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Greg MacSweeney
Greg MacSweeney
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Innovation Is Hard

Although everyone talks about innovation, actually doing it requires commitment, funding, and a long-term outlook.

Innovation isn’t easy. If it were, there would be 200 companies like Apple and Google.

In financial services, once a hotbed for new thinking and leveraging cutting-edge technology, innovation has taken a back seat because of business rationales, both real and fabricated. Innovation barely exists at many organizations because it has been pushed so far to the back -- like the last row on a 737. Against the bulkhead. In the middle seat.

The shift away from innovation coincides with the most recent financial crisis. At one time, most financial firms were pushing the envelope when it came to new technologies. Today, only a few mega-financial services providers continuously test the newest technologies to see if there is a fit for their business.

Fidelity Investments, which itself spends approximately $1 billion on technology a year, continues to fund its Fidelity Center for Applied Technology. Compared with Fidelity’s overall tech spending, FCAT’s budget is tiny. Located in Boston, FCAT regularly works with students from nearby MIT and Harvard to test wearable computing (Google Glass), gamification ideas, artificial intelligence, and more. Do all of FCAT’s projects make it into production? No, but that’s not the point. The idea is to find the tools that have applicability to financial services.

Across financial services, there seems to be a reluctance to try new technology. Perhaps budgets are so tight that running a technology lab isn’t in the cards. Or maybe, managers have become so risk averse that they are focusing on things that will provide immediate value to the business. All of those reasons are valid, but they could also be dangerous.

If an organization decides to use only what is proven today, it risks missing out on a newer technology that could provide competitive advantage in the near future.

Many firms are taking the wait-and-see approach to big data and cloud technology. Most are piloting big-data projects, but only a few have been able to move a big-data tool application to production. With cloud technology, most financial firms are sticking with their current data architectures, despite high costs and limited flexibility. Most are delaying adoption of public cloud because of regulatory fears. While some of the concerns are valid, a good portion of the reluctance is simply traditional corporate IT culture cloaked by security and regulatory objections.

Delaying big-data projects and cloud deployments may seem like a prudent decision now. But longer term, firms that ignore big new tech will find themselves at a competitive disadvantage to firms that have increased flexibility and lower costs because of public cloud and that know much more about their business opportunities because of big data. In other words, delay cloud and big-data projects at your own risk.

Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio
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Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
6/10/2014 | 1:11:04 PM
Re: Innovation is Hard
BCBS 239 is taking technology and risk to the next level, it seems. Risk Data Aggregation should help make spotting the next unstable company much easier.

Your point about using a shared infrastructure is a good one. I've heard a few other people mention this as well. Doing that woudl truly be a step outside of the traditional FS IT model and you could say that it would be truly innovative! (and yes, it would be extremely hard, but isn't all innovation hard?)

BTW, I missed this comment when you posted it a few weeks ago, so my apologies for the late reply. Great insights.
anon3368695949
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anon3368695949,
User Rank: Apprentice
6/5/2014 | 8:41:30 AM
NOT FOR SOME PEOPLE:
DEAR SR:

     INNOVITIONAL THINKING ON ALL NEW TECHNOLOGY FOR NOW AND IN THE FURTURE, ALL INFORMATION CAN BE INNOVITIONAL WITH THE RIGHT THOUGHT PROCESS OF THINKING THIS TYPE OF INFORMATION WILL ALSO NEED NEW SCHOOLS, TO TEACH THE PROCESS!

SINCERELY,

ALEJANDRO PERALES
allang119
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allang119,
User Rank: Author
6/2/2014 | 4:43:20 PM
Re: Innovation is Hard
Innovation is easy, excution is hard? I would say it this way - Ideas are not worth the paper it is written on if it cannot be implemented.

Not to be disrespectful, but your concept of capital markets might be a bit to breezy and light hearted. Think mini-finace and technolgoy gains as a counterpoint to your definition of capital markets.

On the subject of only needing to align IT with the functions of "inducing savings and matching buyers to sellers" you leave out primary market fund raising, risk management activities, and all the support servcies that make financial markets function to support new ventures, growth of established businesses, and the flow of capital through financial intermediaries that need relearn how to take prudent risk for a resonbale return.    

Finally, from your comments you believe Rube Golberg designs have runamok in regulation (whcih I agree with) but not in technology infrastructure? Both suffer from this incremental design. That is why, in the later case,  we have such a high cost, risk prone infrastructure even though it works - like a Rube Goldberg artifice. 

 

 
RobertArvanitis
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RobertArvanitis,
User Rank: Apprentice
6/2/2014 | 3:53:52 PM
Re: Innovation is Hard
Innovation is easy; execution is hard.

 

*******************************


Recall the principles of capital markets.

*   $100 in one place is more valuable than $1 in each of 100 pockets.

*   Deferred consumption creates productivity gains,


The only social justification for Wall St. is to execute on those principles and thereby to finance our commerce and industry.  Otherwise society has no reason to grant all the current privileges.

From this, the practical implications are clear.  We do not need outside systems, software, or hardware.  We need to align Wall St. IT with the functions of inducing savings (deferred consumption) and matching buyers to sellers.

We do NOT need repackaging of assets, or flash trading, or rating fees paid by issuers.

And the only evidence of Rube Goldberg is in the regulatory schemes.
allang119
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allang119,
User Rank: Author
6/2/2014 | 2:49:31 PM
Innovation is Hard
There is a new global technology initiative that should be at the vanguard of innovation in our industry if we simply take advantage of it.  The G20 global leaders have empowered a new standard's setting entity, the Financial Stability Board. Their first focus is regulatory reporting so that regulators can see what they are mandated to oversee, and see it globally so that they can mitigate the contagion of system risk,  what almost did us in in the 2007-2008 credit crisis.

 

It is up to financial market participants to take advantage of this regulatory initiative. The FSB's first initiative is establishing common global data specific codes for legal entities that participate in financial markets. Then it is on to common financial instruments and financial contract codes. They are also asking for the industry to comment on how transaction data is to be aggregated across the globe once these codes are implemented.

 

Is this not to be our industry's mission to now leverage this initiative to rebuild the core infrastructure that has arisen in Rube Goldberg fashion over the last fifty years?  And we must realize as an industry that the core infrastructure has more to do with technology prowess than financial acumen.

 

Enterprise-wide systems should be built using a common industry infrastructure platform that the Big Data and cloud computing industry should be supplying. They are good at that, supplying high volume always on high speed infrastructure platforms. What financial institutions are good at is taking high paid brain power and turning them on to developing analytic trading algorithms or risk adjusting securities portfolios.

 

The innovation we are looking for is within our reach. However, it means turning over the creation of a leaner meaner infrastructure to those outside our industry and leaving product marketing and creation, and analysis and risk management as the core of our new business model.                                                                                                                                                      

 
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