What will the IT department look like in the future?

Posted on : 29-01-2019 | By : john.vincent | In : Cloud, Data, General News, Innovation

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We are going through a significant change in how technology services are delivered as we stride further into the latest phase of the Digital Revolution. The internet provided the starting pistol for this phase and now access to new technology, data and services is accelerating at breakneck speed.

More recently the real enablers of a more agile and service-based technology have been the introduction of virtualisation and orchestration technologies which allowed for compute to be tapped into on demand and removed the friction between software and hardware.

The impact of this cannot be underestimated. The removal of the needed to manually configure and provision new compute environments was a huge step forwards, and one which continues with developments in Infrastructure as Code (“IaC”), micro services and server-less technology.

However, whilst these technologies continually disrupt the market, the corresponding changes to the overall operating models has in our view lagged (this is particularly true in larger organisations which have struggled to shift from the old to the new).

If you take a peek into organisation structures today they often still resemble those of the late 90’s where capabilities in infrastructure were organised by specialists such as data centre, storage, service management, application support etc. There have been changes, specifically more recently with the shift to devops and continuous integration and development, but there is still a long way go.

Our recent Technology Futures Survey provided a great insight into how our clients (290) are responding to the shifting technology services landscape.

“What will your IT department look like in 5-7 years’ time?”

There were no surprises in the large majority of respondents agreeing that the organisation would look different in the near future. The big shift is to a more service focused, vendor led technology model, with between 53%-65% believing that this is the direction of travel.

One surprise was a relatively low consensus on the impact that Artificial Intelligence (“AI”) would have on management of live services, with only 10% saying it would be very likely. However, the providers of technology and services formed a smaller proportion of our respondents (28%) and naturally were more positive about the impact of AI.

The Broadgate view is that the changing shape of digital service delivery is challenging previous models and applying tension to organisations and providers alike.  There are two main areas where we see this;

  1. With the shift to cloud based and on-demand services, the need for any provider, whether internal or external, has diminished
  2. Automation, AI and machine learning are developing new capabilities in self-managing technology services

We expect that the technology organisation will shift to focus more on business products and procuring the best fit service providers. Central to this is AI and ML which, where truly intelligent (and not just marketing), can create a self-healing and dynamic compute capability with limited human intervention.

Cloud, machine learning and RPA will remove much of the need to manage and develop code

To really understand how the organisation model is shifting, we have to look at the impact that technology is having the on the whole supply chain. We’ve long outsourced the delivery of services. However, if we look the traditional service providers (IBM, DXC, TCS, Cognizant etc.) that in the first instance acted as brokers to this new digital technology innovations we see that they are increasingly being disintermediated, with provisioning and management now directly in the hands of the consumer.

Companies like Microsoft, Google and Amazon have superior technical expertise and they are continuing to expose these directly to the end consumer. Thus, the IT department needs to think less about how to either build or procure from a third party, but more how to build a framework of services which “knits together” a service model which can best meet their business needs with a layered, end-to-end approach. This fits perfectly with a more business product centric approach.

We don’t see an increase for in-house technology footprints with maybe the exception of truly data driven organisations or tech companies themselves.

In our results, the removal of cyber security issues was endorsed by 28% with a further 41% believing that this was a possible outcome. This represents a leap of faith given the current battle that organisations are undertaking to combat data breaches! Broadgate expect that organisations will increasingly shift the management of these security risks to third party providers, with telecommunication carriers also taking more responsibilities over time.

As the results suggest, the commercial and vendor management aspects of the IT department will become more important. This is often a skill which is absent in current companies, so a conscious strategy to develop capability is needed.

Organisations should update their operating model to reflect the changing shape of technology services, with the closer alignment of products and services to technology provision never being as important as it is today.

Indeed, our view is that even if your model serves you well today, by 2022 it is likely to look fairly stale. This is because what your company currently offers to your customers is almost certain to change, which will require fundamental re-engineering across, and around, the entire IT stack.

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

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

Tags: , , , , , ,

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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

Has technology outpaced internal IT departments?

Posted on : 31-10-2013 | By : john.vincent | In : Data

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In technology we love to put a box around something, or define it in a clear and concise way. Indeed, it makes a lot of sense in many technical disciplines to do this, such as architecture, development, processes, policies, infrastructure and so on. We talk about “the stack”, or “technology towers“, or “Reference Architectures”…it provides a common language for us to define out compute needs. “This switch operates at layer 3 versus layer 2” etc…

In the same way we put our technology human capital into nice, neat boxes. Simple, repeatable stuff: 1) Open up Powerpoint…2) Insert SmartArt…3) Hierarchy-Organisation Chart…and away we go. CIO , next level… Head of Infrastructure, Head of Operations, CTO, Head of Applications, Head of Networks, Architecture, COO (can’t have enough of those)…

The general taxonomy of technology organisations has barely changed since the mid 1980’s and actually, until maybe the last 5 or so years, this has been fine. Whilst technology has evolved, it has done so “within the boxes”. We have gone through shifts in operating model and approach, from mainframe to distributed and back again, but the desktop, data, storage, server, mid range and so on services have remained and with it the support organisations around them.

However, things are somewhat different now. The pace of change through Consumerisation, Commoditisation and Cloud (the 3Cs) has redefined the way that businesses engage and capitalise on technology in work and home lives. At the forefront in comes down to three main business drivers:

  • Increased Agility – access to applications and service provisioning should be as close to instantaneous as the laws of physics will allow
  • Increased Mobility – the ability to access applications anywhere, on any device at any time
  • Increased Visibility – a rich data and application environment to improve business intelligence and decision making

To the end user, everything else is just noise. Security, availability, DR, performance, big data analytics…this just gets sorted. Apple does it. Amazon does it, therefore my IT organisation should be the same. In fact better.

So, how does the traditional IT organisation fit with the new paradigm? Well the 3c’s certainly provide significant challenges. The issue is that you have something that was previous contained within a silo now breaking down the barriers. Today’s compute requirements are “fluid” in nature and don’t fit well with the previous operating models. Data, once centralised, contained and controlled, is now moving the the organisational edges. Applications need to be accessible through multiple channels and deployed quickly. Resources need to scale up (and down) to meet, and more importantly match, business consumption.

How does the organisation react to these challenges? Does it still fit neatly into a “stack” or silo? Probably not. How many people, processes and departments does the service pass through in order to provision, operate and control? Many in most cases. Can we apply our well-constructed ITIL processes and a SLA? No. Can we scale quickly for new business requirements from a people perspective? Unlikely…

So what is the impact? Well, it wasn’t that long ago that CIOs spent much of their time declaring war on Shadow IT departments within business functions. With “Alex Ferguson-like” vigour they either moved them into the central technology organisation or squeezed them out, through cost or service risk.

However, it seems that the Shadow IT trend is back. Is this a reaction to the incumbent organisation being unable to provide the requisite level of service? Probably.

I guess the question that we should ask is whether the decentralised model giving more autonomy to business users, for certain functions, is actually where we should be heading anyway? Even within IT departments, the split between ownership, definition and execution of services has evolved through global standards and regional/local service deployment.  Now perhaps it’s time to go further and really align the business and technology service delivery with a much smaller central control of the important stuff, like security, architecture, under-pinning services (like networks), vendor management and disaster recovery.

And then there’s the question of who actually needs to run the underlying technology “compute”. The cloud naysayers are still there although the script is starting to wear a bit thin. There are very few sacred cows…can internal teams really compete long term? The forward thinking are laying out a clear roadmap with targets for cloud/on-demand consumption.

The old saying of “we are a [insert business vertical], not an IT company” is truer today than ever. It may be just that it took the 3cs to force the change.

BROADScale – Cloud Assessment

Posted on : 30-04-2013 | By : jo.rose | In : Cloud

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We are well into a step-change in the way that underlying technology services are delivered.  Cloud Computing in its various guises is gaining industry acceptance.  Terms such as Software as a Service (SaaS), Platform as a Service (PaaS), Private Cloud, Hybrid Cloud, Infrastructure as a Service (IaaS) and so on have made their way into the vocabulary of the CIO organisation.

Cloud Computing isn’t new.  Indeed many organisations have been sourcing applications or infrastructure in a utility model for years, although it is only recently that vendors have rebranded these offerings ( “Cloud Washing” ).

With all the hype it is vital that organisations consider carefully their approach to Cloud as part of their overall business strategy and enterprise architecture.

Most importantly, it is not a technology issue and should be considered first and fore mostly from the standpoint of Business, Applications and Operating Model.

Organisations are facing a number of common challenges:

  • Technology budgets are under increasing pressure, with CIO’s looking to extract more value from existing assets with less resource
  • Data Centre investment continues to grow with IT departments constantly battling the issue of power consumption and physical space constraints
  • Time to market and business innovation sit uncomfortably alongside the speed with which IT departments can transform and refresh technology
  • Increases in service level management standards and customer intimacy continue to be at the forefront

Cloud Computing can assist in addressing some of these issues, but only as part of a well thought out strategy as it also brings with it a number of additional complexities and challenges of its own.

Considering the bigger picture, a “Strategic Cloud Framework”

Before entering into a Cloud deployment, organisations should look at all of the dimensions which drive their technology requirements, not the technology itself.  These will shape the Cloud Framework and include:

  • Governance – business alignment, policies and procedures, approval processes and workflow
  • Organisation – changes to operating models, organisation, interdependencies, end-to-end processes, roles and responsibilities
  • Enterprise Architecture – application profiling to determine which applications are suitable, such as irregular / spiky utilisation, loosely coupled, low latency dependency, commodity, development and test
  • Sourcing – internal versus external, Cloud providers positioning, service management, selection approach and leverage
  • Investment Model – business case, impact to technology refresh cycle, cost allocation, recharge model and finance
  • Data Security – user access, data integrity and availability, identity management, confidentiality, IP, reputational risk, legislature, compliance, storage and retrieval processes

The BROADScale service

At Broadgate Consultants we have developed an approach to address the business aspects of the Cloud strategy.  Our consultants have experience in the underpinning technology but also understand that it is led from the Business domain and can help organisations determine the “best execution venue” for their business applications.

Our recommended initial engagement depends on the size, scale and scope of services in terms of the Cloud assessment.

  1. Initial – High Level analysis of capability, maturity and focus areas
  2. Targeted – Specific review around a business function or platform
  3. Deep – Complete analysis and application profiling

At the end of the assessment period we will provide a report and discuss the findings with you.  It will cover the areas outlined in the “Strategic Cloud Framework” and provide you with a roadmap and plan of approach.

During the engagement, our consultant will organise workshops with key stakeholders and align with the IT Strategy and Architecture.

For more details and to schedule an appointment contact us on 0203 326 8000 or email BROADScale@broadgateconsultants.com

Technology Empowerment vs. Frustration: A User(s) Guide

Posted on : 30-04-2012 | By : richard.gale | In : General News

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One of the most exciting aspects of running an IT Consultancy is the variety of views and opinions we get to hear about from our clients, teams, suppliers & partners. We want to focus this month on looking at the relationships between business users of technology and the IT departments that supply solutions.  As with most ‘marriages’ this is a complex, ever changing interaction, but two factors are key to this are: Empowerment  and Frustration.

We think we are on the cusp of a major change in the balance of power between the user and IT departments, this happens very rarely so we are watching with interest how it develops over the next few years. Business users now are digitally aware, often frustrated by tech departments and confident enough to bypass them. This is a dangerous time for the traditional IT team and trying to control and close down alternatives would be a mistake and is probably too late anyway.

The graph below highlights how users frustration with IT has increased whilst their ability to control has diminished. There was a brief (golden?) period in the 1990’s where Desktop computing and productivity tools helped business users become more self-sufficient but that was then reduced as IT took control back of the desktop

 

Business Frustration vs. Empowerment 1970 onwards

Business Frustration vs. Empowerment 1970 onwards

The 70s – the decade of opportunity

Obviously computing did not start in 1970 (although Unix time did start on Jan 1st…) but the ’70s was perhaps the time when IT started making major positive impacts to organisations. Payroll, invoicing, purchasing and accounting functions started to become more widely automated and computerised. The productivity gains from some of these applications transformed businesses and the suppliers (IBM, IBM, IBM etc) did phenomenally well out of it. User empowerment was minimal but frustration was also low as demand for additional functions and flexibility was limited

The 80s – growing demands and an awakening workforce

The 1980s saw the rise of the desktop with Apple and Microsoft fighting for top-dog position. This explosion of functionality was exciting for the home user initially and then quickly grew to be utilised and exploited by organisations. Productivity tools such as spreadsheets, word processing and email allowed business users to create and modify their working practices and processes. The adoption of desktops accelerated towards the end of the decade so we make this decade as: Empowerment up (and growing) and frustration down.

The 90s – Power to the people (sort of… for a while)

Traditional IT departments recognised the power of the utility PC and adjusted (and grew) to support the business. Networks and so file sharing, and as importantly, backups became the norm. Business departments were  becoming more autonomous with the power the PC gave them. Macros and Visual Basic add-ons turned into business critical applications, new software was being produced by innovative companies all the time. Business users were free to download and run pretty much anything on their work computer.  The complexity of IT infrastructure and applications was increasing exponentially… so inevitably things began to creak and break, end user applications (or EUCs as they became known) could be intolerant of change (such as a new version of Excel), also they were often put together in an ad-hoc fashion to solve a particular problem and then woven into a complicated business process which became impossible to change. This, with the additional twist of the ‘computer virus’ gave the opportunity for the IT department to lock-down users PCs and force applications to be developed by the new, in-house, development teams. Result for the 1990s – User frustrations rising, demands rising and empowerment on the way down.

The 00s – Control and process

The dawn of the new millennium, the first crash of the dot coms and the lockdown of user PCs continues at pace. The impacts from the ’90s – unsupportable applications, viruses, complexity of the desktop were joined by higher levels of regulation, audit and internal controls. These combined with a focus on saving money in the still expanding IT departments caused further reduction in user abilities to ‘do IT’. In large organisations most PCs were constrained to such an extent they could only be used for basic email, word processing and Excel (now the only spreadsheet in town). Any new application would have to go through a lengthy evaluation, purchasing, configuration, security testing, ‘packaging’ and finally installation if it was required for business use so inevitably – User frustration was rising to dangerous levels and empowerment was further degraded.

The 10s – A digital workforce demands power

The controls and restrictions of the ’00s now ran into signification budgetary restrictions on IT departments. Costs were, and are, being squeezed, fewer and less experienced resources are dealing with increasing demands an pace. Frustration levels were peaking to a point relationships between IT and business were breaking down. Outsourcing parts of IT organisations made some significant savings on budgets but did nothing to reduce user concerns around delivery and service (at least in the short term).

Some users started to ‘rebel’, the increasing  visibility of software as a service (SaaS) enabled certain functions to implement simple but functionally rich solutions to a team or department relatively easily and without much/any IT involvement. Salesforce.com did amazingly well through an ease of use, globally available, infrastructure free product which did everything a Sales team needed and could be purchased on a credit card and expensed…  Internal productivity tools such as Sharepoint started being used for  complex workflow processes – by the business without need for IT.

At the same time personal devices such as smartphones, tablets and laptops (BYOD) became the norm for the business community. They want and are demanding ability to share business data on these tools.

Public cloud usage by business users is also starting to gather pace and the credit card/utility model means some functions do not use IT for certain areas where quick creation and turnaround of data/processing is needed (whether that is wise or not is a different question).

So what are IT departments doing to ensure they can continue to help business units in the future:

  • Become much more business needs focused (obvious but needs to be addressed as a priority)
  • Encourage the use of BYOD – in the end it will save the firm money through not having to purchase hardware
  • Aggressively addressing traditional structures and costs – ask questions such as
    • “Why can’t we get someone else to run this for us?” – whether outsource, cloud or SaaS
    • “Why don’t you have a SaaS/Cloud enabled product?”
  • Become a service broker to the business – looking ahead and managing service and supplier rather than infrastructure, applications or process.

User empowerment rising but user demands and frustrations still high

The 20s – Business runs business and Utilities run IT

What will happen in the next few years? Who can tell but trends we are seeing include:

  • There will be a small number of large firms with massive computing capacity – most other organisations will just use this power as required.
  • There will be new opportunities for financial engineering such as exchange trading computing & processing power, storage & network capacity.
  • IT infrastructure departments in the majority of organisations would have disappeared
  • IT for business organisations will consist of Strategy, Architecture, Business Design, (small specialised) Development focusing on value-add tooling and integration, Relationship and Supply management of providers, products and  pricing

All these point to more power for the business user but one trend emerging which may reverse that is the on-going impact of legislation and regulation. This could limit business capability to be ‘free’ and the lockdown of IT may begin again but this time more from government onto the external suppliers of the service resulting in increasing frustration levels and reduced empowerment….. interesting to see how this goes.

 

 

The next phase of Investment Management outsourcing

Posted on : 27-02-2012 | 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. For example OTC derivatives are much more widely utilised in investment firms than, say, 5 years ago and there is an avalanche of regulation in-flight (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.

Last month we discussed the future of middle office outsourcing with Maha Khan Phillips in January’s edition of 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.

Cloud Service Delivery – Part 3: Organisational Impact

Posted on : 26-01-2012 | By : john.vincent | In : Cloud

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So far we have looked at Hosted ITSM solutions and End-to-End Service Management relating to cloud based deployment. In our final part we look briefly at the organisational aspects.

Pros and cons of cloud aside, what we do see is an increased awareness and acceptance that for most organisations, a journey towards some form of cloud based computing is either underway or imminent. Whilst technology departments wrestle with this in terms of infrastructure, data, security, financials and the like, one aspect that receives less attention is the impact to the traditional IT organisation. Let’s explore some of this.

Business users are demanding more speed and agility for provision of services in an increasingly competitive market place. We still hear anecdotes from both IT and Business along the line of “Getting a test server takes several weeks to provision…”, “Finally got my login ID and laptop after 10 days…” etc. Familiar ? It’s not a criticism, just an observation ( and they’ll be a lot of colleagues claiming “not here sir” ).

At a recent roundtable we heard of the business user who, fed up with waiting, bought some compute power on his credit card and expensed it.

From the organisation aspect this has a real adverse effect. IT departments have been traditionally configured as internal, captive providers, both in terms of people and assets ( granted, sometimes services are outsourced, but again this is driven from an internal perspective point and often lacks business alignment in structure ). It is therefore very difficult for an internal IT provider to reconfigure itself based on;

  • Operating Model: the capability to shift in terms of flexibility of costs in both baseline and discretionary, offering market comparative / benchmarked technology delivery and economies of scale. Internal organisations are also often still domain aligned, so particularly shared infrastructure services prove challenging from a customer relationship perspective. It often requires external change to optimise these factors and drive efficiencies.
  • Motivation and Desire: job security plays a large part of the challenge. Staff join company technology organisations for a number of reasons, from financial through to technical. Creating and engineering solutions is in the DNA of many teams. Indeed, there are many internal technology departments building huge enterprise class private clouds “on behalf of their business”. Really ?
  • Commoditisation of Technology: the evolution of IT products and services is such that there is a much stronger value proposition for “Buy” vs “Build” and a reduction in configuration and customisation. Changing this ethos and reconfiguring the internal organisation takes some time.
  • Commoditisation of Resource: this is a big issue and often the “elephant in the room”. Business technology innovation and enablement is as important as ever, if not more so. However, the “entry level of expertise” at both a technical and business level, particularly lower down the stack, has reduced. This may cause a few discerning cries, but it is a fact. Is a 30%/40% compensation premium for a desktop engineer in capital markets over someone in retail justified now ?

All of these aspects require careful thinking from an organisational change perspective. Much as with outsourcing capability, there is sometimes the view that simply drawing a line between the retained and transitioned resources is sufficient. It isn’t.

To be successful, the end-to-end operating model should be clearly defined and likewise the roles and responsibilities within that. As more cloud services come on stream, Service Management, Domain / Enterprise Architecture and Commercial & Vendor skills, as opposed to technical and operational, will be more key to maintaining the service integrity and delivering business value. Attention to the training, development and realignment of roles should not be underestimated.

So what about the CIO ? Well we wrote before about how the cloud may elevate the role closer to the business. In the meantime, perhaps we will start to see the emergence of the Chief Service Broker ?

 

Business IT Alignment and the 3 ‘R’s – Rationalisation, Regulation and Ring-Fencing

Posted on : 24-06-2011 | By : john.vincent | In : Innovation

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Delivering IT within Financial Services organisations doesn’t get any easier. Just as technology services look to simplify and commoditise through maturity and new innovation, along comes a whole bunch of hurdles to overcome driven by economic, social and political circumstance. For many years we have talked about the alignment of Business and IT but never before has it so been important to step up the engagement to a seamless, symbiotic relationship.

Organisational objectives such as Cost, Risk, Quality and Agility and the associated measurements thereof are scattered liberally in the SMART’s of support functions throughout the industry. And yet, couple that with what is often a disconnected business strategy and a culture of short-term meritocracy and it doesn’t take too much intellectual wisdom to realise that something needs to change. Sound familiar ?

So let’s look at some of the current challenges facing business and technology leadership.

1) Rationalisation – by definition “The process of reorganizing and overhauling a company’s operations, policies, and anything else needed to make the company more efficient”. Within FS we’ve been undertaking this for a number of years. Indeed, objectives have been set top down throughout the technology organisation with a year on year increase in weighting. Headcount has been reduced, delivery organisations merged, Capex spend limited, contracts renegotiated, services moved to “best shore” locations etc… However, this only goes so far before a new approach is required and of course, you can’t “shrink yourself to success”.

2) Regulation – as we meet with different organisations one thing is very clear – the increase in regulation and their impact on business and underlying technology services is a constant challenge for organisations. We’ve already been through numerous regulatory and compliance implementations in the past and it isn’t slowing down. We will need to understand the implications of Basel III, Dodd-Frank and FACTA ( Foreign Account Tax Compliance Act ), to name but a few. All of these are being introduced for good reasons and it is vital that the business and technology organisations are closely aligned to determine what are the key implications for systems and processes.

3) Ring-Fencing – it is a matter of opinion as to whether the Independent Banking Commission went far enough with its interim report around future requirements to segregate the business activities of investment and retail banking. What is clear is that again business and technology organisations need to jointly determine the impact now that it seems almost certain they will be endorsed later this year. In order to facilitate ‘retail ring fencing’ there will need to be significant operational and systems changes that would need to be undertaken by each individual bank. As the Commission sets out, there are some functions that should not be ring fenced (related to investment bank) and those that should (relating to retail banking) – the challenge is that there are many shared services across universal banks that service both these areas and would need to be separated if retail banking activities are to be ring fenced. The greater the costs and complexity of ring fencing operations, the longer such changes will take and the more potential for disruption to everyday banking services.

Many organisations will have advanced thinking on the 3 ‘R’s but it is worth taking time to consider certain aspects.

In terms of Operating Model, we feel that the following dimensions require special attention:

Business Alignment : is the model in terms of governance and process connected throughout the organisation to the business consumers of services ? Often we have committees for Run The Bank and Change The Bank investments, but do changes in business activities in terms of scope or volume have a predictability in terms of the associated changes ? Understandably there is a large amount of sunk or fixed cost but it is important that the actual “existence” of all technology assets is understood and coupled to business value.

Service Agility : how efficiently can services be reconfigured as a result of an external change in circumstance ? The focus around costs has led many Financial Services technology organisations to realign operational services from a vertical to horizontal model for internal synergies. Clearly some services are common and therefore this rationalisation move makes sense. However, there is also a risk of making any future Ring-Fencing requirements more complicated and costly. Considering the Business Alignment imperative in conjunction with Service Agility should be the cornerstones of future operating models.

Strategy and Architecture : all organisations have a strategic roadmap for technology and services. However, there are two important questions to ask. Firstly, how mature are we in terms of Enterprise Architecture and the governance thereof ? Often, EA is a pseudonym for Infrastructure or Application Architecture. True Enterprise Architecture considers all aspects of an organisations business activities and can drive innovation, reduce risk and deliver efficiencies if placed in close proximity to the strategic business model.

Secondly, how far out does the strategy look ? In a recent conversation a senior banking leader discussed the need for FS organisations to look much further ahead, akin to the way that Shell does it’s Scenario Planning. Is it feasible to look 5, 10, 25 years in advance ? Conventional wisdom says not in terms of technology… but by considering all environmental, political and economic influences and overlaying the technology aspects then the different paths can be drafted in terms of “Signals and Sign-Posts” for the future operating model.

Risk Management : Disaster Recovery and Business Continuity Planning are well embedded and typically mature with FS. The journey to Service Recovery is understood. However, similar to the Scenario Planning, an increased awareness and vision is required throughout the organisation in terms of the myriad of external impacts to the world we live in and subsequent organisational response. We don’t have to list the surprises of the past 5 years…can we predict what’s next ?

Sourcing : where are services sourced from, whether internal or external, is driven by a number of factors including culture, compliance, cost and innovation. As we think about a more long term and holistic operating model, not just about technology or operational services, how does the way we deliver services mirror the 3 ‘R’ influencers ? Shared Service models or Joint Ventures may be key providing they have the correct construct in terms of commercial, flexibility and partitioning of delivery. Technology advances can help in this, with cloud computing well on its journey along the “Gartner Hype Curve”. The ability to source services in a more on-demand / scalable way provide choices for application provisioning for business consumers, notwithstanding the well known attention areas.

In summary, perhaps it’s time to step back and think about the future. The 3 ‘R’s are, of course, only the basic foundations.