Investment Management – what’s left to outsource

Posted on : 30-11-2016 | By : richard.gale | In : Finance

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Many Investment Management (IM) firms have outsourced significant business functions: settlement, collateral management, accounting departments have been ‘lifted out’ of a significant number of IM companies and are being run as a service by a smaller number of specialised financial services organisations.

We think the next phase for outsourcing are the middle and some of the front office functions as focus for IM firms is on ability to out-perform, reduce time to market for new products and to reduce costs. Regulation is a key driver for this as the complexities of dealing with constant regulatory change is increasing costs and constraints on  IM firms ability to move into new, more profitable, markets. New investment themes such as liability driven investing and securities such as OTC derivatives are much more widely utilised in investment firms than, say, 5 years ago. There is also the avalanche of regulation in-flight (AIFM, Dodd-Frank, MiFIR & Solvency II to name a few)  to enforce reporting and risk management. This results in operational activities such as collateral management becoming much more complex than transacting with conventional securities.

A few months back we discussed the future of middle office outsourcing with Maha Khan Phillips in Best Execution magazine and we want to expand on those thoughts here.

Another trend we see is how the Investment Banking industry is starting to look at outsourcing the non-value-add functions to reduce costs and help streamline their business areas. They are being impacted in a similar way to IM firms at the turn of the century in terms of reduction in income and focus on cost reduction.

 Outsourcing history and developments

The first phase of outsourcing often was a simple ‘lift-out’ where the back office was separated as a whole – people, systems, and processes  with a line drawn across the organisation splitting the remaining front/middle office from the outsourced back office. This was driven by a number of factors but cost reduction and the drive to better returns was core.

As an approach the lift-out worked and enabled the IM organisation to focus on its core business of investing money.  Over time as the industry matures, the limitations of this approach are becoming clear. The ability to be responsive to new business requirements can be reduced:  flexibility in the operating model to react to new changes such as business focus, new asset classes and volume variations are often slowed by split between organisations. The outsourcers will have a number of clients with differing requirements and a limited ability to change which can impact speed of delivery.

These factors have led to some operational challenges and frictions between the client and supplier the result of which has led to a reassessment of the services and relationship. The client has a number of choices available and, as the earlier contracts mature, firms are identifying this period as an opportunity to review the current state vs. alternative strategies. The choices are broadly:

  1. Insource. To undo the lift-out and bring services back in-house. Some organisations have done this with varying degrees of success but the underlying rationale for outsourcing and the business case underpinning this needs to be closely examined.
  2. Migrate to new outsourcer. This is potentially one of the more complex solutions but also a possibility to re-engineer the business. Often there are complex interactions between the client/supplier that exist because of the way the outsource was constructed historically. This ‘web’ of interfaces, processes and procedures will need to be cleaned and logically split to migrate. Also the level of complexity from moving from one (client) organisation to an outsource supplier goes to a new level when migrating suppliers.
  3. Stay with existing and work together to improve service, relationship and capabilities.
  4. A combination of the above not excluding outsourcing more functions of the client firm.

Assuming the client strategically does not which to insource the functions then one of the most important activities is to grow the client/supplier relationship into an aligned partnership. This is the time when parties need to work together to construct a roadmap to move to a more efficient, cost effective and flexible model to deliver optimised services and capacity to grow.

This trend is gathering pace as firms look to ‘smarter’ outsourcing which bundles up groups of functions and let someone else look after the day to day management whilst enjoying a consistent service and pricing. Significant middle office functions are in-scope and included in those are what are traditionally seen as front office capabilities such as deal execution and compliance monitoring.

Interestingly the Buy-side has led the way on outsourcing. Investment banks have previously been too busy ‘running’ to keep up – growing new business areas and have been wary of outsourcing as a brake on their flexibility and ability to expand. The focus has been on IT infrastructure, testing & development and creating ‘captives’ in lower cost areas for operations. Now cost and regulatory pressures are proving a heavy burden then banks are now spending more time and energy looking into outsourcing their non-propriety functions. We think this is one of the trend areas for the next few years.

This is an updated version of our article first published in 2012. The thoughts are still very relevant and we wanted share them again.

www.twitter.com/broadgateview

The Blockchain Revolution

Posted on : 28-08-2015 | By : richard.gale | In : Cyber Security

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We’ve been excited by the potential of blockchain and in particular bitcoin technology and possibilities for a while now (Bitcoins: When will they crash?  More on Bitcoins..  Is someone mining on my machine? ). We even predicted that bitcoins would start to go mainstream in our 2015 predictions . We may be a little ahead of ourselves there but the possibilities of the blockchain, the underpinning technology of crypto currencies is starting to gather momentum in the financial services world.

Blockchain technology contains the following elements which are essential to any financial transaction

  1. Security – Blockchain data is secure as each part of the chain is linked with the other and many copies of that data are stored among the many thousands of ‘miners’ in an encrypted (currently unhackable) format. Even if a proportion of these miners were corrupt with criminal intent the voting of the majority will ensure integrity
  2. Full auditability – Every block in the chain has current and historic information relating to that transaction, the chain itself has everything that ever happened to it. The data is stored in multiple places and so there is a very high degree of assurance that the account is full and correct
  3. Transparency – All information is available in a consistent way to anyone with a valid interest in the data
  4. Portability – The information can be available anywhere in the world, apart from certain governments’ legislation there are few or no barriers to trade using blockchain technology
  5. Availability – There are  many copies of each blockchain available in virtually every part of the world blockchains should then always be available for use

The blockchain technology platform is flexible enough to incorporate additional functions and process without compromising it’s underlying strengths.

All major banks and a number of innovative startups are looking at ways blockchain can change the way transactions are executed. There are significant opportunities for both scale and efficiency using this technology. Areas being researched include;

  • Financial trading and settlement. Fully auditable, automated chain of events with automated payments, reporting and completion globally and instantly
  • Retail transactions. End to end transactions delivered automatically without the opportunity of loss or fraud
  • Logistics and distribution. Automatically attached to physical and virtual goods with certified load information enabling swift transit across nations
  • Personal data. Passports, medical records and government related information can be stored encrypted but available and trusted
There are still some significant challenges with blockchain technology;
  1. Transactional throughput – limited by banking standards (10’s of transactions per second at present rather than 10,000’s)
  2. Fear and lack of understanding of the technology – this is slowing down thinking and adoption
  3. Lack of skills to design and build – scarce resources in this space and most are snapped up by start-ups
  4. Complexity and lack of transparency – Even though the technology itself is transparent the leap from the decades old processes used in banks back offices for example to a blockchain programme can be a large one. In the case of time critical trading or personal information then security concerns on who can view data come to the fore.
  5. Will there be something else that replaces it – will the potentially large investment in the technology be wasted by the ‘next big thing’?

We think blockchain could have a big future. Some people are even saying it will revolutionize government, cutting spending by huge amounts. If blockchain transactions were used to buy things then sales tax and various amounts to retailers, wholesalers, manufacturers could be paid immediately and automatically. The sales person could have the blockchain credit straightaway too.

Blockchains could remove huge levels of inefficiency and potential for fraud. It could also put a significant number of jobs at risk reflected in John Vincent’s article on the future of employment.

Innovation and the impact on future jobs

Posted on : 28-08-2015 | By : john.vincent | In : Innovation

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For those of us who started our careers last century, the pace of change and innovation over the past decade is astounding. After life settled down somewhat following Y2K, the first internet bubble and a heightened period of world turmoil, we are “back to the future” full steam (click here for any film fans that missed the hoverboard release a while back).

Innovations in robotics, blockchain technology, the internet of things, automation and so on is transforming our world to a point that in 20-30 years the way we live and interact within it will be a step change away from today.

So, rather than opine about where these innovations may end up, let’s have a think about one of the side effects…most notably, on jobs.

Those of us that are lucky enough to enjoy our work (and are of a certain age) are probably doing something not that dissimilar to when we left education. Indeed, when I took my first role in technology at a bank it was still considered to be “a job for life”. I could happily start planning for a life on the greasy pole and a final salary pension in a max of around 4 decades of grafting.

Fast forward to today and for those entering the employment market things are very different. That concept now seems so old fashioned. The characteristics possessed by careers of being stable, linear and mainly singular are gone. So what can the next generation of workers expected? Renowned futurist Thomas Frey of the DaVinci Institute is quoted as saying;

60% of the best jobs in the next ten years haven’t been invented yet.

This naturally has a huge impact. Careers will become a polymorphic thing, increasing in complexity, reducing in predictability and will evolve for many into a “portfolio of micro-careers”. Innovation and commoditisation will mean that being able to move laterally between roles and industries will be the norm, with an entirely different mindset and skillset being required to maintain personal “career currency”.

We are already starting to live in the world of the freelancer. Shorter term, output based contracts are on the rise with estimates that by 2020 half of all workers in the US will be freelance and even now, some 20% of UK graduates are joining the labour market in the same capacity. Assuming this trend continues, the impact on traditional employee management, such as performance, reward, culture etc. is something that organisations will need to overcome. Indeed the word “employee” may be used sparingly in favour of “workforce”.

So what are the types of jobs that we might see in the future? Here are a few examples (that 10 years ago would have been considered daft);

  • Alternative Currency Speculator: With Bitcoin and other virtual currencies gaining ground, new more complex trading asset classes will also evolve
  • 3D Printing Manager: Expert roles in 3D printing to help consumers build new or repair current physical artefacts
  • Privacy Consultant: A role to reveal vulnerabilities in an individuals personal, physical, and online security presence
  • Drone Driver: As the deployment expands outside of the military to commercial and private drone use, experienced drone drivers (especially those with urban experience) will be sought after
  • Crowdfunding Manager: A expert on sites like Kickstarter and Crowdcube who provide clients services to promote and attain funds for a project
  • Digital Death Manager: Someone who manages or eliminates some digital footprint and creates a posthumous online presence
  • Meme Agent: We know all too well that we have agents for every kind of celebrity, so in the future, even stars on internet memes will be represented

(If you want to see a list of jobs that might disappear all together (and of course find yours…), click here for a list of 101 Endangered Jobs by 2030

And what about the impact of robotics? Whilst we are indeed moving faster than predicted, the iRobot world is still round a few more corners. Not surprisingly, the area that will succumb most heavily to the rise of the machines first is manufacturing. According to the Boston Consulting Group, they predict that robots will increase the proportion of factory tasks they perform from the current 10% to 25% by 2025.

That said, already a Chinese company Hon Hai (the world’s largest contract electronics manufacturer) is progressing with plans to replace 500,000 workers with robots in the next three years.

According to a number of studies, jobs that need human beings to perform them are rapidly diminishing. In its recent paper ‘Creativity vs Robots’, the innovation charity Nesta quotes research by academics Carl Frey and Michael Osborne, which suggests 47% of jobs are at risk of automation in just “a decade or two.”

The big question is how society will evolve and support a population which will gradually diminish in its importance to a self-sustaining eco system? Will we see queues of human beings alongside drones at the job centre? Or indeed, will unemployment figures actually become irrelevant with nation states measured positively by an upward trend alongside the usual economic parameters?

Who knows…but at least for the time being, I’ve still got a job to do.

 

Agile. Is it the new name for in-sourcing?

Posted on : 30-01-2015 | By : richard.gale | In : Innovation

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Business, IT, clothing are all similar in so much that they can lead and follow fashions & trends.

Looking at IT specifically there is a trend to commoditise and outsource as much as possible to concentrate on the core ‘business’ of growing a business. As we all know this has many advantages for the bottom line and keeps the board happy as there is a certainty of service & cost, headcount is down and the CIO has something to talk about in the exec meetings.

At the coalface the story is often a different one with users growing increasingly frustrated with the SLA driven service, business initiatives start to be strangled by a cumbersome change processes and support often rests in the hands of the dwindling number of IT staff with deep experience of the applications and organisation.

So a key question is –  How to tackle both the upward looking cost/headcount/service mentality whilst keeping the ability to support and change the business in a dynamic fulfilling way?

Agile is a hot topic in most IT and business departments, it emerged from several methodologies from the 1990’s with roots back to the ‘60s and has taken hold as a way of delivering change quickly to a rapidly changing business topology.

At its core Agile relies on:

  • Individuals & interaction – over process and tools
  • Customer communication & collaboration in the creation process – over agreeing scope/deliverables up front
  • Reactive to changing demands and environment – over a blinkered adherence to a plan

The basis of Agile though relies on a highly skilled, articulate, business & technology aware project team that is close to and includes the business. This in theory is not the opposite of an outsourced, commodity driven approach but in reality the outcome often is.

When we started working on projects in investment organisations in the early ‘90s most IT departments were small, focused on a specific part of the business and the team often sat next to the trader, accountant or fund manager. Projects were formal but the day to day interaction, prototyping, ideas and information gathering could be very informal with a mutual trust and respect between the participants. The development cycle was often lengthy but any proposed changes and enhancements could be story boarded and walked through on paper to ensure the end result would be close to the requirement.

In the front office programmers would sit next to the dealer and systems, changes and tweaks would be delivered almost real time to react to a change in trading conditions or new opportunities (it is true to say this is still the case in the more esoteric trading world where the split between trader and programmer is very blurry).  This world, although unstructured, is not that far away from Agile today.

Our thinking is that businesses & IT departments are increasingly using Agile not only for its approach to delivering projects but also, unconsciously perhaps,  as a method of bypassing the constraints of the outsourced IT model – the utilisation of experienced, skilled, articulate, geographically close resources who can think through and around business problems are starting to move otherwise stalled projects forward so enabling the business to develop & grow.

The danger is – of course – that as it becomes more fashionable – Agile will be in danger of becoming mainstream (some organisations have already built offshore Agile teams) and then ‘last years model’ or obsolete. We have no doubt that a new improved ‘next big thing’ will come along to supplant it.

 

Investment Management – what’s left to outsource.

Posted on : 30-09-2014 | By : richard.gale | In : Finance

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Many Investment Management (IM) firms have outsourced significant business functions: settlement, collateral management, accounting departments have been ‘lifted out’ of a significant number of IM companies and are being run as a service by a smaller number of specialised financial services organisations.

We think the next phase for outsourcing are the middle and some of the front office functions as focus for IM firms is on ability to out-perform, reduce time to market for new products and to reduce costs. Regulation is a key driver for this as the complexities of dealing with constant regulatory change is increasing costs and constraints on  IM firms ability to move into new, more profitable, markets. New investment themes such as liability driven investing and securities such as OTC derivatives are much more widely utilised in investment firms than, say, 5 years ago. There is also the avalanche of regulation in-flight (AIFM, Dodd-Frank, MiFIR & Solvency II to name a few)  to enforce reporting and risk management. This results in operational activities such as collateral management becoming much more complex than transacting with conventional securities.

A few months back we discussed the future of middle office outsourcing with Maha Khan Phillips in Best Execution magazine and we want to expand on those thoughts here.

Another trend we see is how the Investment Banking industry is starting to look at outsourcing the non-value-add functions to reduce costs and help streamline their business areas. They are being impacted in a similar way to IM firms at the turn of the century in terms of reduction in income and focus on cost reduction.

 Outsourcing history and developments

The first phase of outsourcing often was a simple ‘lift-out’ where the back office was separated as a whole – people, systems, and processes  with a line drawn across the organisation splitting the remaining front/middle office from the outsourced back office. This was driven by a number of factors but cost reduction and the drive to better returns was core.

As an approach the lift-out worked and enabled the IM organisation to focus on its core business of investing money.  Over time as the industry matures, the limitations of this approach are becoming clear. The ability to be responsive to new business requirements can be reduced:  flexibility in the operating model to react to new changes such as business focus, new asset classes and volume variations are often slowed by split between organisations. The outsourcers will have a number of clients with differing requirements and a limited ability to change which can impact speed of delivery.

These factors have led to some operational challenges and frictions between the client and supplier the result of which has led to a reassessment of the services and relationship. The client has a number of choices available and, as the earlier contracts mature, firms are identifying this period as an opportunity to review the current state vs. alternative strategies. The choices are broadly:

  1. Insource. To undo the lift-out and bring services back in-house. Some organisations have done this with varying degrees of success but the underlying rationale for outsourcing and the business case underpinning this needs to be closely examined.
  2. Migrate to new outsourcer. This is potentially one of the more complex solutions but also a possibility to re-engineer the business. Often there are complex interactions between the client/supplier that exist because of the way the outsource was constructed historically. This ‘web’ of interfaces, processes and procedures will need to be cleaned and logically split to migrate. Also the level of complexity from moving from one (client) organisation to an outsource supplier goes to a new level when migrating suppliers.
  3. Stay with existing and work together to improve service, relationship and capabilities.
  4. A combination of the above not excluding outsourcing more functions of the client firm.

Assuming the client strategically does not which to insource the functions then one of the most important activities is to grow the client/supplier relationship into an aligned partnership. This is the time when parties need to work together to construct a roadmap to move to a more efficient, cost effective and flexible model to deliver optimised services and capacity to grow.

This trend is gathering pace as firms look to ‘smarter’ outsourcing which bundles up groups of functions and let someone else look after the day to day management whilst enjoying a consistent service and pricing. Significant middle office functions are in-scope and included in those are what are traditionally seen as front office capabilities such as deal execution and compliance monitoring.

Interestingly the Buy-side has led the way on outsourcing. Investment banks have previously been too busy ‘running’ to keep up – growing new business areas and have been wary of outsourcing as a brake on their flexibility and ability to expand. The focus has been on IT infrastructure, testing & development and creating ‘captives’ in lower cost areas for operations. Now cost and regulatory pressures are proving a heavy burden then banks are now spending more time and energy looking into outsourcing their non-propriety functions. We think this is one of the trend areas for the next few years.

This is an updated version of our article first published in 2012. The thoughts are still very relevant and we wanted share them again.

www.twitter.com/broadgateview

Broadgate 2013 Predictions – how did we do?

Posted on : 30-12-2013 | By : richard.gale | In : Innovation

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In December 2012 we identified some themes we thought would be important for the coming year. Let’s see how we got on…

1. Infrastructure Services continue to commoditise – for many organisations, Infrastructure as a Service (IaaS) is now mainstream. Technology advancement will continue to move the underlying infrastructure more towards a utility model and reduce costs in terms of software, hardware and resource.

This has happened and is continuing to grow, most organisations have the infrastructure in place to support IaaS with private clouds and virtualised environments. However, the flexibility and agility benefits have not always been realised as large organisation IaaS have sometimes been weighed down with the legacy change and build processes of the previous model. To circumvent this, many businesses are looking at public cloud for more flexible capacity. This will be the big growth area of 2014 especially with financial services organisations that, previously, have been hesitant in adopting public cloud solutions.

2. Application/Platform rationalisation – for many large firms there is still a large amount of legacy cost in terms of both disparate platforms, often aligned by business unit, and their sheer size/complexity. The next year will see an increase in rationalisation of application platforms to drive operational efficiency.

In 2013 the understanding and scale of the problem became more apparent but, with limited change/transformation budgets (in financial services mainly due to the burden of regulatory compliance requirements) not much action. Now these complex webs of legacy applications are starting to fail and seriously constrained business growth. 2014 will be a ‘crunch’ year when these expensive problems have to be tackled head on either through wholesale re-architecting or giving someone else the problem of running them whilst new solutions are built.

3. Big Data/ Data Science grows and market starts to consolidate – 2012 was the year that Big Data technologies went mainstream…2013 will see an increased focus on Data Science resource and technology to maximise the analytical value. There will also be some consolidation at the infrastructure product level.

In financial services we saw a fair amount of discussion, some large proof of concept projects focusing on consolidation (many seem to be targeting the risk and finance areas), but not the levels of take up we expected. MasterCard have come in with a big data restaurant review concept. We may have been slightly premature with this one. We think the understanding of Data Science is starting to go mainstream and, as with Cloud, the demand will come more from the business rather than IT architects in 2014.

4. Data Centre/Hosting providers continue growth – fewer and fewer companies are talking about building their own data centres now, even the very large ones. With the focus on core business value, infrastructure will continue to be hosted externally driving up the need for provider compute power.

 Many organisations either use external more flexible hosting solutions or have an excess of capacity in their existing data centres. This will continue and grow in pace in 2014.

5. More rationalisation of IT organisations – 2012 saw large reductions in operational workforce, particularly in financial services. With revenues under more pressure this year (and in line with point 1) we will see further reductions in resource capacity and relocation to low cost locations, both nearshore and within the UK.

In the financial services sector this may be at an end. There will be growth in demand for IT skills in 2014 but there will be some reductions particularly in the infrastructure/BAU space due to the continued commoditisation of technology and move to XaaS services.

6. Crowd-funding services continue to gain market share – there have been many new entrants to this space over recent years with companies such as Funding Circle, Thin-Cats, Bank-to-the-Future and Kickstarter all doing well. We see this continuing to grow as access to funds from traditional lenders is still hard. The question is at what point will they step in.

This one was an easy prediction as a low starting point combined with the banks reluctance to lend, low interest rates and increasing interest in the tech sector inevitably led to high levels of growth. 2014 will continue this trend but with a higher degree of regulation after the first high profile failure of a lending exchange…

7. ‘Instant’ Returns on investment required – growth of SaaS & BYOD is changing the perception of technology. People as consumers are now accustomed to an instant solution to a problem (by downloading an app or purchasing a service with a credit card). This, combined with historic patchy project successes, means that long lead-time projects are becoming harder to justify; IT departments are having to find near instant solutions to business problems.

Business users are leading IT departments on the adoption of SaaS in particular. IT is playing catch-up and the race will continue. We are not sure what 2014 will bring on this. It could be that IT departments regain control or, alternatively, are bypassed on a more frequent basis by impatient, IT savvy business users.

8. Technology Talent Wars – with start-ups disrupting traditional players in areas such as data analytics, social media and mobile payment apps, barriers to entry eroding and salaries on the rise we see a shift from talent wanting to join industries such as financial services and choosing new technology companies.

Relatively low demand from financial services firms (except for a few specific skills such as security) has deferred this. This is more likely to impact 2014 change and innovation programmes now.

9. Samsung/Android gain more ground over Apple – we already have seen the Apple dominance, specifically in relation to the Appstore, being eroded and this will continue as the potential of a more open platform becomes apparent to both developers and users of technology.

This has happened and will continue unless Apple can come up with some new magic. Phones/tablets are the new battleground, other operating systems such as Windows and potentially Jolla could disrupt the trend in 2014.

10. The death knell sounds for RIM/Blackberry – not much more to say. Most likely they will be acquired by one of the big new technology companies to gain access to the remaining smart phone users.

The only thing to add to this is that there may be a ‘dead-cat’ bounce for Blackberry in 2014.

 

Once again we hope you have enjoyed our monthly articles and have had a successful 2013. We wish you all the same for 2014!

 

Is it the time for Joint Shared Services?

Posted on : 29-11-2013 | By : john.vincent | In : Innovation

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Last month we wrote about how the rate of technology change is outpacing the internal IT departments of organisations. It certainly seems that the “squeeze” is on with cloud and external providers offering more agile compute services at the infrastructure level (now at an on-demand cost which can compete), and the business consumers procuring what they need, when they need it and of course where the need it through Software as a Service (SaaS) providers.

Two years ago the ability for CIOs to raise the virtual “Red Card” at these external forces through risk, compliance, data security, cost and the like still existed, particularly in areas such as financial services (although we constantly heard anecdotes of technology services being brought on credit cards in the front office and expensed back). However, today it is more a case or working out how to protect digital assets and company reputation from the increased decentralisation of technology governance (business/end-user empowerment), whilst continuing to deliver operational services against a backdrop of having to justify value.

So, whilst this move of technology governance to the corporate edges continues, the question is “What approach should organisations take to sourcing their underpinning infrastructure commodity services?”

We have seen decades of ebb and flow for the sourcing of technology services….Outsourcing, off shoring, near shoring, right shoring (we may have finally run out of prefixes…), managed services and the like. Internally, organisations have coupled this operating model with shared service functions such as Finance, Human Resource and Operations to deliver further efficiencies. What is less prevalent, however, is collaboration between client organisations.

Large service providers have shown the benefits through economies of scale to running client technology platforms. However, whatever your position is on outsourcing technology, many would argue that the clients themselves do not benefit fully from these efficiencies. This is of course natural where there is a fragmented delivery chain and limited client side collaboration. So, is the time right to extend the shared service model and create shared service models, or joint ventures, between peer organisations?

If you take the infrastructure layer then we think…YES. As we said in our previous article, where is the business (or more importantly brand) value in having technicians crafting infrastructure services? There are pockets/exceptions, but typically the “compute plumbing” supporting business applications does not drive competitive advantage. However, in todays fast moving landscape it is very easy to erode value through rigid or elongated timescales for service provisioning.

The pace of change is clearly illustrated by the transformed data centre market. Back in 2005/2006, many large corporate CIOs were scrambling to purchase their own data centres as space and power became scarce. Fast Forward to today and many of those same organisations are sitting with surplus capacity.

In the space of a few years, driven by new the revolution in virtualisation and cloud computing, it would now seem a bad strategy to build and manage your own client facility. 

The question to ask is how organisations can collaborate together to source their compute requirements together for mutual benefit. For back office processing there have been “carve outs”, collaborations or joint ventures such as in the investment management and insurance markets. Leading on from this, there is no reason why peer organisations couldn’t combine to create a SPV/JV for their underlying infrastructure requirements. This has the potential to bring many benefits, including:

  • Increased market leverage for commodity service pricing
  • Reduced fixed overheads and move from Capex to Opex
  • Improved standards and policies in areas such as security and risk management (through collective influence)
  • Increased agility and time to market
  • Enhanced technology innovation 
  • Improved focus on core business competencies

There are many others (and no doubt many counter arguments, which happy to receive…)

So what stops organisations proceeding? Well, most of all we are talking about a cultural shift which, if driven from the technology organisation themselves (CIO), is unlikely to get much traction. This level of change is not something that can be technology driven. This needs to be a top down, business led discussion.

It also doesn’t apply only to technology. Many years ago (I think late 90’s) I attended a conference where the speaker talked about measuring real company value and how organisations would over time “jettison” those operations that didn’t contribute to the customer proposition. What is left in the final end game? In the extreme example it is simply those creating the Strategy and Brand alone, with everything else sourced from the market. When you think about it, it does make sense.

Every year previously we have produced our predictions for the coming 12 months. We don’t see this happening in that timeframe but at least opening up the discussion should be on the CEOs “to-do” list in 2014…

Sinking in a data storm? Ideas for investment companies

Posted on : 30-06-2013 | By : richard.gale | In : Data

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All established organisations have oceans of data and only very basic ways to navigate a path through it

This data builds up over time through interaction with clients, suppliers and other organisations. It is usually stored in different ways on disconnected systems and documents

Trying to Identify what it means on a single system is a big enough challenge, trying to do this across a variety of applications is a much bigger problem with different meaning and interpretations of the fields and terms in the system

How can a company get a ‘360’ view of their client when they have different identifiers in various applications and there is no way of connecting them together. How can you measure the true value of your client when you can only see a small amount of the information you hold about them.

Many attempts have been made to join and integrate these data sets (through architected common data structures, data warehouses, messaging systems, business intelligence applications etc) but it has proved a very expensive and difficult problem to solve. These kind of projects take a long time to implement and the business has often moved on by the time they are ready. In addition early benefits are hard to find so these sorts of projects can often fall victim to termination if a round of cost cutting is required.

So what can be done? Three of the key problems are identification of value from data, duration & costs of data projects and ability to deal with a changing business landscape.

There is no silver bullet but we have been working with a number of Big Data firms and have found a key value from them is the ability to quickly load large volumes of data (both traditional database and unstructured documents, text, multi-media). This technology is relatively cheap and the hardware required is both generic and cheap and again can be easily sourced from cloud vendors.

Using a Hadoop based data store on Amazon cloud or a set of spare servers enables large amounts of data to be uploaded and made available for analysis.

So that can help with the first part, having disparate data in one place. So how to start extracting additional value from that data?

We have found a good way is to start asking questions of the data – “what is the total value of business client X does with my company?” or “what is our overall risk if this counterparty fails?” or “what is my cost of doing business with supplier A vs. supplier B?” if you start building question sets against the data and test & retest you can refine the questions, data and results and answers with higher levels of confidence start appearing. What often happens is that the answers create new questions and so answers etc.

There is nothing new about using data sets to enquire and test but the emerging Big Data technologies allow larger, more complex sets of data to be analysed and cheaper cloud ‘utility’ computing power makes the experimentation economically viable.

What is also good about this is that as the business grows and moves on – to new areas, systems or processes then loading the new data sets should be straightforward and fast. The questions can be re-run and results reappraised quickly and cheaply.

As we have discussed previously we think the most exciting areas within Big Data are the Data science and analytics – find which questions to ask and refining the results.

Visualisation of these results is another area where we see some exciting developments and we will be writing an article on this soon.

 

 

Business & Digital alignment – how close is your firm?

Posted on : 28-06-2013 | By : john.vincent | In : General News

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Over recent years we have seen the rise in prominence and status of technology with organisations. If we take the Gartner Hype Curve analogy, we spent much of the mid 1990’s through to mid 2000’s in “The Plateau of Productivity”, with technology being an integral underpinning necessity or enabler, but less frequently an innovator or driver of competitive advantage, outside of stability and speed of execution (although, some business leaders might point to a “Trough of Disillusionment”).

Todays world and, in particular, the relationship between business and technology is much changed with organisations introducing new governance structures and roles to more closely take advantage of digital innovation and their ability to disrupt business models. Indeed, we have seen the introduction of the Chief Innovation Officer and Chief Digital Officer with elevated positions in the corporate structure.

That said, from a company’s board perspective, how can they ensure that the business direction and technology are aligned effectively to capitalise on digital innovation. Below are some themes/questions which are useful as a test of capability:

How is our industry changing as a result of technology innovation?

It is important to understand how new innovations are breaking down the boundaries of business models and reducing the barriers of entry. This is not simply keeping abreast with the latest trends in mobile, cloud, data analytics etc… but how new technologies are being exploited by competition and new entrants which can potential erode business revenues. This is difficult, as often the it is not obvious where the challenges will come from. Some can be predicted, such as trading engines and decision support built from social media sentiment analysis, or the myriad of mobile payment solutions. Others, however, are more difficult to predict like the introduction of gamification techniques across industry or the introduction of big data analytics for operational efficiency/intelligence such as with applications like Splunk.

 

What is our structure and process for nurturing developing digital technologies?

A recent survey by McKinsey showed that organisations are still coming to terms with how to develop, nurture and commercialise ideas within the organisation. From 2240 respondents, 50% stated “We have pockets of successful innovation but it is rarely scaled” and only 36% thought “We have the right balance between good ideas and effective commercialisation”.

So, does your organisation have someone responsible for driving forwards digital advancement? (such as Chief Innovation Officer)…or, is there a way to garner ideas within the grass roots and ensure that they are given enough runway to develop, through incubation mechanisms?

 

Have we the correct governance structure and a defined technology roadmap?

Business and IT alignment is often talked about but not really executed upon. Having the CIO/CTO or IT Director in operational or strategy governance meetings does not provide an optimised solution as often the focus is on efficiency, budgets, risk etc… and very rarely on a close (bi-directional) coupling between business priorities and “technology possibility”.

We see new models emerging where business and technology are brought together under specific “Digital Units” on an equal footing, where the goal is to build a technology roadmap which is completely not only aligned, but in many cases, actually informs and drives business into new customer markets and revenue opportunities.

 

Have we aligned our business operating model and portfolio of change effectively to the underpinning technology investments?

A natural lead in from the previous question. By putting the correct governance in place and removing internal barriers, it is much easier to ensure that the business operating model is driving technology investment and vice versa. Too often, organisations still operate a model from which the business change portfolio is defined and the “handed” to the technology leadership to deliver. And when we talk about large/global IT programmes, how many of these turn into “Black Swans“?

CEO’s need to look at, and question, the cross functional aspects of their business and technology organisations. We often see technology departments “aligned” to business units, but how often are more permanent/product related horizontal structures created?…and do individuals move in both directions through their careers to strengthen and embed competitive business knowledge and drive innovation?

 

What are we doing to increase the commoditisation and agility of technology resources?

The agility objective has been largely “etched into” power-point presentations for many years as they’ve made their way into the board room. “We’ve outsourced and increased agility…”…”Our ratio of perm to contract resource has increased from X to Y allowing us to be more agile.”….(tick in the box then).

What CEO’s need to gauge is truly how fast their internal technology organisation can respond to changes in business services from all aspects be that functionality, new products or volumes? (and the important part of this is whether can they be scaled down or switched off?)

Whilst the move to a more commoditised service model needs to be evolutionary, particularly in terms of risk and compliance, what CEO’s should look for from their technology leadership is a committed multi year roadmap which lays out the resource model for infrastructure, applications and people, with associated metrics/budget. Without this, and with the pressure of day to day efficiency challenges, CIO’s cannot be blamed for maintaining previous models.

 

Broadgate Predicts 2013 – Preview

Posted on : 29-01-2013 | By : john.vincent | In : Innovation

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Last month we published our 2013 Technology Predictions and asked our readers to give us their view through a short survey. We have had a great response…so much so that we are keeping in open for 2 more weeks.

However, we thought we would share a few of the findings so far, prior to us producing the final report.

Current Ranking

As we stand, the predictions that generated the most agreement are;

  1. Infrastructure Services Continue to Commoditise
  2. Samsung/Android gain more ground over Apple
  3. Data Centre/Hosting providers continue to grow

Some interesting commentary against these;

Many companies have come to terms with the security/regulatory issues concerning commoditisation and cloud services, although still chose to build in-house for now. It will take some significant time to see IaaS address the legacy infrastructure burden.

On the Apple debate, respondents agreed enough to place in 2nd place but differed a lot in terms of how this will develop…there is a feeling that Apple are struggling to continue to innovate ahead of the market and consumers are wiser now, together with a cost pressure that, if it is relieved, will cause users to stay with them.

Regarding Data Centres, the importance of cloud and managed services continues to drive expansion. Within heavily regulated industries such as Financial Services there continues to be a desire to Build vs Buy, but respondents questioned for how long. Having your own DC is not a competitive advantage.

At the other end of the scale, the prediction that respondents disagreed most with was;

  • Instant Returns on Investment required (followed closely by)
  • More Rationalisation of IT Organisations

Again, a pick of some of the additional comments;

Whilst there still exists demand for long term and large corporate technology initiatives, the stance is starting to change somewhat towards more agile, focused investments. Unfortunately, legacy issues and organisational culture continue to block progress.

Whilst the market conditions and technology evolution is facilitating a reduction in workforce, respondents cited other equal forces in areas such as risk and control, plus offshore operations delivering less value than expected, working to counteract this.

Please continue to send us your thoughts before we close!

Interestingly the largest number of No Comments (40%) came against the prediction that “Crowd-funding services continue to gain market share”…maybe an article for February.