Musings on SaaS, Outsourcing and Data Management

December 11, 2012

I recently participated on a panel discussion at Osney Media’s Top Strat and Data Conference in Boston. I thought the topic on outsourcing was very interesting and something we come across a lot when talking to prospects so I thought I would share some of my views on the panel topics:

-       Should you outsource business components, use Software as a Service, or execute in-house?

In my view, asset managers should not execute in-house what is not core to their business. In a recent blog I wrote, I talked about how things like data management were not core to their business and they should therefore consider outsourcing it. Data management is a typical example of something that you could say lies outside the main day-to-day business of an asset manager. In my view, it is not their USP, nor should it be. On the other hand, data is a core raw material in the build/manage process of a fund – so one can understand why an asset manager wants to keep certain business-critical data management functions close to hand. On the other hand you have the sales/marketing and distribution side of the business, for whom data is not so much a raw material, rather an element of the communication, and it is here that the ‘core-ness’ of certain data management functions become less clear.

Many organizations will use a combination of outsourcing, SaaS and in-house technology provision depending on how commoditized the systems in question are. SaaS – a term often misused and misunderstood – relates to use of software in the cloud with an on-demand licensing model – asset managers are embracing SaaS to access highly commoditized offerings such as CRM, HR systems and ERP.

 The biggest fear when we talk to customers first is lack of control as they consider their fund data to be very sensitive information but when we compare to something like Salesforce.com where their customer information is in the cloud, they soon realize that as long as the data is secure, it makes sense.

  -       Data security and migration when using outsourcing

 The number one concern of an asset manager when they engage with an outsourced service provider or a SaaS/PaaS service provider is security of data. They are concerned not only about the security of the data while the service provider is in control/possession of it – but also with respect to how they will migrate the data back to their organization, or to an alternate provider at the end of the service agreement.

 SaaS/PaaS providers must prove to the client that they have an ultra secure environment and the related information management governance, standards, processes, procedures to back this up. Key related areas of concern outside specifically of security are Backup and BCP/DR services should anything go wrong.

 

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Posted by Ronan Brennan

What risks are at play when you use a third party data provider to populate your data on your own website?

March 9, 2012

In this age of renewed focus on cost savings, I have noticed quite a few firms are increasingly using third party data provider data for their own products on their own websites as a way of reducing their internal data management costs. At face value, it seems like a reasonable way to drive down cost for what can be a very serious cost driver in any asset management firm.

However, you can think about it in another way. What message does this give to the market, to the potential investor? Does it say that you are incapable of managing your own data, or even that a third-party data provider has a better grip on your data that you do? What does this say about your firm?

If the data provider errs and promotes inaccurate information about your product on your website, sure they may take a hit – maybe a month’s fee in SLA credits, but who takes the true financial burden, who takes the reputational hit, who deals with the regulators who arrive on site for a multi-week due diligence audit?

Also – people may make investment decisions based on incorrect or out of date information – customers could choose to withdraw their investment, and new prospects may decide to invest elsewhere. If it turns out, that your funds were mis-represented in public, you will suffer damage to your reputation and to your brand and you might even have to take corrective action if any investor loses money due to errors in the information that was provided.

It all comes back to caveat emptor – buyer beware – you get what you pay for.

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Posted by Ronan Brennan

Buy or Build?

August 22, 2011

In the world where asset management technology and data quality management departments intersect, a perennial question is raised vis-a-vis implementing technology frameworks that support the data quality management process, build and manage various master data systems (e.g. security master or product master) – should we partner with a technology vendor with a best of breed solution, or should we just build it ourselves?

Like many such perennials there is no right or wrong answer. As a technology vendor, I often argue that something like data quality management is not actually the core competency of an asset manager and rather than figuring out how to manage their data, they should focus on their investment product strategies, growing their customers etc. I do sometimes wonder though if some of the asset managers out there are financial technology companies with an asset management firm bolted on or just plain vanilla asset managers. There are some managers that have actually spun off technology companies themselves based on internal developments.

My own experience is that there really are just three camps:

 1. Build it ourselves unless there is an ultra compelling reason not to;

 2. Apply a balanced decision-making process to weigh up the pros/cons of doing an internal build versus finding a vendor to work with;

 3. Use a vendor unless there is an ultra compelling reason not to.

Are any of the camps more correct than the other? Not really – they have their reasons for the strategies they employ. There are ultra successful examples of all 3 company types – so adopting one or the other strategy does not seem to have held anyone back, but that all being said – you would have to perceive that those in camp #2 have a more pragmatic view on life.

Camp #1 companies tend to be IT-led organizations, where technology is a key driver in all aspects of what the company does and so is at the forefront of all strategic decisions – hence the need to retain internal (and full) control of all technology in use. They would normally be fundamentally opposed to outsourcing any aspect of their business.

Camp #3 companies tend to be “IT-deniers” – they are obviously the complete polar opposite of camp #1 companies and tend to be 100% led by business. The IT department is there to support and maintain systems and does not form part of the strategic fabric of the organization. One of the goals will be to maintain a low IT footprint and outsource wherever possible.

Camp #2 is the hybrid – they recognize that technology is important, but are not beholden to their own IT department. They are of the view that if there is a specialist vendor out there that has specific domain expertise and has built the same solution/product over and over again for many of their competitors, then this company will deliver a best in class solution – they retain their own IT resources for delivery of standard solutions for which an external vendor adds no specific value, or  for areas where they believe they have unique USP.

In my opinion, Camp #1 is made up of about 30% of the market, Camp #2 would account for 50% and Camp #3 would account for 20%.

The pragmatists amongst us recognize that camp #2 are probably the most balanced of organizations, but these companies really do struggle with the challenge of identifying what they should and should not outsource… it may depend on the size of the potential project or the expertise required.. or the business may influence a final decision.

Of course once a decision is made to use an external vendor, next choice is “local-install or cloud”?

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Posted by Ronan Brennan

Recent Panel Discussion at TSAM USA

July 29, 2011

July has been a busy month with client engagements and travel but I wanted to add a blog about the event I attended in New York in mid July.

Many people will be familiar with TSAM, the annual buy-side technology and operations event, which is usually attended by senior operations, marketing and IT executives. I always enjoy these industry events as they offer a great opportunity to network and catch up with people in the industry as well as finding out about the latest trends and developments.

I had the pleasure of participating in a panel discussion on “Critical issues in data management” together with industry veterans: Regina Trach, VP Marketing Services at J.P. Morgan Asset Management, Gerard Walsh, Head of Delivery, Global Strategic Solutions at Schroder Investment Management, and David Bates, Principal at Citisoft. The discussion was moderated by Uday Singh, CEO of Osney Media. It was only supposed to go on for 30 minutes but ended up stretching into an hour as there were so many questions and such a lot to talk about.

Initially, we focused on what the key issues were in the data management area, with most of the panel agreeing that drivers for data management projects centred around managing risk, complying with regulation and also managing the data “overload” – what to push out, when, and to whom. Gerard from Schroders said that as clients became ever more demanding, they needed to get timely and accurate data as fast as possible in whatever way they wanted it whether in person, in a report, on a web page or as an app on an iPad. J.P. Morgan recently launched an iPad app for advisers and feedback has been phenomenal. But, getting information to devices is a major data and integration challenge.

In terms of regulation, one of the concerns is that asset managers know there will be demands for transparency but don’t know what they will be. They are wary of the SEC and FINRA and what they will actually be looking for. The SEC is likely to take information and fact sheets from an organization’s website and compare it – and will want to ensure it’s all accurate. They will also want to know historical information e.g.”can you show me what your website looked like on April 11th, 2009″? Asset managers still have a business to run and the wall of regulation can be a challenge – but they must be compliant.

We then went on to talk about the amount of data that is available and how accessible it needs to be… With large global asset managers averaging 4.5 million items of data each month, it’s hard to answer the question “Do you know how good the quality of your data is?”  You really need to work out what to push out to your various audiences… this is where using segmentation/ audience management is very powerful. If you have a contact strategy where you test email open and click thru rates, track website visitors and monitor Twitter, you will know who is listening to you and find out what they want to hear. 

We then went on to talk about what is the right material to push out? Should we be reviewing what we need to report on. What do customers need?  We also need to focus on the consistency of information across the organisation e.g. surveys, web presentations. Separate areas of the business are generating data and enabling it to get out. I talked here about how marketing ops have not been well served by IT and there are lots of manual processes involved in getting data to market. If data points are managed on spreadsheets, you have to have proof readers coming in to get material out to market and you have a much higher risk of error. Setting up a data governance process and ensuring that data is corrected at source will help greatly and you won’t end up with marketing teams chasing, checking and keying data at the last minute.  Also, if you automate the process, you will significantly reduce your fact sheet production time.

Then we talked about actually getting data management projects off the ground. It can be quite difficult as often times C level doesn’t realise there is anything wrong with the data. It might be easier to focus on a smaller project first and try building it out from there. For example, for Schroders, the web was a big driver and they wanted to provide their sales force with tools that can help people make investment decisions – having timely, accurate and consistent data available on the web was a key influencer.

The other key influencer will be cloud computing– not just on the entire IT area but on other areas within the organisation e.g. Salesforce.com.  Asset managers are more likely to outsource if it’s not a strategic advantage to do it themselves.

 

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Posted by Ronan Brennan

Technology in good hands

June 14, 2011

No matter how sophisticated the plane is, we trust the pilot to bring us safely to our destination. Don’t we? The same principle should apply to the management of your Product Master. No matter how good the technology, it is the people who will make data governance a success.

When selecting a partner in data management, do not underestimate the service element of their offering. Effective data governance and stewardship requires a cultural shift in the organisation that can only be nurtured through people. Technology has a key role to play but it is human interactions that will win the hearts and minds of the stakeholders and secure their buy-in. This is particularly true when data is coming from a wide range of sources with different attitudes towards data quality.

Your data quality management service provider should be focused solely on your industry. The better your service team understands your business and the business of your data sources, the sooner they will seamlessly integrate with your data supply chain and become part of the fabric of your organisation. This will generate trust and goodwill on the part of the data suppliers as they will see the data management service team as a partner that can help them improve the quality of their reporting. Knowing that the service team has an intimate understanding of their data will also generate respect and promote accountability on the provider side therefore driving them to achieve the data quality standards required by your organisation.

 Managing processes and data provider relationships is only part of the value that you should seek from your service team. Management reporting is another area that will benefit from a strong service provider with a deep understanding of your industry. The technology will generate all kinds of statistics on the reporting cycle such as data timeliness achievement rate, number of validation rules applied to the data, number of exceptions raised by such rules, number of data points resubmitted, etc. These are of little value unless analysed by a team of experts that can deliver to you meaningful content and recommendations that will empower your business to improve data quality on an ongoing basis. Your service team should report on the performance of your data providers in all four dimensions of data quality: timeliness, completeness, consistency and accuracy. You should be provided with trends for each of these Key Performance Indicators, benchmarks that you can measure against and clear recommendations on how you can exploit further the technology to drive data quality.

Technology combined with Service Excellence that is focused on your industry is the right combination to bring your data governance programme safely to where you want it to be.

1 Comment | Data Quality, Dodd Frank, Outsource, service provider, SLA | Tagged: , , , , , , , , , | Permalink
Posted by Jeff Willems

Data Management in the Cloud..

May 27, 2011

To date there has been some reluctance amongst asset managers with respect to managing their security and product master data in the cloud, yet the same organizations are actively pushing their CRM data into the cloud. Why is this? Why does the sales side of the organization readily embrace such change when the investment operations teams are more cautious?

Security concerns cannot be the reason, even if they are the reason most often cited by investment operations teams who are not willing to embrace the cloud. For a financial services organization, there is nothing more sensitive than their clients’ personal details – so if you consider the number of firms actively using cloud-based CRM systems like Salesforce.com – this negates the security argument.

 But positioning of security and product master data in the cloud is just as sensitive. Of course, the security and product masters contain commercially sensitive data, but no more sensitive than client data found in many CRM cloud implementations. So we should agree that security concerns, while valid, are not the core reason we do not see the same level of enthusiasm.

Some would argue that the sales side of the organization are by their very nature risk takers, but the technology side of the business might argue that it is the quality of the offerings that is the only impediment to such decisions.

Cloud service providers, whether they are CRM or data management vendors, are all massively aware of the security risks posed by hosting sensitive third-party data – the fact is your data is probably more secure in a cloud provider’s environment than in your own, such is the focus on security.

Some believe that it is the complex relationship that often exists between IT and the sales and marketing units that is the root cause for so many sales units engaging the cloud. In the asset management world, the sales and marketing teams are often at the end of a long line of business units looking for strategic IT initiatives to be acted upon. To this end, sales and marketing teams have learned to become self-sufficient, which as an aside is probably also the root cause for the creation of the myriad of manual processes and Excel / Access-based data management initiatives found in the marketing and sales departments.

Since the investment operations units in asset management organizations have traditionally had a much closer relationship with the IT department, they have never felt the same need to explore alternative solutions. This is not to say that investment managers are not exploring data management in the cloud, just that they require a greater level of understanding of the advantages and disadvantages of such a venture. The providers of cloud-based technology and services themselves  have also had to up their game to sell the benefits.

So what merits does the cloud bring to an investment operations team? First of all, let’s debunk a myth – putting your data management solution in the cloud is not outsourcing, nor is it off-shoring. Cloud data management service providers generally engage in partnership-led operating models where they work hand-in-hand with the client towards a common goal, or they simply use the cloud provider as a technology platform in the same way they would engage with their own internal IT department.

 Working in the cloud means:

 1. Not having to worry about where you currently fit into your IT department’s strategic roadmap

 2.Your environment is managed by a team of professionals whose only goal is to ensure that  your environment is working and secure

 3. You are always on your vendor’s latest released platform version

 4. You have one less system to worry about in your BCP plans

 So what about the disadvantages? And how do you mitigate against any risks? What  should you be worried about?

1. What happens if you want to disengage from your cloud provider and take your process and data back in-house, or indeed have it managed by a different provider?

  •  This is something that needs to be considered carefully before engaging with any solution in the cloud. Before you engage, ensure that your contract and your SLA are watertight and replicate data back to your own data center so you always have a local copy at arms reach.

 2. How do you integrate the solution into your organization’s broader BCP plans?

  •  Ensure the vendor you choose to partner with has a fully documented and regularly tested business continuity plan that ensures your data is available according to your own stated ‘Recovery Time Objective’ and ‘Recovery Point Objective’ – then ensure your vendor runs the BCP tests with your involvement.

 3. How do you know your data is secure?

  •  You absolutely must do your full security due diligence – including externally-commissioned penetration testing.

 4. What about latency between your site and the cloud?

  •  Run full latency checks before the engagement and ensure latency is captured as a KPI for SLA measurement. Cloud providers are generally located at key Internet hub data centers to reduce latency concerns

5. How do you know the vendor will provide a good service?

  •  If you go down the partnership route, ensure you have an SLA that is considered an evolving document which is regularly reviewed and enhanced as your relationship develops. The SLA should set out the expected minimum service levels and the target service levels – with appropriate KPI measures identified for regular reporting.

 6. What if your vendor goes bust?

  •  Before any engagement, ensure your due diligence process includes a full financial review. In addition, insist on an escrow agreement to ensure you have access to the technology software in the event that the vendor is no longer financially viable.

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Posted by Ronan Brennan

Battle for the middle office

October 18, 2010

I note that the industry press are starting to pick up on the new battle fronts that have opened up in the mythical middle office - check out the recent article in Ignites.

This is symptomatic of a few things that are happening in the industry today:

1. Opportunities for profitable outsource deals in the back office are few and far between;

2. The middle office offers significant opportunities to service providers who have the innate ability to untie the Gordian Knots.

Let’s look at the first point above – opportunities for outsourced deals in the back office are few and far between – this is no doubt true. There are very few opportunities of interest in the market today – the practice of  ’service provider hopping’ which was prevalent for the past number of years has tailed off significantly. There are many war stories of note where asset managers having moved provider, later wished they had never done so. A lot of this business was put out to market via RFP, thus driving deal values to such a low level that the unlucky winner of the business could not provide the quality of service being demanded by the asset manager.

This raises the question as to whether RFP is the right way to go about sourcing a provider who is ultimately required to be a business partner as opposed to a commoditized widget supplier. Beauty parades are starting to become popular, once more as the asset manager realizes that there is real value in having the right business partner as opposed to the cheapest service provider managing their back office.

The race to the bottom of the barrel between the various providers of back office functions has not only reached the bottom but has bored right through it – the bps rates that are being charged to manage some funds are clearly at a level that risk managers within the asset management companies should be uncomfortable with – it is not a healthy situation.

The cut-throat nature of the back office deals has led to renewed and sustained focus on other aspects of the asset manager’s business that are ripe for outsourcing – the opportunity of note is in the middle office, which leads me to my second point above – the middle office offers significant opportunities to service providers who have the innate ability to untie the Gordian Knots.

Service providers are now looking to lift-out or take on the middle office functions as part of any back office negotiation. In fact, there is anecdotal evidence that certain providers are pricing back office services at below cost level in order to latch onto the middle office opportunities that offer significant long-term margin.

The providers who are winning this new business are the ones who have re-structured themselves to deal with the challenges that the middle office presents. While there were some early horror stories with middle office deals of yore, the  larger service providers have tuned their business up rather quickly to ready themselves for the new battle for business.

The service providers who will prevail will have the scale, technology, culture, but most importantly drive for efficiency, that allows them to take on complex businesses and quickly untie the various Gordian Knots that have formed around the asset manager’s data, technology and operations.

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Posted by Ronan Brennan

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