Technology is playing an increasingly vital role in the competitiveness of financial institutions. Many are beginning to look to IT groups not only to support their current activities, but also to open up and develop new business. Such a mission calls for a new kind of IT organization. Shifting its focus away from the low-value task of actually writing software, the IT group of the future will be able rapidly to develop, design, and integrate new products and systems.

Outsourcing has long been used by companies that cannot achieve scale in their data center operations or telecommunications. However, the outsourcing of applications development is becoming more and more important for even the largest financial institutions. While outsourcing is not a panacea, IT groups do need to develop explicit strategies distinguishing the functions that will be performed internally from those that are better sourced outside. CIOs need to understand the specific objectives and rationale behind any outsourcing activities, and how these fit in with the group’s overall technology strategy.

The IT units that emerge are likely to be much smaller than today’s organizations, and much more flexible. They will act as...