Read article and learn about:
- Why a system selection should be a pro-active strategy-driven process
- What potential dangers to look for
- The importance of stakeholder and business buy-in
- Why careful planning and tight project management are key
- The steps that will guide you through a system selection
About the author:
Paul Bratch is a founding Director of Knadel. He has extensive experience across the alternatives/offshore financial services industry providing advice on strategic direction, operating model re-engineering, system infrastructure re-engineering, as well as on the selection of service providers or systems.
Knadel is a specialist consultancy that combines business with technology expertise to provide a range of services to the investments industry. Knadel’s core areas of expertise are strategy, integration, target operating model design, systems architecture design, outsourcing, and change management programs.
Selecting a new investment management system is very similar to buying a new house; you want something which provides more than you have now, is fit-for-purpose for the long-term future, and is affordable. With these requirements in mind, homebuyers and investment management firms alike survey the market and scrutinize the best candidates in order to make the right choice. However, as this article shows, the process is never as easy and simple as imagined.
An investment management system is a key driver and enabler for realizing a business strategy. Hence, choosing and investing in a new system is not a trivial project. Any major system selection process should take into account your existing solution architecture, the strategy of your business, and market conditions. Too often, firms rely purely on recommendations from peers and risk investing in the wrong solution. Each firm has its own system architecture and its own business requirements, and with an increasingly complex market, each selection must be carefully tailored to the specific business.
Furthermore, the systems, the vendors, and the market are all constantly evolving with advances in technology, features, and deployment options, further complicating the choice.
However, to be frank, underpinning all of the above considerations should be a credible business case, approved by the board, which demonstrates the fiscal case (even if it is negative!), together with supporting “softer” arguments, particularly around risk management and control.
When initiating a system selection process, it is essential to define the critical success factors necessary for the process to result in a system and vendor selection success story. Investing in a new system is a costly affair with long-term consequences, meaning that it should never be a crisis-driven process but rather a pro-active strategy-driven process. Systems selected and implemented in an arbitrary and decoupled manner can impact profitability and ultimately jeopardize an organization’s survival.
Successful system selection projects require:
- Formulating a valid business case
- Careful planning and scoping
- Defining a target operating model
- Alignment with business strategy
- Gap analysis between current and future system(s)
- Stakeholder management and buy-in
- Best-practices methodologies and tools
- Project management
- Communication and validation of objectives throughout the project
A step-by-step funneling process
A carefully planned system selection should follow a step-by-step funneling process:
- firstly by considering all feasible contenders,
- then undertaking a sequence of processes to continually narrow the choice of possible systems/vendors down to selecting a preferred solution, and
- finally signing a contract locking in all of the key performance indicators which define a successful implementation.
To take these steps, informed choices are essential. Most often, an experienced external consultant or in-house expert with deep knowledge of the wider systems/vendors landscape would be able to assist with safely navigating the following phases:
- Request for Information (RFI) phase: Based on broad criteria, this phase is the high-level filter designed to produce a short-list of credible systems/vendors.
Although still high-level, this stage is essential to ensure the inclusion of all the current and future critical requirements as well as getting buy-in from all relevant stakeholders. Alignment with business strategy and considerations of market conditions are underlying prerequisites for undertaking the RFI phase, especially in the ever-increasingly complex market characterized by regulations, cost pressures, and globalization.
Alignment with business strategy and considerations of market conditions are underlying prerequisites for undertaking the RFI phase, especially in the ever-increasingly complex market characterized by regulations, cost pressures, and globalization.
- Request for Proposal (RFP) phase: A detailed capabilities assessment questionnaire issued to short-listed vendors, designed to produce 2-3 final contenders.
Generating an RFP tailored to a particular system selection is a more detailed requirement-gathering process than at RFI level and is often supported by external consultants capable of providing entire libraries of RFP questions based on deep experience. A dedicated system selection consultant is also able to provide advice on best-practice weighting and scoring methodologies for assessing who should be the final contenders, i.e. to ensure a thorough objective, measurable analysis, and then decision.
- Workshop phase: A very detailed set of real-life scenarios designed by the business (not the system vendors) to be delivered by final contenders over 2-3 days on-site at the client. This phase is designed to produce a preferred system/vendor.
Conducting a workshop with the 2-3 final contenders is the optimal forum for stress-testing the system capabilities claimed by the individual vendors. At this stage, it is crucial not to compromise the business requirements by plumping for a low cost ‘adequate’ solution. Experience shows that most often price is not the most pressing issue when choosing a system, instead it boils down to meeting the long-term requirements of the business.
experience shows that most often price is not the most pressing issue when choosing a system, instead it boils down to meeting the long-term requirements of the business.
- Contract negotiation phase: Managing the process of securing a signed contract with the preferred system vendor to include a fixed price and timeline, with relevant penalties where required.
Obviously, the contract is the final hurdle to navigate without tripping. Price, timeline, and SLAs are obvious elements, which must be completely transparent and which make the contract negotiation phase the time when extra focus is needed so that all the previous effort has not been in vain.
Potential dangers in the selection process
As summarized below, a number of things can go awry in a system selection process if it is not carefully and effectively planned and executed. The potential failures can have considerable consequences in terms of higher costs, increased risk, and the inability to realize business objectives.
The potential failures can have considerable consequences in terms of higher costs, increased risk, and the inability to realize business objectives.
- Failure to consider all relevant contenders
Ensuring that all relevant system providers are considered requires keeping up to date with developments in the system/vendor space, including new offerings as well as changes to the status of vendors in terms of e.g. financial stability and strategic direction. New solution offerings or major consolidations in the vendor space can mean original lists of contenders should be revised.
- Failure to identify key business needs
Selecting a new system is not an IT project and should be headed by the business from the get-go. Failure to identify the real business needs will mean the selected system will fail to meet the objectives of the business and so not deliver the originally intended competitive advantage. Not to mention related “hygiene” factors such as keeping up to speed with new regulations.
- Failure to recognize the impact of market conditions
Closely monitoring the continually changing nature of the business environment can be a root cause of selecting the “wrong” system, as no firm operates as an island. Be it upcoming regulatory changes, demand for new/alternative asset classes, disruptive technologies, or demographic changes, everything needs to be taken into account when it comes to defining requirements.
- Failure to get business buy-in
The entire business must be involved with any system selection process to ensure the necessary buy-in. If that business buy-in isn’t present then any future failures will be unfairly blamed on the new system.
- Failure to resource the project sufficiently
Any system selection project requires business, project management, and IT resources. Failure to staff-up sufficiently in any of these areas will mean risking missing important functional requirements and/or not meeting deadlines and budget.
- Failure to be objective
Despite considering oneself objective, we all have a tendency to be predisposed for or against what we have heard, what our peers do, and what we normally do. Working with external consultants can help remove this bias which could otherwise skew the selection process.
- Failure to recognize the value of the do-nothing option
Is it even necessary to change your system? Before launching into a major system selection process, it is important to conduct a sanity-check of current systems and benchmark them against reality. It is important to be certain that current systems actually need to be replaced before spending time and resources on a selection process, vs the possibility that current systems could actually do the job with some adjustments.
Looking at the list of potential dangers in the system selection process demonstrates that the “buying a new house” analogy is not so far-fetched. A newly acquired system is not something that is easily replaceable should it turn out to be the wrong decision, in fact selecting the wrong system can severely damage a business. Making a proper business case, careful planning, including the right stakeholders, ensuring business buy-in, liaising with external consultants, and tight project management will keep the process on track for success.