Read this article and learn about:
- The rise of the operating model
- Disruption by technology
- The evolution of automation
- Why insourcing processes gives control of data
- The ability to leverage new technology to stay competitive
Age Bakker, Chief Operating Officer, Norges Bank Investment Management (NBIM)
Kjell Johan Nordgard, Global Head of Systems and Data, Norges Bank Investment Management (NBIM)
How should investment managers position themselves to retain competitive edge in the future? At Norges Bank Investment Management (NBIM), we believe that a key element to this challenge will be an organisation’s ability to release the huge potential represented by the rapid evolution of Information Technology (IT). The keywords in this process are automation and information management.
The introduction of computer technology
Back in the early 1980’es, computer technology started in earnest to affect operational processes in many industries. Before this, computers were mostly something associated with universities, research institutes and the odd geeks. However, with the introduction of commercial mainframe machines like AS400, VAX and UNIVAC the landscape started to change, and when the PC a few years later started to become more or less part of common household furniture, most industries took to this new technology to get rid of paper-based processes.
The software industry has traditionally always lagged behind the hardware industry, especially when it comes to standards. In the financial industry, this created a setting where everybody developed their own local software. The systems and solutions developed were often aimed at resolving specific needs for different business users, hence operational models evolved with lots of legacy applications, some of which were integrated via some electronic data transfer, but most of them were operated by re-keying data. In addition to in-house IT and software development staff, financial institutions had to keep significant back office support teams in order to keep operations running. This “semi computerized” operational model was not only resource demanding in terms of development and technical maintenance, but also in terms of human operation and usage.
How should investment managers position themselves to retain competitive edge in the future? At NBIM, we believe the answer is the ability to leverage the huge potential represented by the rapid evolution of Information Technology (IT). The keywords are automation and information management. Age Bakker, Chief Operating Officer, and Kjell Johan Nordgard, Global Head of Systems and Data, Norges Bank Investment Management (NBIM)
Disruption by outsourcing
The systematic inefficiencies did not go unnoticed. The big service banks, already set up for large scale back office processing, observed that their clients were doing almost the same things, just with different systems and methods, and spotted a business opportunity. Simply put, the message was; “Let us do these repetitive tasks and allow you to focus on your core business, while cutting your costs.” Similarly, on the IT side, large IT hosting and servicing companies emerged in Eastern Europe and Asia where technical competence was cheap.
In the 90’ies and early 00’s, these trends led to outsourcing disrupting the market for investment management operational processing. While technology continued to evolve, the market for proper software solutions stayed fragmented and immature, imposing limitations on the possibilities for automation.