Only build, customise or maintain processes in-house if they enable a unique, profitable product offering, or allow for market beating risk-adjusted net performance which would otherwise not be possible
A discussion about business focus and strategic value.
Asset Managers frequently find themselves reminded about their platform. Too often, these reminders hold a negative connotation, with issues unrelated to their core investment activities. Issues with data quality, performance, implementation of new investment ideas and products, breaks in workflows and processes can be constant reminders of the inadequacies of the underlying platform. Ideally, it would never get in the way, just work and be invisible to all users.
Why are Asset Managers so occupied with themselves?
We find that all too often, existing platforms suffer from similar issues such as:
Lack of market standards, uncontrolled and short-sighted customisations.
Overly complex, costly and hard to maintain in-house developments.
There is no budget left for adding business value. High running costs leading to budget cuts, limiting change efforts to the bare necessity, such as minimum regulatory requirements.
How can we help our clients leave this self-reinforcing spiral?
We believe, that in order to tackle these issues, Asset Managers have to take a step back, and think about their fundamental platform strategy. This strategy must not only entail reacting to short-term change requests; but complement and foresee the business strategy for the next 5-7 years.
Our credo is to only build, customise or maintain processes in-house if they enable a unique, profitable product offering, or allow for market beating risk-adjusted net performance which would otherwise not be possible. The validity of this statement should be re-assessed regularly, in order to keep the platform healthy and the business competitive.
If platform strategy is to be aligned to the business strategy, Asset Managers should first define their business strategy basics, namely:
What are the factors why clients choose them over the competition?
What are the strategic differentiators from the competitors?
Which non differentiating, hygiene factors are expected as a given?
Establishing this as in the below example will lay the ground for future-proofing the business and making it ready to focus on innovation:
After having identified these factors, the Asset Manager will be able to align their platform strategy to today's business needs, as well as future, strategic requirements. This approach will eventually lead to a pareto efficient allocation of platform investments.
Establishing that infrastructure and hygiene components are not differentiating factors to the Asset Manager does not mean, that they should be neglected. To the contrary, every effort should be made in order to elevate the platforms and systems behind these components to the best available market standard levels.
If the infrastructure is lacking, implementing hygiene factors doesn't make sense. Equally, products can only be offered once their enabling capabilities exist.
All this seems like common sense. However, it must be clear that failing to tackle these issues will increase the discrepancy between the solutions that an Asset Manager may want to sell and the capability of their technology and operations to deliver, translating into foregone sales. If you haven't done your homework on the basics in the first place, embarrassing mistakes and delays will eventually serve to repel clients. Short-term sales targets get into conflict with the need for fundamental overhaul, requiring ever stronger business sponsorship. And if left unfixed, the entire business offering may eventually become obsolete. Examples such as the often cited Kodak and Nokia are stark reminders and a warning to our industry.
“Don’t talk about AI if your cash is wrong”
Finally, the advantages are clear: invest today to reap the results in the future. A fundamental principle taught to first-year finance classes. A reminder, that the challenges of our industry often appear to be incredibly complex on the surface, but have rather basic roots. In order to become innovation ready, we first have to jump the basic hurdles. In this sense, don’t talk about AI if your cash is wrong.