The case for system consolidation

Assessing the challenges and opportunities

Read this article and learn about

  • Why firms are now looking at their front office system strategy
  • The business drivers for change
  • The operational benefits of change
  • The types of solutions that are being considered and why
Dan Pitchenik
Jeremy Hurwitz, Managing Director - Accenture
Jeremy Hurwitz
Dan Pitchenik, Managing Director & North America Capital Markets Lead – Accenture

Accenture - The case for system consolidation

Jeremy Hurwitz & Dan Pitchenik, Managing Directors, Accenture, explain the drivers behind the move from best-of-breed towards system consolidation in the investment management industry. The benefits of consolidation make a strong case for simplifying your operation model.

Changes in investment strategy, the pursuit of growth and expansion into new markets, the need for data consistency, and a growing regulatory scrutiny are leading asset managers to re-evaluate their use of front office systems. This article describes these drivers and the benefits change can bring.

Historically, asset managers have adopted a best-of-breed approach to their front office platforms, whereby specific systems are deployed for specific asset classes, geographies, or markets. Whereas this may have been an effective strategy in the past when there were a limited number of specialist systems able to meet these very individual demands, the limitations of the best-of-breed approach in a complex world are becoming increasingly clear.

The move towards simplification and consolidation

Market developments in recent years have shown up the limitations of the best-of-breed approach and emphasized the need for a different strategy.

  • Firstly, there is a continual focus on cost efficiency and firms are no longer able to simply buy a new system on the whim of a portfolio manager that decides he wants to invest in a new instrument.
  • Secondly, years of buying separate systems have left firms with a sprawl of systems that are expensive to maintain, difficult to integrate, and nigh on impossible to adapt without adding further to the sprawl.
  • Thirdly, there are more integrated systems available now to firms enabling them to bridge any gaps in functionality.

Consequently, a growing number of asset managers are looking to adopt a new approach – one that rationalizes the number of systems they use, simplifies their operating platforms, and reduces their total cost of ownership.

At the same time, though, the low interest rate environment and intense competition have pushed portfolio managers to adopt more complex strategies and they subsequently need systems with enough flexibility and functionality to match their ambitions.

The benefits of consolidation

By consolidating applications and integrating data services, firms could increase data visibility and transparency, reduce system complexity and risk, increase operational efficiency, and reduce costs.

Fewer systems means fewer software upgrades, simpler data integration, less manual intervention, and better data transparency—all of which have the potential to lower operational costs and risks. System consolidation may also translate into lower data acquisition costs thanks to fewer platforms, fewer users, and fewer requests for data from data providers. Finally, an integrated front-middle office, middle-back office, or front-to-back office could improve a firm’s response time when it comes to regulatory compliance, or bringing new investments and products to market.

A case of déjà vu, but different

In some ways, it feels like the asset management industry has been here before. Large vendors are offering firms a single integrated platform that could decrease their technological footprint, reduce system complexity, decrease risk, and lower operational costs.

Two things make this latest move toward system consolidation different from the mainframe era of the 1980s:

  • The technology: Today’s consolidated solutions are more agile, offering vendor-supported configuration flexibility previously available only through custom code. Firms can have their data hosted on site or in the cloud, managed in house or by a service provider. Instead of a green-screen interface, they have an opportunity to tailor the client user experience. So, while the freedom of choice and flexibility offered by a decentralized, best-of-breed approach is being reduced, it’s not being eliminated entirely. Technological advancements have made it possible to still have highly customizable front-end user experiences—even as the back end moves to more centralized control.
  • The opportunity: As firms look to refocus on core competencies and spend less time on basic functions, the elimination of legacy application debt - whether through system consolidation or outsourcing - presents an opportunity to move toward the next generation of technology, including robotics process automation, artificial intelligence, and predictive analytics.

    How to choose wisely

    In this era of consolidation and cost compression, vendor choice becomes critically important. Firms are making bigger bets on fewer service providers—so while there might be lower risk on the technology stack, there could be higher risk on the vendor side. If your vendor stumbles, your firm could suffer the consequences.

    Before making the leap, consider these four key questions:

  • Are you willing to trade agility for security? Consolidating with a single integrated vendor could mean choosing stability over speed. Structure and control could restrict the pace at which service providers—and their clients—can evolve and advance. If your firm wants to stay on the leading edge of technology, then give careful consolidation to your vendor’s ability to innovate and stay ahead of the market. 
  • Is your chosen platform truly integrated? Not all vendor platforms might be truly integrated. In some cases vendors might have acquired and linked different platforms together with varying degrees of straight through processing or core integration. Depending on your needs, this may or may not matter. If it matters, check under the hood to make sure you’re being sold true integration.
  • Are you confident in your vendor? Vendor due diligence is essential. Research your service provider’s strategy and architecture design. Understand what their vision and growth plans are for the future. Are they investing in research and design? Are they at risk of being acquired by a consolidator? Proactively monitor and mitigate vendor risk by establishing a relationship instead of a traditional client-vendor arrangement.
  • Are you prepared for disruption? The idea that single vendors can control the market for an extended period of time is a relic of the past. One only has to look to Airbnb in the hotel industry or Uber in the transportation industry to understand that disruption is a given in today´s markets.

History shows that the cycles between centralized versus decentralized, and best-of-breed versus integrated, are likely to continue to ebb and flow. As soon as the pendulum swings too far in one direction, there is likely to be an industry or business driver demanding a reverse reaction. We do know that growth spurs innovation and innovation requires agility, so over-consolidation could run the risk of limiting business speed and agility in reacting to change.

System consolidation is more than an IT exercise. It requires a well-conceived business strategy, operating model changes, and ongoing metrics tracking over time to confirm results are not only achieved, but maintained. There’s a business case to be made for consolidation; many asset management firms have chosen to make the move for greater governance and control. But leap too soon - and consolidation could come at a price.

About the authors

Dan Pitchenik is a Managing Director at Accenture and leads the company’s North America Capital Markets practice. He advises leading investment banks and investment management firms on their most important initiatives, working across revenue producing divisions, operations and technology. For many years, Dan has led transformational initiatives within the industry including operating model restructuring, post-merger integration, IT strategies, risk management and product-based growth strategies.

Jeremy Hurwitz is a Managing Director at Accenture and previously InvestTech Systems Consulting's CEO and Founder. Jeremy has over 25 years of experience in asset management and investment technology working with institutional investment organizations. He has extensive knowledge across a wide range of investment business models, technology platforms and architecture services. In the past 15 years, Jeremy has become a thought leader in Enterprise Data Management (EDM) and has led many global strategic EDM transformation programs, including the implementation and optimization of the leading EDM vendors’ platforms and services.

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