According to conventional wisdom, the larger a Wall Street firm is, the better. Big firms have more resources to invest in the latest technologies, build out infrastructure, hire the best talent and, in general, achieve economies of scale.
But at least one seasoned IT leader - who has experience at firms ranging from small to global - believes it's time to throw off conventional wisdom's yoke. "At a small firm, ego and politics take a back seat," explains Larry Cohn, VP and CIO for Baron Capital. "Here, our mantra is, 'Get stuff done.' For example, we just set up a separately managed accounts business for one of the largest private banks. Although we'd never been in that market before, we were up and running within thee weeks without adding any head count."
While the New York-based firm is pursuing a growth strategy, Baron currently has 90 employees and about $17 billion in assets under management. The budget for the company's eight-person IT staff, according to Cohn, ranges from $5 million to $10 million in cash spend, including outlays for market data and telecommunications.
As for Cohn, he wasn't always a small-is-beautiful advocate. In fact, he rose through the ranks at Neuberger Berman to become a partner and CIO. Then he became the global divisional CIO for investment management at Lehman Brothers in 2003 following its merger with Neuberger.
Four years later, Cohn says, he realized he wasn't having fun anymore. "Getting things done wasn't in vogue at Lehman," Cohn recalls. "The lack of decision making became stifling." To illustrate, Cohn cites an attempt to replace one division's outdated portfolio accounting platform with a more modern system already deployed in another division.
"After two years of endless meetings and discussions, I hired a highly regarded third party to perform an assessment," Cohn says. "The consultants had the same recommendation that I was already making. However, the divisional heads were so worried about ego and politics that they couldn't take the necessary steps."
Doom Loop vs. the Flywheel
Cohn admits that he began to embrace the management concepts of the doom loop versus the flywheel, as described by author Jim Collins in "Good to Great." "Essentially, doom loop companies focus on implementing big programs, engaging in management hoopla, making radical changes and undertaking dramatic revolutions," Cohn explains. "Since each new leader brings a radical new path, chronic restructuring becomes the norm and the spiral starts again."
By contrast, Collins hypothesized, successful companies operated as a flywheel, where disciplined people, thought processes and actions added up to sustained results. "In flywheel companies, greatness comes about in a step-by-step cumulative process, where each generation builds on the work of the previous," Cohn says.
Since Cohn had witnessed too many medium and large-size companies, including Neuberger and Lehman, operating in a doom loop, he reveals, he considered retiring or teaching. He even tendered his resignation.
But soon after Lehman announced his October 2007 departure, Cohn's plans changed. "Ron Baron [founder and CEO of Baron Capital] called to ask whether I'd be interested in taking his organization to the next level," recounts Cohn. "I liked his vision and recognition of technology's importance, so I agreed to join the firm in March 2008."
In Baron, Cohn found his flywheel. In the same time frame he got nowhere at Lehman, Cohn says, he has completely overhauled and upgraded Baron's infrastructure and retooled the IT function to run as an enterprise.
Among other things, core networking was ripped out and replaced with 10GB interconnections. New 64-bit servers running Microsoft Windows Server 2008 were installed and aggressively virtualized with VMware. And a fully redundant disaster recovery system was created by installing two Compellent SANs, one at Baron's Manhattan offices and the other at a failover site in Pennsylvania.
"We've fully tested the system to ensure we could run the firm from the distant site," Cohn says. "Overall, we've built the infrastructure to support triple what we need without any additional costs."
Beyond hardware, the firm's CRM system and its Charles River trading platform were updated and expanded.
Ironically, the firm's portfolio accounting system also was upgraded from legacy technology to the latest version. "Unlike Lehman, the decision to upgrade our Advent platform was made while the president, CFO and I were standing next to a fish tank discussing the advantages and costs," recounts Cohn. "Without the endless PowerPoint presentations, we had the platform updated in less than three months."
An Army of Recognition
Yet Baron's decision-making style isn't the only cultural difference, according to Cohn. "At Lehman, managers needed armies to show self worth and get promoted. There was constant talk of 'transformation' and boxing people into roles to 'maximize' their output," he asserts.
"By contrast, at Baron we leave egos outside and everyone collaborates, no matter what their job function," Cohn continues. "No one feels like they're in a box because they work on a project's full life cycle and see the fruits of their labor being utilized and appreciated. Here, it's not an army that gets you recognized; it's what you bring to the firm and accomplish."
Cohn also has worked to create efficiencies outside of IT. "Early on I went around the firm to learn about and understand workflows," Cohn comments. "I asked a lot of questions about why tasks were done in certain ways. And people were very open to asking me how things could be done differently."
From these discussions, Cohn reports, he learned that processes surrounding the production of Baron's proprietary research were labor-intensive. Reports, e-mails and other communications were compiled into books and more than 100 copies were printed. The largely manual process took several weeks out of every quarter.
To automate research output, Cohn developed a streamlining initiative dubbed "BRAInS," for Baron Research Analyst Information System, which began in early 2009 and was in production six months later.
"First, a standard template was developed for analysts and portfolio managers to use for capturing information," explains Cohn. "Then we built a dashboard as a front end for all of our applications so people didn't need to know how to move around in all of the subsystems."
The result is a centralized, on-demand online research repository that is always current without interfering with each analyst's work style, according to Cohn, who notes that the benefits from the BRAInS initiative are considerable. "The quality of our information gathering and sharing is exponentially improved," he contends. "And the resource savings are substantial, since the 120-plus hardcopies that were printed annually has dropped to about 36."
Preparing for the Game Changers
Now Cohn's team is working on an initiative to create a golden source for all firm information, drawn from disparate data sources, with the goal of automating manual processes enterprisewide, he relates. Using the agile devlopment methodology, IT is rolling out deliverables throughout the remainder of 2010. As a part of this initiative, the firm will begin adopting service-oriented architecture (SOA).
But the real game changers, according to Cohn, are social media, mobile technology and handheld devices. "I foresee roundtable discussions where portfolio managers and research analysts use [Apple] iPads or similar devices to access their private research materials and share it between devices," he says. "Models can be quickly modified and re-shared for collaborative what-if analysis. Also, conference rooms will be wired to permit any user to simply 'push' their display to a room's larger screen and then allow some other user to do the same."
Given the whirlwind of new technology projects with more to come, how does the man who hired Cohn feel about his decision? "It was a no-brainer," responds Ron Baron, CEO. "Larry's team has improved our quality of research and analytical reporting, helped us transition to model account protocols, and supported the launch of new products. In short, Larry's background and experience was exactly what our firm needed."
Cohn is equally pleased with his move. "It's definitely busy," he comments. "But it's certainly amazing what you can accomplish with a small group of dedicated people who see the big picture."