DO ASSET MANAGEMENT IT DEPARTMENTS STUNT OR STIMULATE INNOVATION?

Steve Young, CEO, Citisoft plc

There was a time when the IT department was the one place where innovation was found and actively encouraged. As the asset management industry looked to utilise software to transform its business model, IT was tasked with finding and designing the infrastructure to encourage and enable change and innovation across the business. Is this as true today as it was 25 years ago?

I believe that the asset management industry is on the cusp of significant change. The utilisation of smarter technology will be increasingly critical for those firms that will emerge as the winners in this new world. Technology will begin to disrupt and transform almost every element of the business, from the front office, where investment decisions and client interactions will be increasingly digital, through to the back office where processing and storage will need to be far more nimble to support the fast changing market and regulatory needs.

Another change we have witnessed is the growing influence of the business in the selection process of applications and services. Today, most vendors realise that it is impossible to complete a successful sale without the full support of the business sponsors, and much of the focus has shifted to engaging and satisfying their needs. It is hard not to see this as a positive step. As applications and services move to cloud and SaaS models, the need for IT input is being significantly minimised.

Risk averse

Almost all asset management IT and change management departments have spent the last decade delivering large and complex projects, in parallel with maintaining the current status quo (or ‘keeping the show on the road’). As a result, skill sets and attitudes have evolved accordingly, often with an increasingly conservative nature. Many IT and change professionals have been burnt by the challenge of delivering these projects within an acceptable timeframe and budget and, as a consequence, most are now very risk averse (although not all would accept that this is the case).

Many executives involved in taking key IT decisions continue to work in the same way, using traditional methods and known contacts to slowly upgrade their IT infrastructure with similar large projects and applications. The next generation of technology will stem from different asset management firms, some with radically new business models. These smaller, more nimble firms will require entirely different development approaches to be assessed and managed, as they will increasingly be using technology models that are very different from those being deployed today. The innovators and management of these firms will predominantly be new to our industry.

In my view what firms need to quickly develop is the ability to embrace new technologies and different business models in order to adapt to the developing market needs. To keep pace with the changes, especially in the more analytical areas, firms will need to deploy constantly evolving technologies. IT departments will need to adopt a more design-orientated approach and be able to take, manage and mitigate the risks involved in this new way of working.

The agile approach

There has been much written recently about the term ‘DevOps’, a software development approach that advocates a hybrid role between that of the established developer and operations staff. My question whenever I hear these terms is always the same: is it another buzzword or will it drive forward tangible change within the traditional asset management industry?

While development methods (such as agile software development), encourage collaboration among the analysis, design, development, and QA functions, in traditional organisations there is rarely cross-departmental integration of these functions with IT operations. DevOps acknowledges the interdependence of software development, quality assurance (QA), and IT operations. The aim is to help an organisation rapidly produce and deploy software systems to improve operational performance.

From the perspective of the business (which should always be the driving force behind any technological development), DevOps sounds like a dream come true for asset managers. Rather than jockeying for position (and IT budget) along with all the other parts of the business in the development of a single IT infrastructure that may take years to complete, distinct parts of the business (e.g. OTC clearing) can lobby for rapidly developed niche software as part of the business as usual (BAU) budget. DevOps staff can therefore rapidly turn an opportunity for competitive advantage into a reality.

Of course, the question of whom the DevOps staff report to arises. Is it the CTO? The COO? The IT Director? Fiefdoms still prevail within asset management firms, often to the detriment of the business. The rise of the CDO role (Chief Data Officer) has been hampered by the same political chicanery.

Outsourcing

The economic downturn and the sheer volume of regulations, has forced most firms to assess where they should, and should not, build and invest in competitive competency. IT is one area of this focus. Firms now see many of the past IT roles as far more of a commodity, and outsourcing of infrastructure and core IT processes is common in asset management most firms. With the advent of the cloud and SaaS models, business functions are increasingly delivered from external suppliers and the IT footprint is far lighter. All these developments have often resulted in IT being far more protective of their diminishing empire. Implementing a modern and agile technology infrastructure is clearly in the best interests of the asset management firm holistically, but it is not in the interests of the IT professionals within the firm, who are increasingly threatened by this new world.

In the future it is entirely feasible that the IT silo will disappear. I already see a future where all key managers will need to be IT literate and capable, and the use of IT will be an integral part of almost all roles. It is from these hybrid roles and skills that innovation will find sponsorship and requirements. A few firms will take this as an opportunity to use IT as a competitive advantage, by building specialised skills to deliver ground breaking solutions to the market. Many of these will be niche or leading edge suppliers, and these skills are not hugely prevalent today. I do see firms starting to acquire some of this capability, for example in the robo-advisor space the early adopters see this capability as a competitive position and are acquiring or building the technology (and associated skill sets), to provide this edge.

Conclusion

I suspect that this ‘new world’ is actually closer than many people believe. In my view the successful firms will already be acquiring and developing new talent to manage this, rather than trying to change and develop their current resources. Asset management firms need to consider how best to stay close to the market whilst simultaneously maintaining their existing infrastructure. It may be that these two tasks are not compatible and firms will need to reorganise and supplement the IT department. IT skills (as they are today) are quickly becoming redundant and in the future IT competence will be part of a wider more integrated function. This is where the innovation will flourish.