When I was in my youth and learning to drive in England, I did so using a stick shift—or “standard transmission” as we call it. Fast forward to the early 2000s and the majority of cars were fully automatic. With the introduction of electric, hybrid, and self-driving cars, the picture has changed again. Electric cars don’t even have a gearbox. Cars can self-park and drive themselves on the highway.
What’s true for cars also applies to systems and operating models in the asset management industry. Below is a brief explanation, and some tips on learning how to drive this new electric/hybrid model.
In the good old days, we designed and developed all of our systems in-house. We ran them, on-site, using our own in-house operations teams—the stick shift era of asset management. From the early 90s on, the option to buy gained prevalence and continues to be a popular route today—the semi-automatic option.
From the late 90s, managed service providers started offering “outsourced” products and services. The first automatic options in our industry.
Within the past few years, the above picture has changed again. Service providers have upped their game, and are advancing to the electric/self-drive model phase, using new technologies—such as AI and robotics—to offer elements of managed service solutions that are self-driving, more operationally efficient, and much more cost effective.
Like the car analogy above, are investment managers ready for an electric, fully automatic, self-driving vehicle? Do they trust it? Does it have the control, flexibility, and versatility to which they are accustomed?
Probably not. But a hybrid mix might work…
So the game now is setting up a hybrid system/operating model that marries the best bits of the automatic, electric and self-drive components—supplied by service providers—with the more sophisticated, fine-tuned, in-house custom-designed elements that leverage the value-add of the investment manager.
Here are some key considerations when setting up a model that leverages service providers:
Clearly define who has responsibility for what.
The classic trap with “outsourcing” is to believe that once you sign the SLA (service level agreement) the service provider magically does everything for you. It doesn’t work like that. You need to create a target state services model where you identify all of your business operational functions and clearly agree with your managed service provider, and with your own in-house operations teams, who will support what—and how. Identify the control processes, hand-overs, and the required SLAs and KPIs (key performance indicators).
Document and agree to the target state architecture model.
Map, in detail, the complete system architecture model that you will use to support the above business operational functions. Will some of the service provider elements be a “black box”? Yes. Don’t let that frustrate you. It’s what you are paying for. Make it work to your advantage. Define the interfaces to that “black box”—the instructions that you send to the service provider—and the data that they send back to you. Define the hands-offs, the control and reconciliation processes, the service model. Make it work for you.
Define your data model and data platforms.
As noted above, if you are dealing with a “black box” scenario, it all comes down to data—as it should. Make sure that you control that. Identify who owns and governs each data element that is used in your business operating model; identify which applications are the systems of record, versus which systems are just data provision. When a business user comes to you and says: “Is this field available?” you need to be able to give the answer.
Maximize the relationship with your service provider.
Put your vendors and service providers front and center in your implementation activities. Treat them as the key stakeholders that they are. Put them on your steering committees. Understand their product road maps. Sit on their advisory councils. Attend their conferences and webinars. Leverage the relationship to your advantage. If your relationship with your service provider fails, your operating model will not be successful.
Define and agree to a roadmap.
Hybrid models are complex. Your planned target state is almost certainly a lot different to your current state. Work with your service providers and vendors—your partners—to create and agree to a roadmap, based on the activities required to get from now to your target state. Identify what needs to be done, and who needs to do it (you or your partners). Be realistic. Agree and share the roadmap with your organization and your partners. Manage to it.
The hybrid model is here. We need to learn how to drive it. Like my Dad was here for me all those years ago as I grated through my first manual gear changes, my colleagues and I at Citisoft are here to help you.