There is simply no denying that “front-to-back” is gaining significant momentum. The business case is clear: asset managers must differentiate to survive but a legacy of overly complex operating models, restrictive and costly technology, and functional silos between the front, middle, and back-office are inhibitors to executing their strategy.The front-to-back concept provides asset managers a unique opportunity to optimize and scale multiple functions along the value chain. This can be achieved b strategically exploiting data, leveraging 3rd party capabilities, and creating shared services for key functions that have been historically fragmented, such as data and reporting, valuation, reconciliation, and service provider oversight.
While this is incredibly appealing, the full benefits of a ‘front-to-back’ solution can only be realized when asset managers approach it with a mindset of true transformation, both philosophically and practically, that transcends traditional operational silos from initial assessment through implementation.
Implications of a siloed ‘front-to-back’ approach
A siloed approach impedes the ability to think outside the box and gives credence to the phrase, “old habits die hard”. It works within the existing construct of front, back, and middle office to define and ultimately implement a future state that is intended to solve for the whole. Rather than focus on the functions holistically, it looks at each one individually through the lens of existing organizational and functional paradigms.
What might have been sufficient as a stand-alone service may no longer be, or simply should not be the case when viewing the model holistically.
For example, as new functions are being outsourced, ‘front-to-back’ creates a unique opportunity to revisit existing outsourcing arrangements in a broader context. It is the perfect time to reassess the service provider’s capabilities, optimize data consumption across the board, and improve service levels.
It is also essential for asset managers to rethink their retained organization post-outsourcing. Breaking down walls between functions opens considerable possibilities to consolidate and streamline functions that have been historically fragmented. Not only does this significantly improve efficiency, but it also creates new and exciting career opportunities for retained operations staff.
The most obvious example is oversight, which is commonly managed inefficiently on a function-by-function basis; each with their own individual SLAs/KPIs and touchpoints with the service provider. Adopting a centralized oversight model increases transparency and establishes consistent expectations over how service levels are monitored, measured, and maintained. However, the possibilities are not limited to oversight. The natural synergies within a ‘front-to-back’ model lend themselves to the creation of shared services to facilitate all data and reporting, valuation, and reconciliation needs.
A better approach
A holistic approach is essential to realizing the full benefits of a front-to-back operating model.
It begins with a thorough upfront due diligence that digs deep behind walls to identify opportunities for optimization, uncover process interdependencies, assess service provider capabilities, and ultimately define a target state that solves for the whole.
The common pitfalls of a ‘siloed’ approach can be avoided by having representation from all parties (front, middle, and back-office), but real success can only be achieved when participants in this critical step have a “change agent” mindset within a project governance structure that is laser-focused on true transformation, not the replication of existing service provider models and retained organizations.
It does not stop at due diligence. Transformation is a journey that requires the same mindset and cross-functional representation through implementation to jointly define and execute a realistic conversion strategy with full transparency into key decisions, issues and risks, and project status.
More and more asset managers will be considering ‘front-to-back’ solutions because the value proposition is nearly impossible to ignore. While this presents exciting opportunities, they can only be met through a holistic approach from the beginning.
Before heading down this path, it is important to establish a baseline for moving forward by answering some key questions.
- What are the main factors driving change?
- What does success look like?
- Do I have a defined approach/methodology to review my current environment, assess service provider capabilities, and define an optimal target state?
- Who are the change agents within my organization?
At Olmstead, we recognize that the mere thought of broad transformation can be overwhelming. Our deep industry experience, data-centric approach, and proven methodology help guide asset managers through this process to make better decisions, lower project risk, and ultimately position themselves for future success.