The ever-changing landscape of the financial markets continues to influence how investment managers evolve to keep pace. Increasingly, firms are shifting from a bottom-up, siloed approach to a top-down, orchestrated effort to holistically transform the investment lifecycle, “front-to-back.”
Given the magnitude of change and the critical importance to the firm’s success, these large-scale transformations will no doubt feel daunting. You may ask yourself, where should I begin? At the front of the investment cycle? The middle and back? Or at the foundation, the data strategy? As the adage goes, “Which came first, the chicken or the egg?”
To better contemplate this question, let us take a closer look at each option.
Changes impacting front office investment teams should be approached with an eye towards minimizing disruption. This alone may suggest avoiding a front office start but careful consideration should be given to the efficiency of the existing toolset. Functional limitations or slow responding technology impacts the ability to maximize investment decisions and increases market exposure.
An inefficient operating model forces resources to focus on lower value or manual tasks, making it difficult to attract and retain top talent while impeding the ability to grow AUM and diversify products. Therefore, any transformation that begins with the front office may add an immediate, significant value to the firm and its clients.
Middle and Back Office
Beginning with the middle and back office may be appropriate given, like the front office, limitations within the accounting application and operating environment, often result in an elevated level of risk.
Legacy operating models are based on a patchwork of applications and manual processes born from attempts to fill functional gaps, improve controls, and support custom client requests. Outsourcing, or reengineering the operating model and replacing aging technology with modern, more robust solutions will create operational agility to support expected business growth and provide benefit to future implementation phases.
Finally, a start with the data strategy may be appropriate in that it underpins the entirety of the transformation initiative.
Data is the product that drives critical business outcomes but it is often siloed, stale, and difficult to mine. Delivering trustworthy data on time enables critical investment decisions, drives operational processes, and provides transparency to internal and external constituents. Additionally, a data-centric architecture acts as an insulation layer and a mechanism where source platforms can be changed with minimal to no disruption to the consumers of data. This approach creates agility within the implementation plan and may also assist in mitigating execution risk.
Unfortunately, there is no silver bullet to the question, Where to begin? Each firm has its unique set of challenges and objectives, and thus, the answer lies within the consideration of four key points:
- Prioritization is key – identify critical transformation drivers; recognize the greatest benefits may also represent the greatest challenges
- Cost and effort will vary – understand the variability in implementation cost and effort across the options; assess potential re-work versus risk mitigation
- Deliver business value early and often – define an execution plan where components are aligned and build upon each other
- Mitigate risks – weigh the firms’ risk profile and identify controls and mitigation strategies
It is important to remember, although an effective front to back transformation is realized over time, the most successful strategies contemplate the full breadth of objectives and requirements from the onset, as we discuss in Olmstead’s blog “Front-to-Back Operating Model: Avoid a Siloed Approach”.
At Olmstead, our industry expert consultants understand the complexity of implementing large-scale transformation initiatives. Leveraging a proven data-centric approach, we partner with our clients to customize an execution plan focused on maximizing success. If you are considering such an initiative, reach out to us today.