WS&T: What did you spend your technology budget on this year?
THERIAULT: Our budgeting process is measuring opportunity against a return-on-investment model. That's coupled with a strategic overview and strict discipline to make sure projects are funded appropriately to have impact for both client satisfaction and revenue opportunities.
First there is an annual-planning process that aligns strategic initiatives against project needs. Then there is a monthly update that I review with the management committee on the impact and status of technology for the corporation.
We have a technology-leadership council that manages, on a quarterly basis, progress being made and general oversight of the activities. Then we have weekly meetings where we review client situations that result in technology customization. It's fluid at many different levels and dimensions.
Technology is such an important component of our value proposition — that and client servicing. Those are two areas that we focus on — and we make sure they are supported by strong financial products.
WS&T: What is your project-prioritization process?
THERIAULT: We do it at an enterprise level because we get great leverage and scale by using our same operations and technology platforms to service not only our institutional clients (we're a large global custodian) but also our personal-financial-services franchise which supports high-net-worth individuals. Our institutional clients use a platform called Global Investor Passport, and our personal clients use Private Passport. So it's the same common technology architecture leveraged across two different business lines. Because we have an architectural framework, we get our best scale, cost advantage, and efficiency operations by leveraging across two different businesses. WS&T: What are some large categories of spending?
THERIAULT: A lot of what we do focuses on straight-through-processing. That means automated linkages from sources of information, and then automated output and delivery, either in file formats or online viewing through Passport technologies. One area we focused on last year is in the area of corporate actions. It's a highly manual process between us, as a custodian, and about 1500 investment managers globally. (A corporate action) could be a decision point for an investment manager, but to us it's a transaction where we take instructions and put them into our system.
We developed a technology that automated it by sending an e-mail to the investment manager and notifying them that that corporate action exists. From that e-mail, they can click into Passport and make their decision, and from that decision, it automatically flows into and through our system. By doing that, we've given them additional 24 hours on the deadlines. Fifty percent of corporate-action decisions would come in after the deadline because it takes investment managers time to process them.
So now if we don't hear from them, we can continue to send them notifications. We try to escalate for them that fact that a corporate action needs to take place. Through a fax-based system you never get that chance.
In the first six months, we've had a 70 percent take-up (by clients), which has dramatically improved STP rates. It's also reduced risk for us, which has costs associated with it.
WS&T: How much of a role does staffing play in IT spending?
THERIAULT: In the past we were more dependent on consultants than we are now. It's really because of the dynamics of industry. There was such high demand for IT resources that you had to go to consultants to fill them. But with the nature of the IT industry changing, we've moved several consultants into staff positions, and reduced our dependency on external consultants dramatically. Much of the work that was being done onshore by consultants has been commoditized to the level that we can move it offshore and have it done at a much lower cost structure. It's important that we maintain staff and continue to grow them, but when we do need external resources, we move them offshore resources.
Also, now with operations becoming so highly automated, the staffing movement is to more closely combine the technology and operations functions because our operations have become so highly automated. You almost can't tell the difference between what operations is and technology is anymore. We're leveraging the great momentum with automation, which is arguably is the final step: to truly have very highly automated all of your processes and activities in a real-time environment.
WS&T: What is your perspective on outsourcing versus staying in house? What projects would you be likely to outsource?
THERIAULT: Predominantly coding, application and software development, and modernization of technologies. If you're moving from old technology to new technology, because the code is self-documenting, you can send it over and send it back. A block of work can be defined, sent over, and sent back.
We are looking at business-process outsourcing, and continue to look at the opportunities where it makes sense for non-competitive advantage. We constantly look to see if we can improve our cost or quality structure in a specific area.
WS&T: What applications are more suited for buying from a third party? What is more suited for building?
THERIAULT: We do a fair amount of buying, but where we differentiate is how we integrate those products to make sure we are producing timely and accurate information. That's where we compete, not on which and software products we use.
Architecturally, we have a bias as to how the products need to be brought together, so we will buy a fair amount of vended packages. In global custody, it's hard to find a single package that could do all that we need, to the level of scale and sophistication that we and our clients need. So we use components that we purchase and integrate, but we also do a fair amount of developing ourselves.
WS&T: How do you evaluate third-party solutions when going to market for an application?
THERIAULT: We use references and RFPs and we use outside resources that have knowledge in that particular area. Each of our business units has a technology manager, an individual that reports into technology, but is assigned to that business unit. They help clarify and shape what the needs and objectives are. In working with technology group, we look against technology standards to see what our bias is. Then it becomes more of a collaborative decision in the end, where technology, business needs, and financial impact to the company are all measured together. We do have a technology-advisory committee that reviews all purchases to make sure that they will conform to our architectural standards, security, and business continuity, just to make sure that everything is done in a quality way before we bring it in and run it.
WS&T: How do you measure return on investment? What is the necessary return in order to take on a project? Timeline of project?
THERIAULT: Everything gets prioritized into categories. Compliance and regulatory, for example, always gets done. As an example, when we decided (to prioritize) corporate actions, a business case gets generated. What is STP processing benefits for efficiency and operations? How do we reduce risk?
In the corporate-actions process there is inherent risk that can result in a loss due to error. When you combine the economics of what is necessary to have the financial impact we're looking for, once we cost it out, the return on investment can become clear.
In corporate actions, the volumes have grown substantially. We have strategic bias to make everything STP, be it with the industry or without. In some areas, such as trade communications, we've worked with industry, but corporate actionsthe industry hasn't quite come together on how to do it, so we moved ahead and did it ourselves.
WS&T: What are some emerging technologies that might get some play time in your firm in the next year?
THERIAULT: I would say open source more so than Linux. We've found open source to be a tremendous opportunity. It has given us terrific processing advantages from a cost-reduction standpoint. (In using open-source) vendors, there is a legitimate competition to make sure that our software costs are not escalating. With Linux we see great opportunities. The way our applications run, we can move something from one processing platform to another, so within the architecture, there is no change to security or the network interface. Another upgraded system is our benefit-payments system. We moved it from an older mainframe architecture to a Unix-based platform. It dramatically improved the product capabilities, and reduced our costs at the same time.
We have wireless deployed, but the interest in it is limited. The killer application for wireless is email. But for disseminating applications wireless, the appetite is still small.
WS&T: What about Voice Over Internet Protocol?
THERIAULT: Absolutely. We leverage it at certain components where it makes sense. We're looking at it for business continuity and business from home.
WS&T: Does your firm have any revenue-generating IT? What types of projects?
THERIAULT: There have been some discussion about the corporate-action offering but our interest in that really stems more from helping participate in the industry to come up with a solution. For us to develop it as a commercial-software application, that's not our interest.
Where we are looking for revenue generation is in extending our capability into other entities that have needs that we are able to offer. Something like trade services to investment managers, where they just communicate with us, and we take care of all their street side activity and communication. We become their portal to the external world on securities-movement activity, and they just have one, single interface into us. We take care of it and report back to them. Since we're doing it already as a custodian, it's a natural progression for us to offer those additional services.
WS&T: What major IT projects are on the table for next year?
THERIAULT: We're looking at wealth-management advisory. This is an area where we take our capability that we've offered to very high-net-worth individual (over $100 million), and move that down to wealth that is $25 million and up. That means that they enjoy the full benefits of the technology platform that exist. And we'll position that coupled with the private passport for banking, checking, and investments. They will have a more complete technology suite available to them to manage their individual finances.
WS&T: what is your biggest challenges are for 2004?
THERIAULT: Our job is to make sure we're providing timely and accurate information, and make sure it is reliable. The reliable part has become more important due to the concerns about terrorism and other things. We've invested heavily in business continuity, and have done a fabulous job of making sure the information is reliable to our clients. That continues to be a focal point for us. The biggest threats or concerns I have are the things we cannot control. The things we can control, we do.