 Matthew Nelson
Director, Market Intelligence
In the first quarter of 2009, Omgeo interviewed over a dozen of our largest U.S. clients, representing all segments of the industry. The purpose of these interviews was to better understand how institutions are coping with the current conditions, how they are planning for the future and to gather their opinions on the future of the industry. Six common topics emerged from these interviews; planning and prioritization, the changing role of operations, relationships, risk and regulation, changing business models and emerging as a stronger industry. This series of articles will discuss each of these topics and our discussions with the participants.
Planning and prioritization has become a critical and now sometimes painful activity for most firms. Underlying the topics that we distilled from client interviews, were three themes that connect all of these topics and form the foundation of almost every firms current activities; cost reduction, risk and volatility. These play a major role in the planning and prioritization activities of every firm today.
A key question that we asked was “how has the crisis changed your planning process and horizon?” Clearly those firms that have been hit hardest by the crisis are feeling the most pain with regards to cutting budget and scaling back project work to eliminate anything not absolutely necessary to the firm’s survival. One large bank broker/dealer discussed decision-making around projects that “run the bank, versus change the bank.” It is more difficult to justify the latter when the firm is losing money due to trading losses and asset write-downs.
Somewhat surprisingly, no firm we interviewed was cutting back on investment altogether; on the contrary all realized the importance of continuing some investment to build future capabilities for when the dust settles. However, all firms stressed the importance of investing smartly, tackling smaller projects with a quick return on investment (ROI) and a solid benefit to the firm in terms of operational efficiency. A common benchmark that was used for project decisions was 12 months; anything with a longer ROI might stay under consideration, but wouldn’t receive funding in the current environment. Everyone is working towards a common goal of doing more with less, so improving efficiency through automation and better business practice is a key desired outcome for all firms. Many firms have made significant investments in technology over the past few years and they are now looking to maximize the benefits of those investments.
There are a number of additional strategies that firms are applying for investment today. These include collaborating more closely with peers in adjacent business units, finding points of connectivity between departments and leveraging buying decisions more effectively across this connectivity. A possible benefit of this crisis may be the breaking down of some of the silos that have existed for so long in the typical securities firm which grew up through acquisition and expansion, but did so in a disjointed manner with little thought to leveraging technology across business units. A number of firms that we interviewed optimistically hoped that this would be a period where firms and the industry as a whole, would work together to “shake things up.” Collaboration was another common response as firms saw this as an opportunity to learn from their peers and to benefit from common learnings and best practices.
Some firms are taking this period to do more careful thinking, analysis and planning around their 3 or 5 year roadmap and strategy. In the absence of any money to spend today (or resources to implement any new projects if there was money to be found), some firms are thinking more in-depth about how they’ll spend money when they finally get it. The lack of funds and resources is leaving a number of idle business analysts with time to conduct thorough analysis on their current infrastructure and look for both short and long term opportunities. One global asset manager even noted that following a round of layoffs, they had more management level staff working on daily tasks alongside their staff. Managers are uncovering new opportunities to improve processes and team efficiency and because of their position in the organization are able to escalate and deliver on those opportunities.
Finally, many see this as a time for introspective thought. They believe that this is a good opportunity to more fully understand the business and the pieces that make it up. One custodian bank discussed their process of looking for areas where big savings could occur in the event of an emergency. This was described as looking for your firms “pianos” drawing an analogy to a sinking ship on which the passengers’ first instinct is to jettison the chairs, linens and the dishes, when they should be thinking about the biggest items that would buy them some more time.
A grim outlook, perhaps, but if that emergency ever actually occurs, having considered their options in this manner will prove extremely valuable for the institution. One thing that we’ve learned from this crisis is that what we think is impossible, can happen. If nothing else, we must at least consider the worst case scenarios and plan a response.
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