Read this article and learn about:
- Why managing vendor risk is more critical than ever
- How the vendor playing field has evolved and how to quickly assess risk
- Best practices for the search and selection process
- Steps to mitigating risk and maintaining a vendor relationship over the long term
About the author:
Tom Secaur, Global Chief Operating Officer, Citisoft Group
The management and evaluation of vendor and service provider risk has never been more important than it is right now in the investment management industry.
A number of trends in the vendor playing field are the drivers behind this situation:
- the ongoing merger and acquisition activity in the marketplace continues unabated;
- high-profile vendor and service provider failures continue to make news of the unwanted variety;
- widely used systems and applications are slated for retirement with little to no warning signs;
- and recently acquired applications aren’t keeping pace with the industry due to vendor neglect.
Furthermore, the investment management marketplace is being transformed by a variety of factors including globalization, product diversification, and complex regulatory measures, all of which necessitates an increased reliance on external vendors, suppliers, and service providers. The time is now for asset managers to take stock of their exposure to what is undoubtedly a vast network of third-party providers within the technology and operations ecosystem.
A brief history of vendor risk
The buy vs. build conundrum
It wasn’t that long ago that firms, when evaluating the need for enterprise software, first needed to answer the question of “buy vs. build”. Building applications was seen as a competitive advantage and differentiator across several functions in the investment management lifecycle; many of these systems were highly customized with bespoke functionality that made sense for financial institutions at the time. The industry has largely moved away from this model due to a variety of factors, not the least of which was the expense of supporting such an infrastructure and the inability to scale and keep pace with the explosion of financial products and the highly regulatory culture that dominates the financial markets today.
Asset management firms now must evaluate enterprise software and application requirements based on not only the functionality inherent in a packaged solution or service, but also how best to deploy new technologies. The “buy vs. build” conundrum has evolved to include “buy vs. build vs. ASP/ SaaS vs. outsource,” which has in turn introduced a proliferation of vendors and third-party service providers of varying shapes and sizes to the discussion of how best to implement an operating model that is built to adapt to the shifting sands of today’s global marketplace.
Mergers and acquisitions reshape the industry
The vendor and third-party providers that cater to our industry have gone through multiple phases of expansion and contraction over the last decade. Vendor applications covering virtually every aspect of the investment management lifecycle have been merged, acquired and in some cases ‘sunset’ by their parent companies. The list of ‘legacy’ vendor products that have been acquired in the past few years is staggering and too lengthy to list here. However, any asset manager would be challenged to name a significant area of their IT application model that has not been impacted by an acquisition of a key piece of enterprise software in the past 30 months.
… any asset manager would be challenged to name a significant area of their IT application model that has not been impacted by an acquisition of a key piece of enterprise software in the past 30 months.Tom Secaur, Global Chief Operating Officer, the Citisoft Group