A New Vision for Managed Services in Capital Markets
As we continue to operate in the new normal, regulation, revenue pressures and cost pressures are here to stay. Managed services are a useful answer to many of the challenges our industry faces today, but is there an opportunity to achieve more?
In order to look towards a new vision for managed services, we must look at the current state of play. What are the key pressures and current approaches to managed services that may be limiting firms’ expected results?
Revenue and Budget Burdens
Today’s capital markets firms are facing tremendous business and financial pressure from both sides of the ledger. In this rapidly changing economic and business landscape, top-line revenue growth is limited. On the other end of the spectrum, the bottom line is also experiencing unceasing strain. Firms must cut any and all costs wherever possible.
Mandatory compliance is also drawing resources away from discretionary ‘change the bank’ budgets, limiting firms’ ability to invest in projects that increase revenue and improve efficiency. The industry’s reaction so far has been to find ways to cut ‘run the bank’ costs and re-invest a portion of the proceeds into the business.
The Labor Arbitrage Approach
Many firms have already turned to outsourcing and partnering with vendors as a way to cut costs. Much of this outsourcing has been simple labor arbitrage – shifting from more costly local resources to less expensive labor pools in other parts of the world. Many firms have had success with this approach, but not all have achieved the economic gains expected. A pure labor arbitrage approach may fail to address inefficiencies in technology or operations. For example, outsourcing vendors typically have little to no proprietary assets that drive economies of scale to create additional cost efficiencies. Instead, these vendors often simply replicate effort in lower cost locations.
Technology challenges
Now looking at the technology side, if a firm uses a proprietary platform, then it owns and pays to support it. The firm can’t share those costs with other market participants. A similar challenge exists with legacy systems – they have to be maintained, and the expense can’t be spread across multiple firms. In nearly all cases, firms have also built significant operational processes around this proprietary and legacy technology, so they also have to bear the full cost of change to their operations and processes supported by these systems.
A New Vision for Managed Services
A firm’s approach to managed services is as integral to success as the vendor and services they choose. Managed services is a model, which if adopted correctly and aligned with business needs, will reap game changing benefits for your organization.
But what does the ideal managed services model look like?
A managed services model that leverages technology as a key foundation to drive efficiency can help firms reduce costs and also achieve the economies of scale and increased profitability that are required in today’s market.
In capital markets, the ideal managed services solution consists of:
• Shared technology that integrates with third-party and proprietary technology
• Shared operational capabilities supported by the same core technology
• Support for unique customer requirements that differentiate against the competition
A managed services model that limits operations replication across the industry is also a key to success in capital markets. There are significant commoditized processes that are replicated over and over again across the industry. Does it make sense for every person’s house to have their own power plant?
Leveraging a managed service solution that scales across these commoditized operations – by reusing people, processes and technology wherever possible – helps firms reduce total cost of ownership (TCO) and achieve economies of scale. Many firms are using managed services like these for reconciliation, tax processing, corporate actions, market data management and market connectivity. All of these functions provide little to no competitive advantage to firms, yet they remain a critical cost of doing business. Firms that leverage the right managed services providers for these functions will achieve benefits their peers will likely not.
The future foundation of managed services – benefits of a new vision
This managed services approach creates economic benefits that are not being delivered by the pure labor arbitrage model. By leveraging a vendor’s common technology and operations but retaining unique competitive advantage, firms can reduce their TCO, lower their risk and increase efficiency.
Firms can also reduce risk by working with a vendor that can offer a blended location strategy that combines the use of offshore resources with nearshore and onshore capacity to satisfy unique capital markets requirements. A strong technology foundation is a critical requirement to support this type of location strategy and create the efficiencies that ensure TCO benefits can be achieved.
This new vision for managed services is the answer to increasing efficiency, reducing risk and decreasing TCO in the capital markets.
—John Avery, head of managed services solutions, Americas, SunGard’s capital markets business.
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