Unlocking the banking technology workforce

| Article

If banks are, as the familiar saying goes, technology companies as much as providers of products and services, are they managing their technology workforce accordingly? Indeed, just about every activity in modern banking organizations is powered by digital applications, informed by advanced analytics, or streamlined by automation. Discussions of apps, application programming interfaces (APIs), and the data-driven future are becoming almost as commonplace in the boardroom as they have been in the IT department. Nevertheless, we find uneven progress in transforming the technology workforce to make the words a reality.

As banks strive to align their organization with their perspectives on technology, they face a common challenge: the demands on the technology function often outweigh what the banking organization can deliver within the technology budget. However, the problem is not simply budget size. We estimate that banks on average convert just five to ten cents of every dollar of tech spend into additional business value.

The root causes of this problem lie in the balance, or “mix,” within three dimensions of the technology workforce:

  • Tech spend. Priorities are often biased toward daily run-the-bank activities and regulatory compliance, rather than customer-focused innovations.
  • Tech roles. By far the most roles in the technology department are noncoding jobs focused on orchestrating and administering internal processes.
  • Tech talent. Engineering talent is skewed toward less experienced, less productive individuals, often as a result of emphasizing cost when negotiating for contract engineering services.

We estimate that banks on average convert just five to ten cents of every dollar of tech spend into additional business value.

Some banks have reconfigured their mixes of spending objectives, tech roles, and talent levels, and we estimate this lifts their value-adding tech spend to as much as 15 to 25 percent of their overall technology budget. These banks have enjoyed faster time to market and higher levels of employee engagement. However, these institutions are few and far between. The majority of banks still need to find ways to recalibrate the three mixes in order to deliver more business value without significantly increasing the technology budget. In an increasingly competitive landscape, the risk of not doing so has become too high to ignore.

Roots of the problem: Spend mix, role mix, and talent mix

To better understand how leading banks achieve more with their technology budget, we looked at how their workforce is configured across the spend mix, role mix, and talent mix.1 Banks that have reconfigured all three have achieved a significant uptick in output from their technology budgets, while others struggle to meet the demands on their technology organization.

At a typical bank, the spend mix favors run-the-bank priorities, including technical debt and legacy infrastructure, which account for as much as 70 percent of spending (Exhibit 1). Amplifying this, only 25 to 40 percent of employees assigned to business priorities are engineers, with the role mix biased toward orchestration, administrative tasks, low-value operations, and people management. A common underlying dynamic is a significant distance between the IT function and the business, requiring layers of translator roles. In addition, complex governance frameworks demand time-consuming form filling and highly manual processes—for example, in the software delivery life cycle.

Traditional bank’s workforce configuration limits its potential.

Finally, when we look at the range of competency from novice to expert, the majority of the engineers assigned to business priorities tend to be at the lower end of the range. At a typical bank, some 60 to 65 percent of engineers fall into the novice or advanced-beginner category, while only around 10 percent are experts. We find that this pattern often results from banks combining external hiring with contract positions awarded to vendors based solely on pricing as opposed to a wider set of productivity criteria.

While the majority of banks struggle to find an effective mix of spend, roles, and talent, leading institutions have found ways to optimize them, freeing up room in the budget for transformative activities (Exhibit 2). Compared with traditional banks, top performers spend less of their budget on IT run-the-bank and regulatory compliance, and more on value generation. They have more engineers who write code, and fewer orchestrators or managers. And they directly employ a significantly higher percentage of engineers who are categorized as “proficient” and “competent” and a lower percentage of those who are “novice” and “beginner.”

To get more value from the tech workforce, invest in change, increase the share of engineers, and seek proficiency.

We estimate that the combined impact of these three effects can translate into a three to five times increase of IT budget allocated to transformative, value-added work. Leading banks have measurement mechanisms on all three mixes, cascade the results throughout the IT organization, and provide transparency to the chief information officer (CIO), COO, and the board.

Levers for change

To recalibrate the spend, role, and talent mix, banks at the cutting edge have focused on four levers: the operating model, talent management, platform-oriented architecture, and automated or cloud-based infrastructure.

Changes to the operating model and adoption of cloud-based infrastructure primarily drive a shift in the role mix by enabling technology teams to become more autonomous, with less orchestration and administration. The talent management lever optimizes the talent mix by rebalancing the engineering workforce toward a highly skilled set of internal engineers. Finally, platform-oriented architecture and cloud-based infrastructure improve the spend mix by reducing technical debt and running cost, while boosting the reuse of application assets leading to synergies on regulatory changes.

Joint business/IT operating model, coupled with new ways of working

The established operating model for IT work is to have permanent central functions govern processes/controls and to convene temporary project teams of otherwise-siloed business and IT members for new IT projects. Leading banks take a different approach. They organize into durable joint business-technology teams that work in an agile way and are directly responsible for products or customer outcomes. This operating model enables banks to reduce translator and administrative roles significantly. One global bank moved both business and technology to this model, guided by team-level workforce blueprints to ensure effective rebalancing of their technology workforce role mix.

Another fruitful strategy is to migrate away from manual deployment of IT operations, which consumes engineering time, to a highly automated DevOps environment. This combines software development and IT operations, freeing up engineering capacity, reducing risk, and cutting the time spent on resolving manual errors.

Engineering talent

Banks increasingly find themselves in stiff competition with other sectors for top engineering talent. In response, they need to rethink their HR models. Some leading institutions have created technology talent hubs, or collaborations between IT and HR departments. The hubs help attract talented engineers by encouraging teams to contribute to open-source coding initiatives, participate in technology conferences, and reach out to developer communities and universities. They improve interview processes, for example, by introducing coding exercises, by ensuring engineers are on interview panels, and by making faster offers to candidates.

Beyond recruitment, other IT–HR initiatives aim to improve talent development and retention. To continually improve the talent mix, some organizations are aiming to introduce quarterly or biannual assessments of the full technology population, comprising reviews of engineers by other engineers. In addition, they have created clear career paths for all technology roles, including senior “sole contributor or distinguished engineer” paths for expert engineers—meaning they do not need to become general managers. Finally, some banks offer targeted engineering training, events, and on-the-job coaching.

Platform-oriented architecture

Many banks have accumulated a huge number of IT applications, resulting in inefficiencies and risks. They may wind up with duplicate functionality for different segments, channels, products, and countries, so run-the-bank and regulatory costs mushroom. Often, the same applications are built multiple times, creating complexity that undermines resilience and sparks incidents that require remediation.

Resolving these issues is challenging. In the past, applications were built for a particular combination of customer segments, products, and countries, not as cross-cutting platforms designed for extensibility. Moreover, effecting convergence requires diverting the original application team from more valuable tasks, such as expanding functionality.

Leading banks have resolved these challenges by moving toward platforms that are both designed for extensibility and “productized”—meaning they become internal products with their own pricing and documentation. This enables teams to build new applications without time-consuming meetings and governance requirements, instead using an internal interaction model similar to third-party software-as-a-service providers.

Automated infrastructure or public cloud

While many banks are starting to move to the public cloud, the majority of workloads remain hosted in internal data centers. In the near term, many of these workloads may not have a viable business case to transfer them to the public cloud.

As a result, leading banks have—in parallel to their public cloud efforts—transitioned their internal infrastructure from ticket-based models requiring extended lead times for new environments and day-two activities such as patching, to API-based approaches backed by automated provisioning. This effectively applies the operating model of the public cloud to the banks’ own data centers. It also prepares the engineering workforce for the public cloud paradigm, accelerates time to market, and reduces nonengineering roles required to run and change the bank.

If banks are to continue offering clients differentiating technologies, their technology departments need to operate more efficiently and effectively. Banking CEOs, COOs, and CIOs should identify where they stand on their technology workforce spend, role, and talent mixes, and launch interventions accordingly across the operating model, architecture, infrastructure, and talent management. Leading banks have shown that effective execution can deliver increased value from technology investments in 18 to 24 months.

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