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Trading Technology

02:50 PM
Larry Tabb
Larry Tabb
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Who Said Technology Isn’t Important?

Check scams, logic bombs, data theft, online outages, compensation for botched trades and computer glitches -- and that was only the first six of seven stories gracing a popular financial technology Web site earlier this month.

Check scams, logic bombs, data theft, online outages, compensation for botched trades and computer glitches -- and that was only the first six of seven stories gracing a popular financial technology Web site earlier this month. What is going on these days? Has theft become Job 1? Or has the world just woken up to Willie Sutton's realization that banks are where the money is?

When I look at stories such as these, all I can think of is juxtaposing the thoughts of failing technologies, weak infrastructure and hackers (organized, malicious or joy riders) poking our organizations, looking for that one little opening, against the May 2003 Harvard Business School article, "IT Doesn't Matter," by Nicholas Carr.

While Mr. Carr may be right in saying that technology in the long run does not provide a firm with a sustained competitive advantage, the way firms think about, select, implement, integrate, maintain, upgrade and interact with technology certainly does provide them with competitive advantage -- or, at least, adequate defenses (hopefully) against threats such as those mentioned above.

As an industry practitioner, a researcher and advisor to the industry for more than 25 years, I have been in the graced position of observing many organizations. From hedge funds and investment managers to broker-dealers and investment banks, not one firm, no matter how small, has the same IT infrastructure. Even the smallest hedge fund running off of Excel, Outlook, AOL and PowerPoint leverages technology uniquely.

Do they get competitive advantage out of Excel itself? Well, no. Everyone in the industry uses Excel. However, their spreadsheets, formulas, valuations, positions, the data they track and the information they don't track all provide even the smallest of funds with competitive advantage -- advantage that even some of the largest organizations in the world cannot replicate.

In the most depressed of times, organizations want to hear that IT doesn't matter and doesn't provide competitive differentiation because they want to feel better about cutting millions out of technology budgets. Now, are those millions, or even billions, spent in the most efficient or effective ways? Probably not. Could IT dollars be saved -- absolutely. However, the majority of expense is allocated to maintaining a multitude of legacy systems, as few firms are in the position to rebuild their entire infrastructure in a green-field environment.

The challenge is maintaining and improving the legacy infrastructure while investing in the most-innovative and competitively differentiating technology that makes the most impact and sense for your organization. If you are a three-person hedge fund, that may mean switching to Microsoft Vista, investing in T1 connectivity or upgrading to the next release of Excel. If, however, you are Globobank, your level of investment may require a spend with a few more zeros tacked on.

Given the level of threat from hacker attacks, the dependency on client-facing technology, the media scrutiny on outages and the level of importance placed on the smooth running of our information technology infrastructure today, we should take that question of the importance of IT completely out of the lexicon.

Technology is important. Today more than ever, it not only defines how our organizations work, but what we can do and sell, and whether or not we will be able to serve our clients today and into the future. And remember, more often than not, the way we leverage technology is the only thing that actually allows us to differentiate our offerings and defines who we are as an organization. <<<

Larry Tabb, Special Contributing Editor

Larry Tabb is the founder and CEO of TABB Group, the financial markets' research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the interview-based research methodology of "first-person knowledge" he developed, TABB Group ... View Full Bio
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