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Becca Lipman
Becca Lipman
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The Sentient Enterprise: Data Driven as a Strategy, Not a Tactic

Can capital markets take a tip from front-to-back-office customer execution efficiencies and apply it to the investment process?

In the last few years, the idea of a sentient enterprise has taken hold -- a corporation whose parts are so intimately connected they are essentially a single, very powerful entity. As a result, trading desks achieve operational alpha, moving efficiencies from the front office throughout the middle and back. It's the big data dream.

A sentient organization harnesses real-time capabilities, social information, applications, and artificial intelligence to advance the overall organization. In financial services, the closest we might find is a sentient front office, where all resources are connected to streamline trade efficiencies.

[Read: Wall Street Seeks Edge From Operational Alpha.]

But what if banks, which are already exceptional at algorithms, took that competency from the front office, set up a center of excellence, and pushed capability throughout the middle and back office?

Sean O'Dowd, global director of capital markets at Teradata, said in an interview at the Partners 2014 conference that financial firms are becoming obsessed with operational alpha through the trade lifecycle. He thinks centers of excellence could be one angle to prop that up.

Creating a center of excellence is a way to soak the enterprise's intellectual property into the network, rather than letting it walk out the doors each night, he said. This is especially important for large custodial banks, which just throw bodies at accounting and transactions. Employees are just pushing buttons, and these institutions are trying to figure out how to automate that human decision-making process.

"Nobody's doing it that I'm aware of. It would be interesting to see." If companies are interested or trying to do this, a good path may be to examine the success of Nationwide Insurance, which has strategized for years to deliver data consistency at every level of the organization for better customer service. "They were feeling a lot of that pain and wanted to accomplish the same things."

Though financial services fims are less customer focused and more process focused, artificial intelligence is a key component to building a sentient organization. Instead of asking how to improve customer experience, O'Dowd said, we can ask how to bring that execution to the quants, tweak it, and help institutional traders on the sell side move that theme closer to the investment process. Then firms can then work to push that down for operational alpha.

"Financials could really crack the code on the operational process by turning that out," O'Dowd said. He suggested that firms are using AI to improve customer service, "but financials can take a page from that playbook and apply it for algorithmic use cases within the investment bank."

Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio
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Byurcan
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Byurcan,
User Rank: Author
10/29/2014 | 10:15:11 AM
Interesting
There's been a lot more talk of using AI in financial services recently. Hopefully in the near future the "sentient enterprise" can invest my money and make me a billionairre.
Becca L
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Becca L,
User Rank: Author
10/29/2014 | 4:48:14 PM
Re: Interesting
That's the dream...

 

sigh.
fstechexec
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fstechexec,
User Rank: Moderator
10/29/2014 | 11:38:47 AM
sentient enterprise?
I've never heard of a sentient enterprise. Clumsy enterprise. Inept enterprise. Out of touch enterprise. But I've never come across a sentient enterprise. 

 
IvySchmerken
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IvySchmerken,
User Rank: Author
10/29/2014 | 3:44:26 PM
Re: sentient enterprise?
Sentient is a new term for me, too.  I suppose this an enterprise that's in touch with its data.  An enterprise that is not on top of its competitive market, that has silos and isn't able to make decisions in real time, is non-sensient.

Also, an enterprise that hasn't updated its operational processes since the 1990s is non-sensient. On the other hand, investment banks with algo trading in the front office have automated trading and are in a position to bring this efficiency into the back office operations.

I think the sentient enterprise has to be more on top of digital strategies - social media and employees using their own devices. With so much data coming in from mobile apps, enterprises need to capture and analyze this to figure out how to serve their customers and their markets.

The rise of the sentient enterprise is a 21st century concept. I am not sure how it relates to capital markets.

 
Becca L
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Becca L,
User Rank: Author
10/29/2014 | 4:59:11 PM
Re: sentient enterprise?
To your point, a sentient enterprise is about havign one mind - being able to take all the informaiton in the organization (no silos, smart data capture), and apply all the intelligence (AI) of its employees (removing the manual back-office components). All in real time. It leverages all the things you mention to push operational alpha not just in the front office, but throughout the organization. The efficeincies, the cost savings, the standardization - it's an attractive new concept that's been leveraged in on the product side. Sean believes it might be interesting to tweak that process and apply to the trading - so think about KYC, risk models, market data - all sorts of incoming information seamlessly coming together to help fund managers make the best trading decision in a moment. This may be an idea ahead of its time, we may be hearing more about this years down the road as AI continues to develop and silos start to break down.
NJ_trader
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NJ_trader,
User Rank: Moderator
10/30/2014 | 10:22:17 AM
Re: sentient enterprise?
The Sentient enterprise, as you describe it, is still just a dream for most financial firms. Maybe there are a few smaller banks who are approaching this data utopia, but most large enterprises are still working on coordinating data across business units...they aren't even thinking about doing data analysis or AI on the data at this point.
so'dowd015
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so'dowd015,
User Rank: Author
11/5/2014 | 1:14:13 PM
Re: sentient enterprise?
Agreed on your points. For financials, or a lot of other industries (healthcare, insurance, etc.)  this is a concept that is like data nivirana. That said, you have exampels of firms outside of financial that are doing parts of this. One firm may not be able to do all things, but perhaps look to become diligent in one or a combination of the strategy. I think the conversation is early now, yet one that will increase over the next 3-5 years.
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