When is the right time for buy-side firms to invest in evolving or installing new core competencies like software development approaches, new operating models, or creating new roles? Our clients are faced with the decision regularly, typically as a significant change effort takes shape. In my view, there is never a bad time to embrace change, but experience tells us that firms fall neatly into two, predictable camps: those that embrace a project as an opportunity to change in multiple forms, and those that have a set project in mind with little interest in evaluating work that falls outside of laser-focused scope. The question I’d like to examine is whether firms get more value out of taking on a broader scope, e.g., taking on competency changes simultaneously, during times of change.
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TO funds design their risk profile around an investor that will need their funds, or remove them from the strategy, at a specific point in time, such as Target Date 2030 funds. THROUGH funds also focus on a point in time but modify their allocation arch to support investors that go to, and eventually THROUGH, that target date. These different approaches result in differing risk levels, especially in the final years of the target date funds and obviously play a material difference in returns and alignment with an end investors goals. (Sources: BlackRock and Neuberger Berman). What’s the difference and why does it matter? “To” Funds: The fund is designed for an investor who expects to spend all or most of his or her money in the fund at the target date. “Through” Funds: The fund is designed for an investor who plans to withdraw the value of the investor’s account in the fund gradually after retirement. |
In some ways, this competency development debate parallels another industry discussion: the "to" versus "through" debate for target date investment strategies. These products focus on tailoring risk and diversification to timeline targets (e.g., Target Date 2040 fund) which are receiving new attention as investors show more appetite for "set it and forget it" investment vehicles. Buy-side product managers are now fighting to differentiate their target date offerings—or the "to" versus "through" modelling debate. Some vehicles are focused on getting investors TO the target date (more conservative investment allocation leading up to the date) versus vehicles that slowly reduce risk up to and THROUGH the date (slightly less conservative but with potential for a longer investing horizon). Like the to vs through debate, firms are aligned in one of two camps. While there is no wrong approach per se, there is opportunity risk to consider.
"To" corresponds to focusing solely on the task at hand. Black and white. Limit distractions and unknowns.
"Through" is more forward-focused, envisioning not only the goal, but the day after the goal, and the day after that...
Similar to "to vs through," asset management firms have fallen into the two distinct camps as they approach using projects as opportunities to leverage new approaches or invest in a new operating model, as opposed to just implementing a new solution.
I see the camps as follows:
- "Just execute"—Limited appetite to expand the scope of a project beyond a clear, tangible goal, such as leveraging a new order management system. Projects are a means-to-an-end.
- "Invest today"—The organization views material change projects as the time to invest in important competencies, even those that are unproven or slightly outside their comfort zone, but align with broader organizational goals or future trends.
Academically speaking, it would make sense to focus attention on new approaches or competencies in slower change periods or in smaller trials; periods in which the business isn't investing in core transformation or between product launches…but those times are fleeting these days. At the same time, large technology and operations change efforts (“programs”) are occasions when firms are clearly investing in their infrastructure and firms expect change across people, process, and technology. The risk: Taking your eye off the finish line, causing delays, or worse. I won't make blankets statements on which approach is right, as firms have different approaches that work for them, but I will offer my perspective based on experience.
Firms gain value from adopting the "invest today" approach as it offers a critical test ground for new approaches and the staff that are leading them. In the past, firms were fearful of large-scale failure as a result of trying something new, but our digital world has forced us to see opportunity in iterative steps. We are more familiar and comfortable with trial-by-fire approaches to guide design decisions and “fail fast.”
Why not see if new ideas or approaches can stand the test of a change effort? Many will respond: That is more expensive. That extends timelines. That creates more dependencies and uncertainty. These are examples of real "cons" that drive firms into "just execute" mode but firms need to weigh those risks against increasingly important parts of our business that can't wait four years to evolve: change management disciplines, information security, leveraging cloud technology, etc.
At Citisoft, we offer service that aligns with the needs of firms that take either the “just execute” or “invest today” approach, but we advocate our clients continually re-evaluate key competencies and use change initiatives as platforms for broad growth. Industry leaders embrace the opportunities afforded to them, in some cases at the expense of the overall budget or timeline. To me, "through thinking" is especially important in modern times and should weigh heavily in any organization's project scope decisions.
Where will your organization land next time you take on a change project?
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