Automation is leading to competitive advantage in an increasingly competitive world. What started as a way of handling ever-increasing trade volumes is now evolving and leading to the creation of dynamic and customer-focused businesses.
Just as many areas of commerce are embracing advanced technologies and automation to revolutionize their businesses, so too are financial institutions. These institutions are focusing on using technology to streamline the flow of information and transactions through their businesses. The initiative has come none too soon. Burgeoning trade volumes are increasingly straining existing infrastructure. At the same time, the commoditization of many areas of business is creating a need for greater efficiency.
Initially, most financial institutions concentrate simply on introducing Straight-Through Processing (STP) -- the processing of a trade without manual handling or redundant processing. This is an imperative, as they need to cope with the increasing trade volumes, reduce operational risk, and to comply with related securities industry initiatives, such as the move to shorter settlement cycles.
But the systems necessary for STP generate information that is invaluable for management purposes. This information allows managers to make businesses far more dynamic and responsive to the rapidly changing requirements of customers. It is essential for assessing the profitability of different business lines and individual customers. Broadly speaking, this information increases the transparency of organizations and allows managers to identify where value is created and where it is destroyed.
Investment banks, for example, are increasingly generating their revenues from fee income. Yet in some areas, fees are falling fast. The information created by automation can allow them to evaluate where revenues justify cost. Meanwhile, automation also enables them to strip cost out of their businesses. Similarly, trade volumes, operational risk and competition are also placing asset management companies under growing pressure to reduce costs in their operations. Automation can give them the information to understand their businesses better, and allow them to align costs with revenues.
Straight-Through Business -- the total solution
At Arthur Andersen we call this holistic approach to the growing automation of financial services institutions Straight-Through Business (STB). We classify its three elements as:
- Straight-Through Processing (STP)
- Straight-Through Information (STI) - the automated creation of information from data throughout the organization
- Straight-Through Communication (STC) - the communication of that information to clients and external counterparties.
Many financial services institutions are beginning to recognize the need for STB -- rather than just STP. As mentioned earlier, most are in the early stages of introducing the technology to facilitate STP, while simultaneously implementing the associated changes in business processes, human resources, organization, and so on. They are also integrating and re-engineering systems, and evolving from manual entry of transactions to automated processing.
Some of these early stage cases are moving towards a type of STB solution unwittingly. Others, however, have recognized the possibilities created by having an increasingly transparent organization. They are not only introducing 'Best of Breed' component-based technology architecture and fine tuning process management, but also focusing on such matters as human resources management, change architecture and the distribution of their processing hubs. A few world-class organizations are even looking at structured knowledge management. And, at the center of all this, lies an increasingly sophisticated strategy and planning process.
Arthur Andersen's vision is that financial institutions will continue on a path of STB evolution. The organizations of the future should have fully integrated systems with single consistent data images. Their business processes will be seamlessly integrated. They will be based at a single location, but have virtual branches. And, finally, they will use the information generated by STB to drive a process of constant evaluation and enhancement of their strategies.
Michael Paterson, of Arthur Andersen's Metro New York office and Andrew Clark, of our Boston office, specialize in Straight-Through Business solutions. They can be reached at: