Marc Schröter has led fintech development for over 20 years. In this article he sheds light on new technology that may put an end to the age-old insourcing vs. outsourcing debate for good.
What’s new in the ongoing insourcing vs. outsourcing debate?
Today, there is a much more thoughtful debate than previously. The talent shortage, the question on size/scale and the increasing complexity of investment strategies and new instruments add to the eternal debate. One thing is clear. At a time when buy-side firms are asked to do more with less, they are looking more holistically at how to leverage solutions for an operating model that allows them to focus on their core business.
Understandably, firms want to focus on their core business, but to do this successfully requires that their non-core processes run smoothly without much manual intervention. This is where we see more interest in outsourcing specifically for tasks that are non-business differentiating, like data management, investment accounting and operations.
But I would like to clarify that today there is a big departure from traditional outsourcing. The old model typically lifts out technology, process, data and sometimes people to an external provider. This naturally creates a disjointed value chain with data breaks and a myriad of integration points on the part of the business that is not outsourced. As service providers use their own infrastructure and data, buy-side firms still need to mirror this to create the necessary oversight and access data needed for their core business—which is very costly and inefficient. Importantly, there is an inherent lack of transparency and real-time view of positions.
To address this challenge in the market we’ve developed an entirely new line of services that is offered on top of our core platform with full transparency and control. We call them “technology-enabled services” because they are business services powered by our proven technology which can automate and scale. It’s the same powerful tech that has been running for over two decades.
What sets our services apart from others on the market is the advisory component. Firms get access to top domain expertise to help them manage change requirements and exception handling.
What does a successful operating model look like today?
With the volatility and changing client demands that we experienced these past few years, I’ve thought a lot about the must-haves of a winning operating model.
Firstly, I recommend to clearly define what’s core and non-core business for the right technology stack. This enables you to maximize your resources and adapt to changing organizational needs quickly.
Secondly, the core investment platform that you implement must be delivered via a SaaS (Software as a Service) model so that the vendor takes full responsibility for operating the applications on their own cloud. Only then can you truly focus on your core business rather than deal with operational IT issues such as installing, configuring, upgrading and running software.
Thirdly, you need an integrated front-to-back core investment platform across all public/private market assets without integration or reconciliation points. This gives you one set of data flowing through the organization, or what we call “one investment truth”. This data is key to make the best investment decisions and accelerate time to market.
And lastly, you’ll want to partner with a technology vendor who has an open platform that allows you to inject your own innovation as well as give you access to the larger market ecosystem of innovative fintech technologies. The era of closed-off black box systems is gone. There is clearly a need for openness and interoperability today that offers enormous paths for innovation and growth.
Where’s the best place to start building a winning operating model?
I strongly believe that building a data-centric architecture is the foundational piece for long-term success. That’s been the design principle of our solutions, built around an Investment Book of Record (IBOR)—the foundational piece that provides risks and exposures across the entire value chain for the best investment decisions.
What has proven successful for our clients is starting with a core platform that includes market data, real-time views of positions in the IBOR, end of day holding in the Accounting Book of Record (ABOR), plus data warehousing as foundation for analysis and reporting.
Only when you are confident that you have access to quality data and actionable insights can you start empowering your teams with more innovative tools to amplify your offers and further innovate.
It’s imperative that you look for technology providers who can have that broader conversation about your operating model, not just addressing tactical changes to your insourcing and outsourcing mix. Importantly, they should be able to offer the flexibility to throttle services up or down, according to your changing organizational needs.