September - 2001 - issue > Cover

What is happening with IT spending in large U.S. financial companies?

From a Wall Street point of view, with the market contraction every single Wall Street firm obviously has decreased revenues over the last two to three quarters. Last quarter was particularly tough. Now, IT spending was up over the last three years dramatically because of a lot of small discount brokerages that had sprouted all over the place. The whole Internet revolution on Wall Street was moving toward the direction that seemed as if the big brokers — Salomon Smith Barney and Merrill Lynch — would be “dis-intermediated” from the customers, meaning, you don’t need brokers in the middle; you need customers and the end point. So, to deal with that a lot of big companies were spending a lot of money on their IT efforts to do things so that their traditional businesses were not threatened.


However, right now all these companies have to answer to shareholders and as the revenues are down, the companies have to reduce overall expenses in order to keep their bottom line somewhat reasonable. The biggest non-compensatory expense of any reasonable-sized company usually is technology. It is probably the easiest place to cut or, more interestingly, to postpone. For example, instead of saying we will do this project in a month, companies are saying we will do it in six.

In what specific areas is spending down?
Obviously, on the hardware side. Capital expenditures are seriously down and that is across both the computing power in terms of servers, and also networking. The other side that has been hit is software development, which is what I deal with on a day-to-day basis. We are looking to reduce spending specifically on very high-priced consultants. Citigroup also has a very large software facility in India, so we are trying to outsource to India whatever we can and cut spending in the U.S. and London and other places in the world.

Within this, what areas are you doing development in?

Our major development is in trade-through processing. So, in the whole process, in the whole chain of events that goes into completing a trade from beginning to end, wherever breakages occur, wherever there is manual intervention, we are automating those things. Instead of sending all our order flow from customers to various exchanges, in many cases, we are building systems to deal with it ourselves. We want to be the end point. Citigroup comprises companies that service every piece of a person’s financial life, be it banking, insurance, borrowing money, credit card, buying/selling stocks, and getting mortgages. Basically, we want to provide a single face to the customer — that requires a lot of integration of the company’s systems. The company I work for has changed its name three times, because it has merged. So we are doing a lot of integration work and trying to get them to be coherent and bring the synergies that a merger of this magnitude was supposed to bring to shareholders and customers.

What is the current positioning and future of the small and medium-sized service companies and the IT consulting companies in the New York, New Jersey area?

We as a company have very few outsourced projects with non-Citi entities. As far as consultants go, in the middle of last year, we were getting a lot of people from India coming in through these companies that were desperately trying to hire people. What happened was that the skills necessary were tailing off. The quality of people toward the end of the boom was definitely reducing. In spite of this, we were paying very significant amounts for them. That was the first problem.

The second one was that they were all on H1 visas and in many cases they weren’t hireable. The whole labor certification process in New York and New Jersey was taking a lot of time. So we couldn’t sponsor people. A combination of all these things led us to let go of all these consultants who were charging several hundred dollars a day. That’s a lot of money to be paying consultants who were claiming to be EJB [Enterprise JavaBeans] experts, but had never worked on it.

So, what is going to happen to these companies now?

Smaller ones may disappear and the bigger ones consolidate. The number of companies will reduce dramatically. I don’t think this is the end of the world. For Indian programmers this is going to be a major opportunity. If there’s no politician meddling in this, the private sector in India has the capacity to utilize this slowdown. Downturns are the times when fortunes are made. Not everyone makes them, but the smarter companies actually can become stronger. As an end-user, Wall Street is probably the second biggest, in terms of using sophisticated technology. NASA is number one. Huge numbers of companies cannot survive in this economy because of rising technology expenses — this is the worst problem that every CEO is facing today. The opportunity that Indian companies in India hold is to somehow be able to deliver to them at a much cheaper cost, but keeping the quality intact. The turnover rate in India that was out of control a year ago is now down to two to three percent per year. The EJB technology holds a bit of promise as it allows us to build re-usable components. There is an opportunity in the market for smart companies to start to build generic, user-friendly components under the EJB spectrum.

Even companies like us are constantly buying middleware, products that we don’t have to build on our own. That’s a product side that a smart Indian company can probably work on. Silicon Valley is not satisfying that need right now. The EJB technology is very new. So you should take your biggest application server vendors who are EJB compliant — BEA and WebLogic — and if you can write some “beans” as they are called, that run on a BEA Web Sphere, it should be just plug and play.

Indian companies can keep providing outsourcing services, namely people. But in terms of product, instead of focusing on turnkey products, they should concentrate on building components, and then have companies such as us finish it up by plugging them together.

What characteristics does an Indian company need to make use of this opportunity?
They need to have some history and track record. ISO certification is important. People need to be professional — some people that we hired from India went for a vacation after just a couple of months. They need to have good salesmanship and marketing skills. Some companies will require a senior marketing executive who is already in the United States because marketing here is obviously hard.

From the point of view of technology, what does e-business mean for Citigroup?
The aim is to allow a customer to come to one place - be it on the Web, through a phone, at a branch office - and get complete financial help.

Overall, when do you think technology spending will recover and which parts will see the recovery?

Things will remain slow for a year. The stock market may recover in the first quarter of next year and everything else will follow in a quarter or two. It cannot be an immediate recovery with the stock market. For us, hardware was impacted. I think that tech spending will be on hardware and networking.