Citigroup's Doomed IT Strategy

| About: Citigroup Inc. (C)

Why do I get the feeling I’ve seen this movie before?

Citi had originally estimated it could save $3bn over three years by rationalising its operations and technology functions, which employs 140,000 people including 25,000 software developers - more than many IT companies.

But recent progress in reducing overlaps between systems, and linking IT infrastructure across businesses that had previously run individual systems has prompted Citi executives to sharply increase its cost-saving target.

I’m going to go out on a limb here and say this ain’t gonna happen. The first thing any new management team or management consultancy does, on looking at the nightmare that is Citi’s web of incompatible IT systems, is decide that they should be unified and rationalized. And the second thing they do is blame Sandy Weill for the current mess. (Yes, that’s in the article too.)

The problem, of course, is that these legacy systems — all of which support vital operations and databases — won’t just die and go away. Citi’s IT honchos have the same problem that Microsoft’s do: everything they do needs to be backwards-compatible with everything that went before, or else they have to build some brand-new system which nobody currently knows how to use and into which all the old data can be seamlessly imported. Both options are so complex and difficult as to be, practically speaking, impossible — especially in a dysfunctional company like Citigroup which is simultaneously putting significant resources towards splitting itself up as opposed to integrating itself.

It’s a rare sign of good news within Citigroup that executives reckon there has been “recent progress” on the IT front. But extrapolating from that progress to billions of dollars in new cost savings is bound to prove overly ambitious.

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