Hsbc and Citibank

rP

os

t

HKU753

ALI FARHOOMAND

op

yo

DOES IT PAYOFF?

STRATEGIES OF TWO BANKING GIANTS

You can see the computer age everywhere but in productivity statistics.

- Robert Solow (1987)

In the previous 20 years, there had been a debate concerning whether or not IT paid off in the

long run. While some questioned the positive contribution of IT to productivity, others

attributed the so-called IT paradox to measurement methodology and to the lack of

measurable data, such as increased quality, variety, customer service, speed and

responsiveness. To make matters worse, a controversial article published in Harvard Business

Review argued that, as IT was being commoditized, the opportunities of gaining IT-based

competitive advantages were rapidly disappearing (Carr, 2003). If this was true, then

companies should spend less, wait longer to invest in more matured technologies and should

be more careful about the costs of IT investments.

Do

No

tC

Financial services firms had long been among the most intensive users of information

technology (IT), starting in 1867, when the stock ticker began bringing current Wall Street

information to Main Street. Starting in the 1980s, the development of the Internet and

telecommunication technologies had further facilitated the development of new banking

products and introduced alternative delivery and distribution channels. It was estimated that

IT spending accounted for 20-25% of non-interest costs and around 6% of annual revenue for

financial institutions (Kauffman and Weber 2002). The global banking industry was expected

to spend US$241.2 billion in 2007 on IT, including hardware, software, IT services, internal

services and telecommunications (Moskalyuk 2007). Despite these behemoth investments, it

is not all that clear whether IT investment pays off for banks. It is also not clear whether

these investments would improve just the operational efficiency of banks or if they would

also enhance...