As the saying goes, imitation is the sincerest form of flattery. So when IT managers began modeling their own operations in the same way that investment managers model their financial holdings, they were saluting the practice of managing many assets as part of a larger portfolio.
As technology leaders recognize the benefits of efficient, cost-effective application maintenance, application portfolio management is being implemented more and more on Wall Street. Once a firm has set up a system for maintaining its applications, it can weed out functional redundancies, define future portfolio goals and better align IT with the demands of the business. As a result, overall client services are improved.
The strategy behind application portfolio management is similar to that used by portfolio managers at money management firms. Investment officers continually seek to optimize their portfolios by assessing holdings and selling off assets that no longer are performing. The same approach can be used by technology executives, especially when evaluating the applications in their portfolios and deciding which ones to continue funding, which to pull back on and which to sunset or kill.
"It's similar to how you manage your own personal portfolio of stocks and bonds," says William Brucella, VP of IT at New York-based TIAA-CREF. "You are always looking at it, always tweaking it; you are in maintenance mode all the time." Indeed, technology managers not only need to stay abreast of new technology, they also must simultaneously get rid of older applications in their own portfolios that are no longer necessary or efficient.
This task has been complicated further by the growing rate of merger and acquisition activity in the markets, which has created system redundancies and changed firms' operations, according to Sanjay Bery, asset management practice partner at New York-based BusinessEdge Solutions, an IT consulting firm. As a result, he notes, "There has been ... a lack of understanding surrounding applications."
Less Is More
One firm that sought BusinessEdge's services as a result of merger activity was Citigroup Insurance Investment (CII). In April 2004, Travelers Property Casualty (formerly owned by Citigroup) merged with a subsidiary of the St. Paul Companies to form St. Paul Travelers.
After the divestiture, CII, which previously managed a $100 billion portfolio, including Traveler's $30 billion portfolio, was left with a $70 billion, predominately fixed-income portfolio. At the time, the firm "saw the need to hire an outside consultant to optimize our group and help determine whether or not we were organized appropriately," says James Metz, chief financial officer at CII.
CII turned to BusinessEdge to help it assess the state of its finance and operations back offices, analyze its processes and technology, and come up with a transformation process for a better future state. "They came up with a transformation road map that gave me the steps, the logical migration path and the time frame to move forward," explains Metz.
One of the recommendations BusinessEdge offered CII was that it should consolidate the security master file processes it was using to input the attributes of individual bonds that populated its system. BusinessEdge suggested implementing an automated Bloomberg solution, which would minimize manual intervention and integrate the process into one area. The vendor also recommended that CII reorganize and automate its securities settlement function and its broker confirmation process in order to gain efficiency. Additionally, BusinessEdge pointed out that many of the tools and technology that Citigroup had been using in its cash forecasting and net investment income planning area were outdated.