Recently, we heard of a media reporting of a failed buy-side system implementation, this time in Asia-Pacific, with significant impact on the firm and its resources. It is probably not for the last time that we hear of such examples. But modernization of buy-side operations and infrastructure is absolutely necessary, to shake off the relentless grip of legacy systems, which continue to be the status quo across the globe. And while these stories might do little to encourage firms, they offer just as much opportunity to learn from, as the many success stories of industry peers.
With change comes opportunity
The lesson for the buy side is that with change comes opportunity; the opportunity to learn from these examples in order to effectively manage change projects. Because for every unsuccessful implementation, there are several successful change transformation projects taking place across the globe. Take the Bank of Thailand1 for example, or US mortgage back giant, Fannie Mae2. Without these stories, the global buy side would never have evolved to the trillion dollar industry it is today.
Today, as the spotlight remains on reducing costs, limiting operational risk and increasing assets, and as these drivers all converge, the buy side is recognizing it can no longer maintain this status quo.
Sunsetting legacy systems that are unfit for today’s multi-asset world is the first step into addressing operational complexities, for instance those related to supporting alternatives and other illiquid assets. At the same time, the buy side is faced with an increasing volume of complex, often unstructured data held in disparate and fragmented systems. Change is no longer a bet to be hedged, it is necessary for the very survival of buy-side firms.
The second more significant step is the adoption of a technology strategy that can enable operational efficiency, respond to market complexity and minimize total cost of ownership. At a system level, the technology needs to embrace consolidation and automation to optimally address multi-asset instrument coverage, deliver exhaustive regulatory requirements and cover global and local accounting standards.
While all this may sound like a tall order, it is entirely possible and we’ve seen through recent projects that the buy-side market is now driving towards a multi-asset front-to-back platform. A recent whitepaper by WatersTechnology and SimCorp, ‘A Brave New World: The Benefits of System Consolidation’3, also found almost 50% of respondents plan to embark on a consolidation project within the next 36 months, illustrating the extent to which such transformations projects are permeating the buy side. We have also seen this with acquisitions of point solutions by software vendors and custodians, who are now attempting to integrate these disparate technologies in a bid to enter this growing space.
It’s all in the detail
The biggest obstacle has and will always be how a strategy like this can be realized, while mitigating risk. Take the success stories for example. Fannie Mae and Bank of Thailand are two very diverse businesses, at opposite ends of the globe, yet both transformed their businesses, with a clear change plan. Importantly, they were able do this, on time and on budget.
Results of system modernization
Bank of Thailand1
· Reduced system footprint by 60%
· Reduced interfaces by 50%
· Reduced manual processes by 80%
· Reduced average release duration by 66%
· Redeployed 50% of staff to higher value work
What these examples demonstrate, is that agile implementation and strong partnerships are critical. As is the right technology fit, if operational change is to augment investment decision-making and key business processes, rather than disrupt or inhibit them.
Core to achieving successful change is a vendor partner that has skin in the game and can work together with firms to deliver a flexible and scalable system that can achieve the desired business outcome. That’s not as easy today when every vendor and custodian worth their salt is claiming to be truly ‘front to back’ in their offering.
Here, firms must look not only at functionality and underlying architecture, but also available client references and implementation track record - which if less than 100%, needs investigation. This due diligence together with an assessment of the original objectives, can help firms better understand whether the provider can truly fulfil the intended business outcomes, ultimately deciphering between marketing and reality.
In the case of the last week’s casualty, one of the critical factors was the provider’s reported failure to compute the complicated Australian tax system. Global firms must review not only whether an investment management system can robustly support a 24/7 operating model, but also how exhaustive a given vendors’ Accounting Book of Record (ABOR) is, and whether it can report in numerous currencies, accounting and tax frameworks, to really support their core business operations.
When embarking on the platform consolidation journey, operations leaders need to consider a checklist to closely assess proven vendor expertise, as well as examine the underlying architecture of the consolidated platform under consideration:
- A true golden master
- Did the platform originate as a point solution or was it purpose-built as a multi-asset front-to-back office solution, with a unified data source in a single database?
- Track record and real use cases
- What sort of track record does the vendor have with implementations? Anything less than 100% needs investigation
- How many client references can attest to project delivery success, both in scope and complexity of asset classes, as well as number of platforms consolidated?
- Size matters
- Achieving consolidation and operational efficiency doesn’t have to come at the expense of feature-rich functionality. In your review, make sure you understand upfront the size of the vendor’s instrument universe and asset class coverage – and whether it covers not only what your business needs today but where it may venture tomorrow.
- Just as important as what they deliver today, is what investments the vendor is making in R&D and their willingness to share development roadmaps with the utmost transparency.
- Human capital
- While the benefits of system consolidation are very apparent from a complexity and risk perspective, such initiatives can have a profound positive impact on the workforce.
- A highly automated platform, including once that embraces machine learning processes, can mean less time and resources spent on manual reconciliation and maintaining disparate, legacy systems, and more time spent on business growth and innovation.
Senior stakeholder buy-in
Once this ground work is done, securing buy-in from senior management is key and often a challenge in getting projects started. With agile development and lean processes, it is now possible to start small and show business value early. Firms can implement this strategy for just a few portfolios for example, before expanding to the entire book of record. Embracing agile delivery in these transformational projects, to deliver that value earlier rather than later, makes for a much smoother way forward.
Limiting operational risk is made easier when firms adopt an agile approach in combination with a change management team that traverses all the affected departments within the firm. This way all resources are in sync on testing and go-live phases, minimizing the risk of glitches and more importantly ensuring business continuity.
While guidelines like these, together with a clear set of long-term objectives, provide firms the best foundation for successful transformation, it is also important to note that the objectives themselves, may change along the way. Our industry is constantly evolving, with new market factors to consider at every turn. Whether these are challenging, e.g. regulation or opportunistic, e.g. emerging markets, they can shape or pivot the direction of the project.
By fostering a strong partnership and through agile transformation, firms can best navigate through these transformation meteorites, to form the onward direction of their business and achieve the outcomes vital in addressing the obstacles in their path today, as well as move towards those that fulfill their future ambition. The only difference is that you will likely not hear much about the silent successes in the same way we hear about the publicized failures, but perhaps that is in itself reward enough.
1. Bank of Thailand wins SimCorp Award
2. Fannie Mae system modernization
3. A Brave New World: The Benefits of System Consolidation, WatersTechnology and SimCorp, 2019