[More from Vanguard's Transition: 7 Tips for Moving to a Global Shared Services IT Model]
Despite tight IT budgets industrywide, many Wall Street firms are investing in technology to position themselves for the future. Most global firms, according to Dushyant Shahrawat, senior reseach director for CEB TowerGroup, are looking to business process outsourcing, cloud technologies and virtualization to improve operational efficiency.
But organizations focused on index funds, exchange-traded funds and other standard investment vehicles also can leverage advances in bandwidth and optimization technologies to consolidate international IT operations into a single organization and shared data center, Shahrawat adds. "Firms that compete on price can absolutely gain strategic advantage by consolidating," he says. "Because the products and regulatory requirements are very similar, the same centralized platform in the U.S. can service all of the international business units."
Malvern, Pa.-based Vanguard, for example, is nearing completion of a multiyear effort to create what it calls a "global shared services" IT model. Vanguard's evolution into the global market led to the creation of two IT operations by late 2009, explains Carol Dow, CTO and principal of global investment systems for the firm. One IT group, she says, was based at Vanguard's headquarters and serviced all international locations, except Australia, using a single data center. The other, which was completely autonomous, serviced Australia from two additional data centers.
"As we were globalizing further, our business leadership wanted consistent policies and practices. And we wanted to gain economies of scale by leveraging a centralized IT infrastructure," adds Dow, who says Vanguard decided to consolidate all systems in its U.S. data center. Functionally, this meant converting more than just investing-related systems, she notes. "It's all systems -- HR, general ledger, fund accounting and websites -- across the board."
Mind the Gap
With the Australian IT organization operating since 1996, the differences in systems and practices between the two Vanguard IT organizations were well imbedded. As a result, according to Dow, the logical place to begin the consolidation was a full mapping of applications, systems, infrastructure and business capabilities. "Early in 2010 we brought business and IT resources together to travel to Australia to develop a 'fit gap' analysis," she recalls. "We wanted to identify the uniquenesses as well as the similarities in technologies and business capabilities."
Ultimately, the analysis pointed to regulations and tax laws as among the biggest challenges. But, "Understanding and making adjustments for regulatory requirements isn't unique to Australia," notes Dow. "So building out our systems globally to handle different countries was expected."
To handle the unique tax laws, systems developed in Australia are being migrated to the U.S. data center. "Systems with specific tax law implications must be unique within every country," Dow says. "Therefore, to handle tax laws, there are applications that are duplications, but they will now be housed centrally."
The analysis also identified geography as a key IT hurdle. "Since Australia is now our most distant office, reducing latency to improve the user experience is our primary concern," Dow relates.
In addition to increasing bandwidth, Vanguard is taking a multipronged approach to reducing the impact of distance. "We're establishing content delivery networks to ensure web applications are more responsive," Dow says. "We're also investing in WAN optimization devices to compress data and cache it locally as well as data de-duplication to greatly compress backups. And we're leveraging Citrix for virtual desktops."
Of course, application tuning also is critical. "We're doing extensive performance testing, for all applications to ensure that we provide clients with the appropriate response," Dow reports.
Not surprisingly, the gap analysis also uncovered opportunities to leverage Australian technologies, such as currency hedging systems. "Their system was better-positioned to become our global solution," Dow acknowledges. "So we'll be building a system based on Australia's to handle all countries as we continue to scale."
On the hardware side, the analysis showed existing infrastructure could accommodate the migration. "We're a mixed environment," Dow comments. "We have IBM mainframe, Unix, Linux and some Windows systems."