Why system consolidation works (and makes sense)

Steve Jobs saw an opportunity here, what if these tools could be consolidated into one or two handy items, how much easier would our lives be? I did not entirely buy into his vision and even when the first generation iPhone in June 2007 graced our lives, I waited until my friends convinced me that my life, and my back, would greatly improve by this technology. Needless to say, I now have a smart phone for both home and work as well as an iPad to manage my hectic work life. All these devices integrate seamlessly and provide my family with the information required because they operate on the same technology platform.

Although the consolidation of disparate systems for investment managers makes sense, why is there still a debate around one system versus say, ten disparate systems? Why expose yourself to vendor risk through maintaining multiple systems and the inefficiencies that come with them when it makes sense to consolidate? Although we are seeing more and more firms take this point of view, my question is, what is the convincing argument to tip the scales?

Here are some compelling reasons to consolidate.

Transparency for the front office related to valuation and analytics. It’s no longer good enough to demonstrate solid investment performance in a particular strategy, additional proof points include transparency and credible proof of the operational infrastructure to scale and extend offerings.

To support the increasing demand for transparency our clients are striving to simplify their operating models. Issues manifest themselves on a daily basis when portfolio managers and traders spend their valuable time questioning start of day position and cash figures instead of making investment decisions.

Investment managers need more control over how and when they implement changes to their investment strategies. They can’t afford to be held hostage by an operating environment so complex that they need to coordinate with four different software vendors to determine if they can start trading a new instrument. For example, with multiple systems involved in trading, accounting, analytics and reporting, if any one of those systems doesn’t properly support a new instrument type the investment manager must rely on labor intensive, risky, manual workarounds.

One of our clients, a large institutional investment manager, shared an impressive, inspirational success story. Over the last few years they initiated a multi-phased operations and technology transformation program. They greatly simplified their operating model by reducing the number of systems and service providers. They improved STP rates, established a more efficient reconciliation process and provided more timely and accurate information to their investment professionals – all while significantly reducing their annual operating costs.

By providing credible proof that simplification can increase control and transparency, our client made a compelling case for operational agility and how operations and technology transformation program can be inspirational.

When I speak with the asset managers out there who are still operating with a fragmented system landscape, most do recognize the benefits to be gained from an integrated system strategy – just like in my household. However, there are often some barriers holding them back from actually making the move.

In my next post I will address some of these challenges and explain why in reality they are normally not as large as they may appear in beforehand.

Stay tuned …

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