By David Rogers, 23rd Parallel Consulting
As business leaders we stand by the principle of being capable and thoughtful about the functions we’ve been entrusted to look after. There is an emotional investment, in people and product, and there is rigour around how we execute.
Do we take the time, though, to assess the efficacy of how we scrutinise our businesses?
We are willing to do the right thing when taking honest assessments of what we do, but sometimes we are actually not sure how to go about it. There’s an innate sense of needing to “fix” or “upgrade” or “rethink” something, but the operational management of running complex Trading and/or Investment platforms takes over, so we often revert to simply keeping the plane in flight, as opposed to understanding whether we should be travelling by an altogether different means of transport.
Or more worryingly, we sometimes struggle to face up to the realities of what scrutiny, as in real scrutiny, may unearth, preferring to lean on the status quo and be seen as “doing a great job”—frequently used as a euphemism for being a solid operational figurehead, as opposed to a strategic thinker—by the people around us or above us.
A Hong Kong-based friend of mine, a senior member of a large Investment organisation, recently shared with me how his firm spent a six-figure sum on commissioning a deep-dive consultancy project, only to take issue with the outcomes to such an extent—in a nutshell, local management didn’t like the optics of how the findings would land with their overseas head office—that they buried the report, choosing not to share the results outside the immediate local management committee.
Behaviours like this are rare, but distill this down to smaller, day-to-day actions: despite the usual rhetoric, do we genuinely operate in an environment of continuous improvement, of honesty, putting aside ego, appeasement or politicking so that businesses are on a real pathway to improvement?
If you are a Head of Investments, a CIO, a buy-side Head of Trading, a sell-side Head of Execution Services or Product, or a COO, the need for the re-engineering of platforms, disentangling existing infrastructure, thinking more about Electronic Trading and coherent, data-driven systems of measurement—to name a few—has never been more stark.
Working practices have been upended by Covid-19. The configuration of Trading and Sales desks (along with PMs, if you’re on the buy side) has long been seen as a model for collaboration and shared insights, but this has been severely tested given the sudden removal of the human element; that organic, ad hoc ability to share and help and advise. That physical separation has meant financial firms are having to work harder to maintain that intellectual and commercial curiosity. That loss of immediacy, on top of practical things like WiFi-based encumbrances, means businesses now face the real danger of functional and creative drift.
But perhaps this is an opportunity? While client- and operational-related travel may have stopped in its tracks, leaders have now been afforded a somewhat unique chance to slow their heart rates down, and reflect on how their businesses are shaped. Collaboration continues but in a different form; more time is being spent with internal teams—albeit remotely—focusing on core competencies, being able to think philosophically about key questions such as:
- Is the value proposition to both my clients and internal stakeholders well understood and articulated?
- Do the organs of my business work effectively with one another?
- Is there an authentic sense of technological progression, for example exploring enhanced use of Electronic Trading?
- Have I got the right people in the right seats, both in terms of helping careers progress as well as delivering product/service optimally?
In facing up to the things that need improving, external validation from a third party often produces unfettered and bias-free counsel. After all, if a group of internal stakeholders get together to, say, deploy a years’ worth of IT budget, it’s no wonder that outcomes can become skewed, a result of an amalgamation of singular opinions which are driven by internal interests, or client-specific objectives that may not be aligned with broader strategic aims.
As a sell-side contemporary recently noted to me, “I wonder; we spend all this time coming up with cool Algo products we love, but then have difficulty selling them into the client base. Why don’t we ask the clients what they need, first, then go and build them? We struggle sometimes because we’re so focused on the competitive landscape, we forget to really think about the people we’re selling into.”
An external, experienced opinion removes these potential issues by taking the emotional or political investment out of the process.
It offers an authentic fresh set of eyes—a pulse check—which, when executed in partnership with the firm being assessed, creates a validation and recommendation process which can then be used in a more powerful way.
If you are an asset manager for example, have you considered how the triangulation of Trading, Portfolio Management and Sales/Client Service is brought to bear on your clients? Have you empowered a culture of measurement throughout the investment life cycle, as opposed to just fund performance?
You may be a small/newer fund, or a start-up: have you thought about how your business is going to scale? Do you see value in Trading, or see it as more of an operational overhang that can be outsourced? Are you cognisant of building appropriate Best Execution policies, for example, to fall in line with the climate of regulatory rigour?
If you are an end asset owner and have moved down the path of in-housing assets, what is your plan for execution? Can you price technology, people and IP accordingly, so the value proposition of your external managers becomes obsolete?
Or finally, if you are a broker, have you made a proper assessment of your client landscape, your commercial proposition against this, your client-facing team and their operational bandwidth? How about the forward on the execution landscape, and how that might fit in with shifting client habits?
The process of scrutiny starts here. How will you go about it?
David Rogers launched 23rd Parallel Consulting in June 2020 after two decades in institutional trading, most recently as Head of Trading, Asia-Pacific for State Street Global Advisors.