Leadership, especially in critical, but technologically-challenged functions like collateral management, is the key to seizing a competitive advantage.
IT innovation doesn’t just happen, even in the capital markets where opportunities for substantial improvements in areas like collateral and liquidity management can lead to greater, measurable and sustainable returns. All IT innovation needs commitment, investment and a strategy to make a difference. But most importantly, it needs unwavering leadership if it is to deliver the competitive success it promises.
And here lies the conundrum.
Bank executives already allocate hundreds of millions of dollars (even billions) annually towards technology budgets, yet they are still being bombarded by the claims of a myriad of new developments and solutions that promise an elusive holy grail.
How should the business digitize, become platform-based and leverage open architectures to drive data management strategies that deliver intelligent information? Finding the key to this will strengthen decision-making across all front-to-back office functions.
But it’s not surprising that there is resistance to change, with perennial questions to be answered such as: Why can’t we get more out of our existing IT estate? Will that spend even deliver half of what it promises? What disruption will there be to existing systems while this takes place and how long will it take?
These are understandable executive concerns, given the time consumed by regulatory compliance, the dynamics of a rapidly changing market, and constant pressures to reduce costs and improve margins. Also, not unnaturally, executives lean heavily on historically well-resourced internal IT teams to guide future decision-making, and hence investment.
But it still came as a shock to many when a 2015 Accenture Report estimated that 96% of bank board members had no professional technology experience, while only 3% of bank CEOs had any formal IT knowledge. At the same time, another study said that the top 10 banks have more IT personnel than the top 10 financial software vendors.
Some say that “ignorance is bliss”, but others counter, “If that’s the case why aren’t there more happy people about?” And this reveals the dilemma.
Define the Divide
A lack of IT and business alignment in banking has been a thorny subject for years, constantly framing the two sides as adversaries, rather than partners. These differences often create a chasm of understanding of the priorities, objectives and vision of “success” for each side, effectively stagnating progress toward the necessary transformation.
But there is a way forward.
Take, for example, collateral management. We know processes are often gridlocked, liquidity constrained, technology inflexible and access to pertinent data denied by historic silos and working practices. Every week we see how this results in lower capital returns and impaired profitability, at a time of increased competition and shrinking margins.
What used to be a straightforward back-office task to ensure sufficient and appropriate collateral has become mission-critical in pre-trade decision-making as constraints on capital, regulatory pressures and efficiency mandates demand optimized collateral deployment firm-wide.
But recognizing the problem is only the first challenge. Attempting to fix system pitfalls with a few bandages on already stretched legacy systems tends to compound the problem over time.
Trust External Expertise and Innovation
Experience shows that wider collaboration is feasible – and is working. Banks are now better able to lean on the expertise of outside IT vendor expertise, whose claims are not only battle-proven but are ones that complement rather than threaten internal teams. Developing collaborative partnerships with the business, internal IT and select external vendors who bring new ideas, innovation and experience to the table can significantly advance the firm’s technology objectives. Furthermore, there is a greater willingness to consider cloud-based solutions, as cost benefits and improved resilience start to outweigh historic operational risk concerns.
Align Talent with Objectives
This collaborative approach also benefits internal departments by enabling them to deploy talent where it can be most effective. It encourages the injection of fresh ideas into internal debates, complementing existing capabilities with a step-by-step series of tactical enhancements that eventually deliver a strategic objective – without undermining business opportunities or day-to-day operations.
If this leads to more effective data aggregation and analysis, there will be better-informed decisions that deliver tangible improvements to business profitability, while also reducing risk and bolstering regulatory compliance.
A fresh look at enterprise-wide technologies also lays the foundations for ongoing automation of critical business processes. By starting in a segment like collateral management that impacts all asset classes, business functions and jurisdictions, firms can enable each stakeholder across trading workflows to evolve and provide greater value to the broader enterprise.
This should not only produce a more effective and profitable business but a better informed and more confident executive team that is further empowered to deploy technology more widely to the best benefit of the business.
Once there, they can probably also have a laugh and raise a margarita to Jimmy Buffett, who one of my island-loving peers quotes: “Is it ignorance or apathy? Hey, I don’t know and I don’t care” – because by then everyone will know and they will care.