In the context of widespread digitisation and the recent marriage of word ‘Internet’ with ‘Things’, the future of the internet was a natural topic of the World Economic Forum in Davos this January.

During the debate, The Transformation of Tomorrow, opportunities and challenges of the increased adoption and new uses of the internet were discussed. These fall under four key themes: transformation, access, governance and security.

The internet’s transformational impact on both the public and private sector lead to the creation of new markets and new businesses. New sources of income and value are created and new propositions emerge, a classic example being Uber, utilising data and connectivity to tailor its offer and disrupt a market.

While Internet connection is something the Western world seems to be taking for granted, less than 50% of the world’s population has access to it. It was noted that the UN recognised internet’s potential to support global development in its Global Goals.

The immense speed of technological change makes it difficult for govern the use of all the big data out there. One key consideration linked to the internet becoming increasingly commoditised is that it becomes challenging to find the balance between national interests and global ‘inter-operability’. During the WEF concerns over ethics, social benefits and costs linked to the internet were also raised.

Last but not least the topic of online security was covered. The more data is being generated, the greater is the demand for cybersecurity services. Individuals, companies, governments and educational institutions are all being targeted by attackers.

Anil Menon, CISCO, shared his belief that omnipresent connectivity, connecting all objects to eachother won’t have a transformational impact on our lives. The real gamechanger is “connecting things to processes, and then using the resulting data to change the way we behave – that is where you will see a dramatic shift. The IoT will be the foundation, but it will be the business models on top of it that will change our lives.”

One of Broadgate’s key predictions for 2016 is the continued acceleration of cloud technologies within organisations. Finance, often the trailblazers for new technologies, have been slow to adapt to this technology for a variety of reasons (discussed later). As the technology matures, the arguments to not move toward the cloud become less and less. In this article we will discuss a few of the major reasons, based off discussions with our clients, as to why there has been slow cloud adoption in investment management.

Security is at the forefront of a CIO looking to move to the cloud. The perceived loss of control and ownership of data plus concerns about how a service provider might secure your data can be a worry.  There is also the risk of interception of data whilst it is being transferred. The counter argument of this is simple. Often we find SaaS firms have a bigger budgets associated to cyber security – plus as specialist providers and holders of multiple organisations data they have a greater exposure if a breach were to occur. If they were to lose your data, would you renew your contract with them? Probably not.

Due to this the level of security is often dramatically improved from that of a traditional financial institution and providers often have:-

• An infrastructure that is designed to be more secure with additional safeguards in place
• Greater levels of encryption
• More resources dedicated to keeping data secure
• Updated latest principles and best practices
• More technology to detect threats and breaches

Moving data to a site other than your own can cause not only security concerns but also about conformity to regulation and ownership.  New EU data ownership rules, due to come in force in 2017 (see this useful article on them from computer weekly http://www.computerworlduk.com/security/10-things-you-need-know-about-new-eu-data-protection-regulation-3610851/) mean financial regulators might investigate how and where sensitive data, particularly client data is being stored.  International/Multi-national providers are overcoming this by opening targeted data centres – for example EU only or UK only depending on the classification of data. Amazon Web Services, Microsoft Azure Cloud and major financial providers such as BlackRock all have these offerings. These comply with all major and new regulations. Usefully, if an organisation is split between countries, it is possible to implement local data centres and ownership, e.g. having a Swiss Data Centre and UK Data Centre for the same functionality.

Another key concern mentioned when moving to the cloud are potential performance issues. What happens if the cloud “goes down” or connectivity is lost? What happens if there are latency issues between the cloud and local machine?

Connectivity/Uptime of servers, in our experience, is still an important factor when agreeing contracts and service levels.  However, SaaS providers rarely fail to hit these levels and if issues occur  then there are economies of scale for large providers through having live backups, better failsafe’s and more resources to bring systems back online.  With that we often find there is an improved recovery plan and business continuity plan that a typical investment manager.

Latency levels can often be more difficult to overcome and may require changes to infrastructure.  Dedicated connections now widely supported by cloud providers mean that speeds are fast and often users are unaware that solutions are hosted off site.

With the above considerations there has often been trepidation with moving operations, particularly critical operations such as trading, into a cloud environment. Organisations are often looking for a competitor to make a move to see how they fare, or potentially sticking with the more traditional methods and applying the logic “If it aint broke, don’t fix it”.  This has been compounded by the fact the traditional investment management products have also been slow to adapt their offerings, sticking with the current on premise solutions, rather than offering updated SaaS based solutions.  However, products such as Blackrock Aladdin offering a standardised full functionality cloud based hosted platform are trailblazing this area.

So after overcoming the potential issues that might be faced with the cloud, why would a firm want to move it’s offering to the cloud, this will be the focus of a future article but the major factors are:-

• Increased Agility
• Reduced software/hardware maintenance
• Ability for investment managers to focus on investments over technology
• Reduces the time to market for new products

With advantages of the cloud becoming recognised we are finding that this is an area where vendors and investment managers are really focussing.  Traditional vendors are adapting their products to be able to provide cloud based services and are producing some excellent new products. Investment managers see the potential service improvements, cost savings and maintenance savings discussed above. It’s an area that is rapidly changing and adapting on a monthly basis.  It’s where we will be watching for new technology improvements in 2016.

The velocity, scope and systems impact of the changes currently occurring across sectors leave no question about the beginning of the ‘Fourth Industrial Revolution’, the theme of this year’s World Economic Forum.

As cliché as it sounds, it’s time to say goodbye to the world as we know it and according to Klaus Schwab, Founder and Executive Chairman of WEF “We must develop a comprehensive and globally shared view of how technology is affecting our lives and reshaping our economic, social, cultural, and human environments. There has never been a time of greater promise, or greater peril.”

 The 1^st Industrial Revolution mechanised production through the use of water. The 2^nd enabled mass production through the use of electric power. The 3^rd was led by the digitisation and allowed the automation of production through IT and electronics. What will the 4^th revolution result in? One of its consequences will be the blurring of the lines between the digital, the physical and the biological spheres.

The broad scope of the theme allowed the Davos discussion to take various directions – from robots’ role in healthcare and the disappearance of the Internet as we know it (it is to become part of everyone’s ‘presence’) to Mexico being the only nation recognising its citizens’ rights to broadband internet connection and smartphone devices being the first and the only ‘computer’ many people have.

The approaching changes will likely have a positive impact on global income levels, improving the quality of the lives of many. We expect the adoption of ground-breaking innovations on the supply-side, enabling major improvements in productivity and efficiency. The resulting decrease in costs will lead to the opening of new markets and economic growth.

However, just like with any other major global-scale changes, there will likely be winners and losers. One of its possible consequences is increased inequality, especially in the labor markets – robots will take over millions of jobs, broadening the returns to capital & returns to labour gap. It was noted, that while a driverless, automated truck company for example would no longer need truck drivers, its management would likely to get high-paying jobs. US Vice President Joe Biden even wared, that the current industrial revolution might destroy the middle class, which would no longer be able to hold onto the promise of a better life achieved through hard work.

Aside from the potential growth in inequality and the fragmenting of societies Schwab’s concerns also include the inability of several organisations to adapt to change, governments’ failure to implement and take the full advantage of new technologies, as well as security issues caused by shifts in power.

What should we do in order to fully embrace the opportunities and address the challenges related to the upcoming changes? WEF’s founder appealed to leaders and citizens to “together shape a future that works for all by putting people first, empowering them and constantly reminding ourselves that all of these new technologies are first and foremost tools made by people for people.”

The technology security market is growing at such a rate that it is almost impossible for anyone to keep up (indeed, speaking to a colleague recently they said that there were more than 50 new security startups every single week).

If you were one of the 15,500 people from over 70 countries who visited Infosec last year you’ll have experienced some of the explosion in technology options, with 315 vendors and service suppliers exhibiting (next year will be the 21st since inception in 1995).

Of course, the continued threat of cyber-attacks, data loss, intellectual property theft and service disruption has created a whole new security industry.

From the emergence of the humble firewall and anti-virus products in the late 1980’s through to todays myriad of technology solutions plugging holes throughout the enterprise (like sand filling a jar of pebbles)….Intrusion Detection Systems, URL Filtering, Identity Access Management, DDOS prevention, Anti-Malware Protection, PKI, Application White-listing, Data Loss Prevention, Threat Analytics, Isolation….etc….etc…

Whilst new emergent companies have often dominated as landscape has changed, the heritage technology vendors, such as Microsoft, IBM and Cisco have not stood still with the latter, whilst a little late to the party, increasing security product revenue in their last quarter to 14% and targeting 20% in the short term.

It could be described as something of a security arms race…and, probably one with no clear winner (or, maybe at some of the valuations, the next bubble…)

So against this backdrop there are some serious challenges for leadership, namely;

1. How to navigate the technology landscape and identify the most appropriate solutions for their organisation
2. How to integrate solutions into a seamless and manageable service (internally/externally), and;
3. Where to target investments first to get the greatest return

These are common themes to all CxOs. When on one side your stakeholders/customers are demanding you to protect them from threats and on the other, vendors are piling in with the latest solution to your problem, it’s not a good place to be. Set that against reducing budgets in real terms and it’s even more uncomfortable.

Part of the issue is that the genesis of the security business has been so embedded in technology that it is only now that the board executives have started to take notice. As few as 10 years ago the security department was often a mysterious group of individuals that were locked away from customers, trying to crack their own company defences to stop what, in most cases, was more of a nuisance factor if you were “hacked”.

Fast forward that to today and we still don’t really talk about security in the same was as we do with other technologies i.e. in terms of business outcomes. Why not? Is it any different really to the enterprise technology services that we have elevated to be more business function aligned?

Yes, security needs to be embedded across the functions such as sales, distribution, finance, operations etc. but it also needs to be turned 180 degrees towards its customers and articulated in term of business outcomes that the board executives can relate to, such as impact of regulation, data protection penalties, customer retention, brand impact and the like (they probably worry a little less about polymorphic zero day malware…).

Why is this important? Well, the three challenges mentioned before have undesirable side effects within organisations. To the first point, we often see that companies move quickly and without a clear roadmap between the latest security defence products. We often talk in typical IT metaphors, such as “peeling back the layers of the onion” whereas in the security space the onion just keeps on growing!

Layering defences is of course sensible, but emptying the contents of the Gartner Top 10 vendors into the enterprise is somewhat less so.

And that speaks to points 2 and 3. The integration of solutions, when so technology driven and verbose, can leave many companies rich in product but poor in solution.

What is more important is to really assess the business outcomes, the critical assets, required maturity level and the steps to achieve the goal. Security technology forms a big part of this, but should be considered in the same way as others in the end to end service chain.

By taking a step back and laying out the desired business objectives, organisations can really improve their investment strategy rather than take their chances in the security lottery.