The debate around best of breed versus enterprise systems has been raging for as long as I can remember. There are firm advocates in both camps but in terms of the actual buyers, it seems me to that the debate is somewhat cyclical.
Just recently I had a conversation with an executive from a well-known vendor. He told me: “we have to accept that the age of best of breed is dead.” This is an increasingly commonly held view, but is it true and if so, is it what the market needs? Or wants?
It is clear that over the last five years the profile of the vendors has changed. As they have reached maturity their ability to continue to grow as required through new business sales has been compromised by their previous successes. Added to this, the size of the market (in terms of number of firms) continues to shrink, compounding this challenge. In order to sustain growth aspirations these firms need to sell more to existing clients, and in order to do this, they must expand their product and services offering, either organically or by acquisition.
Consequently, we now see a declining number of vendors supplying the asset management community, and the vendors that remain are becoming progressively homogenous, and—dare I say it—increasingly sterile. It is becoming more difficult to see clear differentiation between suppliers.
Many vendors use the same terminology in their marketing, offer the same blended service lines and (most worryingly) look to their peers rather than their market for strategic influence. I frequently hear senior executives at these firms describing their products and strategy in terms of their competition.
Why is this of potential concern for the asset managers? In my view, these larger firms with broader applications are focused on becoming more ‘sticky’ with their current client base and using ‘land and expand’ sales strategies. This leads to an emphasis on developing functions that fit most of the existing market requirements and away from innovation and future needs.
As a result we are seeing a dwindling number of vendors supplying the market, and these firms are looking noticeably similar. Just how many incumbent firms today are offering a front to middle application, covering most asset classes to a reasonable degree, with bundled services and data, usually provided in a cloud/hosted environment? A good and growing number, I would suggest.
In many ways this is a natural cycle for suppliers and should lead to the emergence of newer, more nimble players, providing specific functions for a fast moving demand. Whilst there are some green shoots of new technology in asset management, it is still the slow moving sector of the fintech revolution.
There continues to be talk of disruption in the asset management world, with new firms transforming the industry. Perhaps the existing tech and service providers are in more need of such a challenge?
There is a large amount of noise being created about the ‘value’ of integrated solutions over best of breed. Whilst much of this is valid at an academic level, it is obvious that this value cannot be realised if the project cannot be implemented in a timely and cost effective manner, or implemented at all. And if the market starts to quickly evolve (there are a number of reasons to believe that this may happen), will firms in the midst of a lengthy and highly invasive project have the bandwidth to react in time?
And it is not just the asset managers who need to be tuned into upcoming changes. Will the incumbent vendors be able to evolve into more innovative and agile organisations, or will they become the dinosaurs of our age? A new era of truly pioneering best of breed might emerge to challenge these more integrated systems.
When designing operating models and selecting providers, asset management firms need to quickly become more sophisticated in order to ensure that they are starting on a road to transformation and not simply locking themselves into years of sterility.
