BST North America Panel: Will Cloud Kill the IT Department?

There is no doubt that in the years since cloud technology has come into play in the capital markets the scalability of it has allowed firms to cut infrastructure costs. But as more businesses outsource different solutions to the cloud, is there a chance the cloud could stand in for an entire IT department?

That was the point made by one audience member of the cloud panel discussion at the Buy-Side Technology North American Summit in New York.

Cloud Taking Over?
During the question-and-answer period of the panel, Simon Hazlitt, co-founder of Majedie Asset Management, made the case for the cloud eventually taking over for firms' IT departments within the next decade.

"Clearly, we're talking Christmas with a lot of turkeys in a room, and I appreciate that," Hazlitt says. "That's why the cloud is this difficult thing that IT are talking about. There are some rather disingenuous arguments about elasticity and spinning things up quicker, because that's the only way that you can position it as an IT department."

The panel, which was made up of Nathan Boylan, formerly the head of IT operations at Lord Abbett & Co.; Jay Leek, Blackstone's chief information security officer (CISO); Tara Castleberry, head of architecture with AIG; and Mike Lobosco, director of STP Product Management for Advent; and moderator Elliot Noma, managing director of Garrett Asset Management, made its counterpoint for why cloud and internal IT departments can coexist.

Still a Place for Internal IT
Leek said he disagreed with Hazlitt, using a friend's experience as a CISO at a Fortune 10 company to make his point.

The firm, which Leek did not name, implemented an outsourcing initiative in the late 1990s that was a 70–30 split between third-party and in-house technology. Recently, the same company has been looking to reverse, bringing more technology back into the company.

"They're not getting the efficiency they want," said Leek. "Their business productivity is not where it needs to be, and they found that they don't have anybody that knows how their business runs. ... It's a serious problem for them, because they have these architects and thought leaders, but no one understands exactly how it works."

Leek said his example might be a bit extreme, and IT departments should probably shrink, but he can't see firm's entire technology divisions disappearing.

While Lobosco said he's seen an uptick in outsourcing, starting with smaller firms and bleeding into larger institutions, it's really a case-by-case situation depending on the type of business.

"Firms of certain profiles are going to have the ability to have IT resources do more stuff and have more control and to better leverage technology in certain ways," Lobosco said. "It's basically 'what kind of firm are you?' is ultimately what the question is about, right? Are you willing to give up some things to gain some things in different places? I don't think the cloud is ultimately going to be a one-size-fits-all thing."

The panel wasn't completely against Hazlitt's point, as Boylan said he could see small firms heading in that direction. Larger businesses, however, have the ability to compete with third-party technology providers, according to Boylan.

Boylan said the most change will occur in specialized areas of internal IT departments. Being well-rounded as employees is key, as firms look to cut costs at every opportunity.

"If you are focused on a very siloed, commodity-based technology ... those are all skills that can now be bought off the shelf," Boylan says. "Either you become more well-rounded technologists or, potentially, you'll end up working for a service provider."

The Bottom Line

• The development of cloud technology has led to firms outsourcing so much that they could potentially eliminate their entire internal IT department.
• The size of a business is still a huge factor in whether it makes sense for a firm to carry a larger technology division. Larger firms' internal technology departments can compete with third-party vendor solutions.
• One area where there seem to be cutbacks in most firms are niche technologists working on solutions that companies are now buying off the shelf.