely aut onom ous bus in ess un its (for example, banks are ofte n divided into product

60、lines -cash man ageme nt, i nvestme nt-or along customer segments-wholesale, commercial, retail) only the cen tral IT function will have a perspective over the porfolio of systems projects and capabilities. One critical role in this respect is the provisi on and developme nt of the shared IT in frastructure