By Anders Kirkeby, Technical Fellow, VP – Enterprise Architecture, SimCorp
Looking across the investment management industry, technology complexity probably hasn’t changed much over recent years. What is changing is the individual investment manager’s willingness and ability to accept complexity.
Why should you live with high complexity? Least of all in areas which are not core to your business? Your core business is generally to make sound investment decisions, not to run IT. Cloud offers the chance to shift some of the complexity to somebody else - the cloud provider – so you can outsource complexity.
The live experience of IT outsourcing may be mixed, but there is a key difference between traditional “lift and shift” outsourcing to a private cloud and migration to a public cloud. The difference is that private cloud generally means a fixed pool of dedicated hardware with manual processes to change anything, whereas public cloud is about a shared pool of hardware operated at an extreme scale with everything automated and paid for by consumption.
The root causes of technology complexity
Let’s step back and focus on how technology complexity arises in the first place. Technology complexity is particularly high where multiple operational systems are employed, which must interact in a timely and correct manner. Previously, it was not uncommon to see systems that were 2-3 days out of sync in some cases. Now, the expectation is most often that systems interact directly in real time – also across organizational boundaries. Many systems mean even more interfaces. These need to be maintained whenever a component is upgraded or its configuration changed.
The solution to this brittle enterprise architecture used to be initiatives like enterprise service buses, but these have often underdelivered on their promises. A better solution is to move to far fewer systems or better yet, a single system. The result is few or no intersystem interfaces that need to be maintained. Some of that maintenance should go away with the introduction of sensibly well-governed, versioned APIs.
Even so, you are still left with interfaces to third-party systems outside of the organization. Each represent distinct market infrastructure so the scope for simplification is very limited. The only option to reduce complexity here is to move to managed interfaces in the cloud. Such connectivity, combined with standards-based APIs to the one or few systems, provides a powerful simplified platform, which is less dependent on specialist skills for maintenance and adapting to evolving needs.
The cloud is offering easier, cheaper, and better solutions to the front, middle, and back office. However, the journey to the cloud can be complicated and the end game has to justify a fundamental rethinking of architecture.
“Rearchitecting the Capital Markets: The Cloud Cometh” by Brad Bailey and Arin Ray, Celent report, 25 May 2017
Cost and risk concerns pushing firms to the cloud
A main challenge for many investment managers is to establish a technology platform that enables scale and growth of the business – but how do you provide systems that have the right size at any point? Traditionally, and still the case in true private clouds today, you had to commission hardware to the high-water mark of your needs and if the business or volumes grew beyond that, well, then you had a problem. Variations of public cloud offers a solution - elasticity. Making sure you have enough of the right hardware each minute then becomes somebody else’s problem. On-demand cloud capacity is not cheap, but in many cases, there is ample opportunity for optimizing utilization to attain close to the same or even lower costs, while having none of the trouble.
Investment management adoption of the cloud
In 2017 there was an uptick in serious discussions about using cloud for critical systems. The above chart shows the investment management system preferences in a spring 2017 survey where 62% reported a cloud preference. Just a year ago, I am sure these numbers would have been far more conservative. In 2018, I expect that we will see early adopters deliver the first successful cloud deployments of previously on-premise-only systems. In doing so, they will learn a lot about making cloud solutions cost effective. Their experiences will be followed by the next group of firms starting to look at cloud, and by vendors looking to support their clients and advance their own cloud strategies. This trend has only just started, and beyond, it is bound to pick up even more pace.
What can you do if you have not begun your own cloud strategy work?
Firstly, you need to invest time in understanding the options and implications for cost and new types of constraints. The good thing is that the combinations of mature cloud platforms, system openness, and a growing set of managed service offerings means there is no reason to settle for a one-size-fits-all approach. It should be possible – and is definitely advisable – to work through the options to find the optimal approach for your firm.
The investment management space has had hosted solutions for many years in some areas, but the industry is relatively late to embrace public cloud. It is a different way of working with different types of contracts with vendors and service providers and different cost concerns to map out. Establishing operational maturity in these areas does not happen overnight.
So, while there may be no explicit urgency to make your firm “cloud ready”, I strongly advocate getting started now to build a deeper understanding of how public cloud could support your business. Cloud can help you reduce complexity as well as bring you a new level of cost effective scalability. Cloud may also allow you to outsource non-core activities and it could help ease integration between systems. None of this happens by magic though (magic being in limited supply even in the cloud); it will require cooperation between investment management firms, software vendors and cloud providers to leverage the potential of cloud.
Technical Fellow, Vice President – Enterprise Architecture, SimCorp
Anders heads up the Enterprise Architecture and SimCorp Technology Labs functions. Prior to SimCorp, he was a developer and architect for several years, and had a stint as a start-up CTO. At SimCorp, he has held various technology strategy and product management roles, being the main driver behind initiatives like user experience, Alerts Inbox, Dashboards, HTML5, and mobile devices. Currently, he is responsible for the long-term longevity of the platform, involving cloud-based transformational challenges.