With investment banks reporting layoffs and tightening their belts in light of the economic downturn, one of the major themes emerging in IT circles is sustainable cost reduction. "The industry does carry a lot of cost," says Bob Gach, global managing director capital markets at Accenture in New York. "The industry hasn't had the courage or need to attack these costs," says Gach.When the industry was generating huge profits from packaging and trading complex derivatives and needed to launch a system in 30 days, cost didn't matter. But now that the bubble has burst, the industry is more focused on not only how to reduce costs but sustaining the operating model in good times and bad.
The concept of "sustainable cost reduction" takes a more holistic or systemic approach to cost reduction, according to Accenture's spokesman. Instead of one department looking to reduce costs and another department working independently, all the departments work together as an enterprise to reduce costs. This makes the cost reduction more sustainable in the long run, says Accenture's spokesman.
With this kind of approach, any large investment bank can take out $1 to $2 billion in costs, says Gach. "For the next tier down, the opportunity is $300 to $500 million," says Gach. By doing some of these things, firms could improve risk management as well, says Gach.
Part of the problem is that Wall Street operates silos when it comes to the management of customer data, product data and trading platforms, says Gach. Maintaining multiple systems results in excess cost. But to achieve sustainable cost reduction, what does it entail? It involves looking at how processes are organized and deployed, where key functions are placed, how shared services are used - and uses tools such as re-engineering, offshoring and outsourcing to lower operating costs permanently and systematically," says Accenture's literature.
Every time the industry wants to enter a new market, it launches a new system. "It becomes a bigger risk management issue if you have to go to more systems," says Gach. On top of this, usually systems lack a common data standard, says Gach, implying this makes it more expensive to integrate systems and access information.
Accenture's clients have started to address these issues by sending out RFPs (request for proposals) for data centers, trading platforms and data management solutions, says Gach. In particular, Accenture is seeing a lot of attention being paid to data management. While firms have made strides in certain areas, they have not done so on a holistic level. For example, Accenture helped DTCC develop a global corporate actions database several years ago that has evolved into a shared service. Yet there are many firms scrubbing reference data, notes Gach. Ultimately, with so many firms replicating the same data management functions like reference data scrubbing, Gach says, "It's going to be necessary for the utilities to step in." In the past, this didn't happen because firms "wanted to control the data inside their own four walls," says Gach. What's also inevitable is IT vendor consolidation, says Gach. With all the procurement deals on Wall Street, many firms are using dozens of vendors. Consolidating the number of relationships is part of the cost-reduction process, Gach suggests.When the industry was generating huge profits from packaging and trading complex derivatives and needed to launch a system in 30 days, cost didn't matter. But now that the bubble has burst, the industry is more focused on not only how to reduce costs but sustaining the operating model in good times and bad. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio