Barnaby Nelson: Welcome back, all, to the fourth and final episode of this asset owner transformation series. It’s an absolute pleasure to have Geoff, Ryan, Christine, and Mark here to walk us through, in this episode, the real practical details of how all of the considerations that we’ve talked about previously are really turning into a project realization agenda.
So we’ve had some fascinating conversations, if you think over the last three discussions around the whole questions of spreadsheets, the limitations and thresholds associated with those, the pressures that are driving people from ESG all the way through to operational risk.
We’ve talked about, last week, the question of talent and roles and responsibilities as people have looked at how they’re prioritizing and managing their projects and how they’re trying to manage the whole gamut of change pressures all the way through, from ESG and kind of mandate compliance, all the way through to operational efficiency and asset servicing, for example; who’s on the hook for that and how people are managing those challenges in a world of finite resources.
So today, really, we aim to kind of get onto nuts and bolts for you and look at how the rubber’s hitting the road in terms of projects, people, and really with the aim of making sure that everyone comes away from this with a really nice, clean view of how those big headaches that everyone’s got can turn and transform into a transformation agenda.
So to kick us off, one of the key points from the research was that there is no absence of project work going on amongst us as owners; 40% of asset owners have got work going on this year and next year in terms of transformation of some description. And top of the list, not surprisingly, is removing Excel; 66% of the industry is prioritizing EUC and Excel or spreadsheets removal, that is basically is the kind of main objective, but then with an awful lot of different things hovering in the kind of 50-to-60% range.
The one key theme, though, that does stand out across all of those is the importance of data; 6 of the top 10 projects that people are working on are data-driven more than infrastructure. And so that all of the talk, if you like, around data being the new oil seems to be materializing.
So maybe, Geoff, kick us off. I mean, how does that resonate with you in terms of, first of all, what projects you’re seeing in terms of operational agenda; and then equally, what the themes are that are driving those.
Geoff Hodge: Sure. So, I guess the first observation I would make is that a lot of the projects that we’re seeing, I would characterize as people reaching out to professionalize their infrastructure across the value chain. And I would say, the behaviour that we’re seeing where it is fairly fragmented. So we’re not seeing everyone doing the same thing.
So you’ve got a lot of organizations focused on data, which is clearly an important part of the operating model. But the way that we see operating models is the ability to link the flow of data through an organization with the functions that you undertake, both internally and across the supply chain; and then the [InTwin] processors that link them together to control framework that allows you to manage it; and, importantly, the people skills that are required to operate a more automated world.
And I think what we’re seeing is that a lot of organizations are tackling that picture from different points, sometimes at the data layer; in fact, most often at the data layer. But I think we’re also now seeing organizations starting to think about, hang on, I need to know not just the data flows but I need to know what systems are going to be used by whom and where to actually make that all join up.
And it’s interesting when you look at some of the data, the highest order areas that, as [indiscernible] sort of said that need to change, is their structure and their structure and system replacement. And I think that’s an example of people reaching for the tools that they understand. And I think what we’ll identify is that there’s some—[skills and gaps] that can be brought into play to join up some of those initiatives to be a little bit more holistic.
Barnaby Nelson: Yeah. That theme of professionalizing the infrastructure really resonates. I mean, Ryan, what are you seeing in terms of how—if that’s the big kind of theme, that we’re all starting to grow up—how do you find that’s actually showing up amongst the clients that you’re seeing?
Ryan Silva: There have been a few instances for our clients where, essentially, they’re implementing technologies at the data aggregation level, as they look at getting rid of Excel. Because largely, they’re using Excel for some form of analytics, performance reporting sort of items. And if they’ve managed to get the underlying data from a master custodian [indiscernible], they’re plugging it into these data aggregators.
Now again, that is with a certain tier of clients. I think the larger asset owners, as we have discussed, have really sort of foundational data infrastructure that they’re updating and utilizing. So, we mentioned it before; I think it’s largely dependent on where an asset owner is in their own journey. But some of the things we’re seeing with our clients is at the data aggregation level.
Barnaby Nelson: Yeah. No. Thanks. And so, absolutely, so data is the kind of the backbone.
Christine, do you see this challenge—to Geoff’s point about kind of, if I understand right, you’ve got the kind of—first of all, you’ve got the kind of the objectives definition, if you like, and then you’re looking at the tools that are best placed for that to help meet the different objectives. Do you find that that’s the kind of core driver of this diversity of projects that’s going on around the organization?
Christine Knott: Yeah. I do think it is. As Geoff said, firms are looking to professionalize what they’re doing. They have a duty to their plans with regards to being able to get information back to them appropriately. There’s a level of transparency that’s required, as we’ve talked about ESG and others. But just general transparency with regards to the investment strategies, the information flowing to the plan, and also making sure that the—that everything that they’re doing has some level of oversight and governance to it, which is critical. And the only way to do that is really to put tools in place to be able to get that information, be able to share that information.
So I think there’s a—it’s both regulatory pressure as well as just general pressure in the marketplace with regards to change. And, as we’ve said, data’s obviously—I think you said it’s the new oil. But the reality is that it is the information—that’s the information that people are looking for comes from that data.
So I don’t think that’s new. I think what’s new is how you source it, how the data is being managed, how the information is being managed. As I’ve said recently, whoever thought about having a data scientist, right? That terminology, those terms are all new for folks. So it’s really—it’s turning it into less of an art and more of a science, to be honest. And, I think historically it was more art form than anything. And that’s the professionalism of it, right? So now you’re starting to take it much more seriously. Instead of it being somebody’s desktop spreadsheet on the side, it’s now something that’s really core to the business, core to them as a firm.
And as we seen with some of the very large funds, the larger funds in terms of—both in Canada, the U.S., and Australia, and I know we’ve talked about South Africa as well—they’ve had to grow their business through very interesting asset classes, through growth in terms of global exposure. All of these plans have desks around the world trading. So how do you pull it all together? How do you bring that information together and make it available? And that’s really the critical point as far as we’re seeing change.
I hope that—
Barnaby Nelson: Absolutely. Yeah. And you touched on—I mean, the fantastic thing about having Mark here is, to your point, if you think about the scale of organizations, we’ve talked a lot about the mega funds and the incredible sophistication that they’re building in and kind of this 22nd century, almost 30-year lense on everything.
Mark, from your perspective—I mean, obviously your very exposed, not only to African funds, but also to many others all across the size spectrum—does this kind of professionalization, drawing everything together around a core infrastructure that has oversight and governance, do those things resonate? Or do you think there are other things, kind of possibly more short-term, happening at smaller ends of the AUM spectrum?
Mark Kerns: No. I think, Barney, all that has been said so far is equally relevant to, let’s say, South Africa as a starting point.
But I guess one of the things which is important is, it depends obviously where the evolution of funds are, you know? And your question was—behind your question, I believe, is that, in South Africa, you’ve got a number of large funds; let’s say the top 20 or so funds are of significant scale. And you’ve also got included within that a number of umbrella funds, because there’s been significant consolidation of smaller funds into umbrellas. And that’s a function of lack of scale. It’s a function of what’s the most cost-efficient way of running the plans, et cetera. But notwithstanding that, the issues that have been raised are equally relevant in South Africa.
The one thing I would say is that there are certain approaches that are not as well developed in South Africa as they are in other markets. So, relative to the research, master custody, for example. Master custody is not in its infancy as such; I would say it’s in its teenage years, in that there’s funds that utilize master custodians but is—relative to Australia, Canada, for example, the take-up is still relatively modest.
So when it comes to issues like data management, when it comes to ESG reporting, when it comes to those other subjects, obviously, the appointment of a master custodian for certain funds would be quite a significant move forward, based on where that fund is on the curve. So I think the factors here are all relevant to scale and where the market is in terms of its own development.
The final thing I would say is that what is evident—and it doesn’t just apply to pension plans, I think it applies to asset owners more broadly—is that there’s more instances of organizations wanting to review their current operating model, wanting to benchmark that operating model relative to a broader peer group, and then wanting recommendations on how do they bring efficiencies into the operating model that are sustainable for, say, the next 10 years.
So this will be functional-related; it’ll be cost-related; it’ll be international benchmark-related. And there’s definitely more evidence of funds wanting to do that so that they’re taking the right decisions kind of holistically around how they move their operating model forward for that next 10-year duration.
Barnaby Nelson: Yeah. Yeah. Brilliant. And so the kind of consistent theme coming through is that we’re professionalizing, to your point, with a view to a kind of 10-plus year term. We’re looking to use—kind of basically put in place the right frameworks, oversight, and governance, and then the tools that support that.
One thing that just I had a note from our last conversation—microservices. One of the things that, obviously, the massive tendency or the proven historical is you’d lift and shift; you pull out a bunch of stuff and you put in a nice new system. What are we seeing? Or are we seeing the kind of the tendency in the 21st century more towards microservices and towards a much more fractionalized operating model? Or are people still looking at big backbones and kind of big core infrastructures?
Geoff Hodge: I have a comment on that. I think where I’d start is the—and the survey actually indicated this—that people are having trouble defining the challenge. And by that, I mean scoping out an objective that says this is what I’m going after in a way that gives you some hint about how you should go after it.
So, I think when you start talking about microservices—and I would put anything from RPA to blockchain to the cloud to anything else into this bucket—these are just technologies. And I say just not in a disparaging way but in a way that says, there is no silver bullet, there’s no magic wand, there’s no one size fits all, there’s no everything’s got to be microservices, or everything’s got to be [that plan] or whatever.
The criteria for what works is what’s best for the members, to the end investors. And that’s got probably about three characteristics when it comes to operational infrastructure.
One is, at what cost. What is the unit cost that is not sucking return out of members’ accounts? What is the risk profile associated with it—operationally managing that money effectively right from the investment decision through the operational value chain? And then, can I provide the services and transparency to the member and the other stakeholders like regulators and so on that have been mentioned?
And if I go back to something Christine said before about reminding us about data being the new oil, if you think about driving a car, are you really thinking about the oil? Because it’s pretty smelly, horrible, sticky stuff. Or are you thinking about, I am driving this car from A to B, and I’m interested in the fuel economy, I’m interested in how quickly it accelerates and gets me there, I’m interested in how comfortable it is? And so on.
And I think one of the things that the industry’s got to get its head around is that data is a very pervasive and interesting and important component, as oil is to driving a car. But no one’s thinking about the pipes and plumbing that gets the oil and the trucking of it and everything else when they’re selecting a car or driving it.
The operating model is the car. We get paid, when we’re running an asset business, to drive the car efficiently and effectively and as far, and make it perform as well as we can. And I think we’ve got to put data in its right place, which is a key layer that needs to be attended to, but it’s not an endgame in itself. And that’s why, when you mention microservices or any other technology, that they can be an important tool or choice or component, but I really don’t think we’re in a situation where a belief system around this decade’s technology is the right way to think about designing the outcomes when you think about what we’re trying to do at the end of the day.
Barnaby Nelson: Yeah. No. Absolutely. I think—and that—because I guess for me, one of the things, to your point, is that ultimately, we are now faced with more technologies than we’ve ever had in terms of optionality that, if you go back, you had mainframes, then you had just outsource the whole shooting match to somebody else, whereas now, you have everything from all of those options, but also many, many others.
And I guess for me, to your point, I mean, so that the menu is much longer in terms of options available, which, one, contributes to, I think, challenges, as you say, around framing the right problem and the solution, so is this a data problem, is it a people problem, is it a process system problem. But then also, it has, I think, a pretty significant impact on who’s around the table in terms of basically who we’re turning to for help. So we’re not just turning to the mainframe provider any more; we’re turning to a whole host of other people, to your point, I think, Geoff, that are going to help us to actually make that nice link between problem and solution and to help, as you said build the right car. Because there’s an awful lot of people pushing different cars at the moment.
So, with that, I wanted to kind of touch on, perhaps, Ryan, the questions around the changing team. Mark has mentioned kind of the increasing kind of maturity of master custody in certain parts of the world, but one of the things that stands out in the research is, ultimately, is that at the top end of the scale, there are new seats at the table. You have software vendors, you have boutique consultancies, you have fintechs coming into the conversation at the expense of the old players. Are you finding that in the conversations that you’re having?
Ryan Silva: Yeah, absolutely. I think the research represents what we sort of see on the Street with our clients. Because of the availability, as you were discussing, of the broader menu of items that clients, depending on where they are again in their journey, they’re looking to different providers. And these new tech providers, these fintechs are available everywhere.
Now the question ends up being how well a client is able to assess the sort of utility of the new technologies. But I love the analogy of the car and the gas. Because for us as an organization—just on a side note—I was speaking to some of our data folks and we spent seven, eight years just setting up the data infrastructure, cleaning it up, before any attempts at AI or intelligence or infrastructure.
So if an organization understands where they are, how it’s going to flow, how it gets pieced together, then they can make informed decisions about the sort of boutique providers they can select. If they don’t, they can pick and somebody says, oh, yeah, we can do all these things, and they put it into play. And I’ve had a few clients who’ve come—because they come to us and they say, hey, you’re master custodian, we need all this data. And we go through the exercise, get them the data points, and like, we need it tomorrow, and then we deliver it to them and say, actually, you know, you’ve got to put it on hold because the provider that sold us that thing said, we ran into some hiccups and now that’s going to be delivered next year. Right?
So I think it’s always advisable for asset owners to seek expertise. There are a lot of knowledgeable consultants out there that can really help map out where you are, where you want to go, and what the steps to get there look like.
So that was decisions that they’re making, as you said, to bring in those specialized providers, can be fruitful for them.
Barnaby Nelson: Yeah. How are you seeing this, Christine, in terms of actually the—I mean, Ryan’s point around you’ve got to—these relationships all have pluses and minuses in terms of risks and rewards. You’re seeing the projects kind of kicking off every day. How are people managing that, first of all, who do I have at the table? And then second of all, how do I make sure I’m really managing these people properly?
Christine Knott: Yeah. So it’s a good question and I agree with Geoff and Ryan and what they’re saying as well. I think that what we’re seeing is that a number of the larger custody banks, we’ll call them, are looking to try to solve a lot of challenges across the board. I wouldn’t pick on any one of them in any way, shape, or form. But I think, as Ryan said, sometimes that’s only one source of the information, right? I mean the reality is everybody’s got their box and the box may get bigger and expand as you go along, but the reality is, how do you piece it all together?
So, Geoff, you’re talking about a car. Well, if your car’s made up of a whole pile of components, you basically created a Mad Max car, right? So—right? I mean, that’s essentially what’s happening is they’re creating these environments where you’re consolidating information across multiple organizations, multiple data points, and when you look, whether you’re a small plan or a small asset owner or a large asset owner, the reality is that you have multiple asset classes. Not all the classes are going to be managed by a master custodian or they’re being managed independently which comes to be where you see some of these microservices put into play.
So how do you then pull all those microservices together? And how do you then pull all of the information coming from the larger partner that you have as well? Because in North America, for sure, and in Australia, obviously, these custodians play a big role, a huge role, whether it’s just custody, whether it’s other things, including accounting and other services. But the point there is, how do you pull this all together? And who do you rely on?
So I think it’s making sure, as Ryan said, having the right people at the table, making sure you’re getting a roadmap put together, looking at your roadmap and understanding where you want to go as a business, and then being able to determine also the timing of these things. And I know we’re going to talk a little bit about that shortly, but because some of these programs are massive, they’re multiyear transformational programs that require a lot of specialization.
And I think one of the things that firms are starting to recognise is that they don’t do these kinds of transformations often. So when they do, they do need help. And so whether that’s help from the service provider or that’s help from the consultants, help from the vendors that they’re dealing with, they do need the help because they don’t do this every day. So that is something that’s critical for them because transformation is hard on any organization.
Barnaby Nelson: Yeah. So if I’m not stretching Geoff’s analogy too far, we’re really seeing the emergence of a car mechanic as opposed to an oil mechanic as a specialism within the organizations. And I mean, in that context, at the different ends of the spectrum, who are we seeing asset owners wanting to be that car mechanic? Because I think, as far as I can tell, there’s a bit of a change kind of going on.
I mean, Mark, maybe first, just in terms of actually what you’re seeing, you’re mentioning the emergence of master custody, and at the other end of the scale, potentially there’s a phasing out of interest in master custody at the super end of the scale. How are you seeing that in terms of who kind of the car mechanic is, if that’s even a thing?
Mark Kerns: I’m going to try and avoid extending Geoff’s analogy much further because I’ll be into pistons and everything else you know.
But look, I think the key thing here is that there’s a plan. And Christine made the point that, whichever the jurisdiction is, often the operating model has been built over time. And in many instances, that operating model, at the core, is a legacy system that caters for X percent of the functional requirements of the fund.
So I think, if you combine that with arguably an unprecedented level of change through technology development, through asset class development, more recently, the onset of digital assets and so forth, actually, plans need to have a plan of their direction. And I agree with Christine. To execute against that plan is not something—this isn’t a six-month hit; it’s executing in a structured way.
Now, the really positive thing about where we are in 2022 is that delivering against that plan can be made up of a variety of solutions within the underlying ecosystem. So it’s not a case of one or two players doing everything; it’s kind of determining which components of this infrastructure are best delivered from organizations that have got superior capabilities, superior technology, functional strength, and so forth. And I think where the industry has evolved to is leading to funds actually identifying that they need subject matter experts inside and they need to often pull them away from operational roles into transformation roles. And I think that people transformation’s going to be evermore relevant over the coming years. Plus supplementing that with third-party help where they feel that’s relevant.
So I think there’s that dynamic. It’s definitely a period of change, but the behemoth internal system, the behemoth kind of capability from a single provider, I’m not saying that that’s not relevant. There’s typically always going to be a core system, but the broader ecosystem, there’s many options. And I think with the right plan, that ecosystem will be structured to kind of maximize the functional requirements a fund has as well as support the operating efficiency, and to Geoff’s point, the underlying cost of delivery.
Barnaby Nelson: Yeah. Absolutely. Yeah. Yeah. So, Geoff, one of the things that stands out in the research is that kind of this idea of moving away from the behemoth kind of, not just system but the behemoth provider, and anecdotally, trying to put people a little bit back in their boxes. Are you seeing that in terms of a move away from letting somebody else own my operating model and this desire effectively to have that control in house?
Geoff Hodge: Yes. So in terms of the operating model, I don’t think you’re going to see a massive change in what I would call the provision of core services. And there’s an in-source/outsource sort of conversation that sometimes is philosophical, sometimes cost driven or whatever. I think where we’re talking about the new players getting involved, it’s really where change is occurring. And I think it’s fair to say that larger organizations are probably a little bit less responsive sometimes than smaller ones; that can be a function of the size of the organization. I don’t think that’s necessarily the driver though.
I think the reality is that the kind of change that’s going on with asset owners at the moment is very sort of, I’ll call it, IP, as in intellectual property driven. So it’s IP dense and you need specialists with skills. It often is unique to the investment strategy of the firm that actually influences the nuances of what they need operationally as well to be able to support that.
So I think where you see in the survey a third of large asset managers now citing boutique consultancies and fintechs and so on as partners, I think they’re partners in the change process. They may have a role after the change process as well, but I think that’s what these firms are reaching for and I think the mid-tier firms and the smaller-tier firms are probably just later in that lifecycle, maybe because they’re taking a sensible decision to wait and see how that plays out because I think some of those outcomes are uncertain, or because they’re resource constrained and they’ll actually [consume] the new way of doing things once it’s baked its way into the core services.
So I would say it’s a pretty normal kind of still fairly early in the cycle of this sort of professionalization. And if I go back to something Ryan said before, which I think is correct, you’ve sort of got this fragmentation now of people with solutions that they’re putting forward, and not all solutions are equal, and not all solutions that take you forward are capable of taking you to an endgame.
And I’ll give you a specific example. Ryan mentioned data aggregators. Very important function and, in fact, again from the survey, it was probably seen as the best short-term win is to have our interfaces to be able to collect and bring data into an organization. And we see a lot of that being presented into as part of what we can assist you with investment decision-making as a consequence of bringing that data. That’s a true statement, until you say as an institutional asset allocator, I now want to execute on that decision I’ve made. And okay, well, we don’t do that; we just aggregate the data and present you with the stuff.
So, if I had an operating model guiding my selection of partners, I might say, well, hang on, in my operating model, I know that after I’ve gathered that data and brought it all together across the asset classes, internal and external managers of different classes and so on, I’ve got that picture, that’s tremendous, but now I need to act on it. And now I’m going to have a different view about the right combination of providers that are going to help me with that outcome.
And that’s why I think we’re very encouraged to hear the industry talking about operating models because once people discover and understand what that really means, it actually informs those choices and makes it much safer to run transformation programs and select partners and so on.
Barnaby Nelson: Yeah. And it’s a really interesting thought, that, I mean, this challenge of these new seats at the table potentially bringing with them a lot of execution risk and challenges as much as they bring brilliant ideas and insights. How are firms actually managing to that? Because ultimately, to your point, obviously, everyone brings in—one of the themes is that there’s a strong kind of verticalization of specialism, so basically people are coming in by asset class or people are being turned to buy kind of, as I said, an end-to-end piece.
But I mean, how are firms managing to the fact that some of these people have very short track records? They’re not massive great banks that have been there for 20 years and that you know what you’re going to get whether you like it or not. How are people managing to kind of filter that and actually, in a kind of due diligence style, actually manage that? I don’t know if anyone’s got a view on that actually.
Christine Knott: Sure. I’ll take a first at that. I guess one of the things that we’re seeing a lot more of, and we support this wholly, is proofs of concept. I mean, instead of just going in and assuming that whatever you’ve been told works, really testing it, putting it through its paces, putting it through the challenges in small buckets and really being able to see whether or not they can realize a win leveraging these toolsets. Because sometimes it’s okay to walk away, right? That happens too. If it’s not a good fit for both organizations, then it’s not a good fit. Not everybody’s going to have all the right pieces to the puzzle.
And as Mark said, it’s about putting a plan in place as well. So when you think about transformation, you have to assess what the transformation means to your firm and then you have to make decisions about the timing of those, the sequencing. The amount of time we spend with our clients working through what the right sequencing is, understanding where they want to get to and how quickly they want to get there, looking for, in some instances tactical and in other instances strategic, and finding the place for both, because sometimes it takes longer to benefit from the strategic immediately.
But in terms of going back to your initial question, I think people are test driving more and more. They’re really trying out the application before they go. And with some of these smaller, more nimble firms, right, that are operating in an agile environment, they’re okay with that because it gives them a chance to also reframe if need be because the applications need to be adjusted. So it’s giving both an opportunity to test out and make sure it’s a good fit.
I see both Ryan and Geoff nodding their heads, so I’ll pause there and see if I think you want to pipe in, Geoff.
Geoff Hodge: Yeah. You make a really important point. This business about the way that you go about buying, effectively, and selecting, I think there is a massive mismatch in the market between legacy procurement processes that generally think about things in terms of RFPs and bake-offs and references and materials in the market that are later lifecycle types of solutions versus direct inspection, which Christine described very nicely, where you need to do PoCs, you need to inspect directly and form a view.
The skill set that the organization needs to have to be able to operate safely in that transformation world, if it is genuine transformation not just sort of catching up, and that’s what Christine’s described, you do need to think about PoC and other similar tools to be able to make informed decisions, not just everybody else thinks so, because everybody else generally isn’t doing it yet.
Mark Kerns: And I think one of the things which just kind of to echo in the same comments, this kind of dynamic around the people that are involved is obviously critical, which is the previous comment I made was that, if you—we’re seeing people being taken from operational roles into transformation roles.
I think this is a very important aspect if you now supplement it with other resources as appropriate. Because one of the things with the passage of time is that there are less and less people that actually understand the operating model from an end-to-end view. So, people tend to specialize in an asset class. They tend to specialise in different components of the operating model—performance measurement, analytics, ESG, et cetera. But those resources that actually understand this from an end-to-end point of view are incredibly valuable, even more than ever. So you need to kind of look at okay, how do we ring fence those, how do we supplement those people?
Because these things don’t have to take years; it’s more a case of having the right subject matter experts that are kind of analyzing where they are now and determining where they want to go to, getting approval for that. But obviously, if you’ve got the right talent that is doing that work and the right roadmap is developed, you save an enormous amount of time from a subsequent execution point of view.
I think people get distracted by it’s going to take forever. But it takes forever if you go into this repetitive cycle of actually not having the right people in the right roles doing the right things, you’re not going to get the right outcome. And I think in all of our careers, you see it happen time and time again. But when you’re looking at the operating model holistically, I believe you’ve got to be very conscious on who are the team of people that are doing that and what’s their profile, and what’s the profile of the people executing against that. And that will kind of lead more logically to partners, the right vendor selection, et cetera.
But the final comment is that what we need to bear in mind here is that one of the stark observations is that two-thirds of organizations are looking to replace Excel, and some are using it in a very broad way to consolidate portfolios and so forth. So, obviously, the starting point for this transformation is going to vary from organization to organization; it’s going to vary based on internal/external management, all of that. But it doesn’t mean that the principles are different but the starting point is going to be different.
Barnaby Nelson: Yeah. Absolutely. I mean, I think if you piece all this together, you’ve got two very, very different kind of realities playing out. You’ve got one, Geoff, to your point about the buying cycle. I mean, one is basically organization wants to change so they throw out an RFP into the market, buy in a system, and then hope that the system’s going to solve everything and spend 10 years kind of getting it some way there.
And then the other, the way we’re describing it, really stands out for me is very strikingly different. You’ve got first of all, Mark, to your point, building the people competency internally to be able to handle this kind of thing and, ultimately, finding out what your operating model is I think in many cases, leveraging the kind of talent you’re talking about. Then, Ryan, to your point, spending up to eight years cleaning up the data and doing housekeeping to the point where you’re actually ready to do something about it, and then you can get the funky guys in to do a PoC, and at that point, you’re then really able to do something meaningful in terms of executing change. So two very old world/new world kind of ways of doing things.
I’m curious, though, to see, I mean, first of all I suppose is that a fair reflection of what we’re seeing, but second of all, the latency that that adds. Christine, you mentioned the whole tactical versus strategic. I mean, by the time we’ve done all of that, you’ve got to have a management that’s pretty committed to fundamental—a plan, yes, but a plan that’s going to take 7, 10 years.
Are we seeing people comfortable with that? And particularly at different levels of AUM? Are we seeing everyone comfortable with that?
Christine Knott: I would say no. I don’t think everyone’s comfortable with that. I mean, I think it requires a long-term commitment. And, to Mark’s point, there are people that are very valuable within the firm. How do you maintain them? How do you keep them engaged over a long period of time for that kind of change? I think you have to have incremental wins to be able to just sustain that. That’s the only way that can work.
And seeing—Mark’s right—there are very few people that understand end to end in a lot of these firms, whether they’re small—the smaller ones you’ll see a little bit more of that, but the larger ones, absolutely that becomes more difficult because being able to see end to end all the time is very tough. So it is important, if you look at a longer journey, to make sure that along the way, along the path—I talked about sequencing, that comes to bear as well with the sequencing of these things and understanding how you can introduce wins to the teams, to the organization, to the plan numbers as well, right?
Because there’s also a cost associated with these types of transformations. There’s time, there’s people, there’s money, obviously, that comes into play. And you have to be careful as well not to burn people out, right, particularly if they’re doing two things at once. And that’s when it comes down to also making sure that you’ve got enough resources to be able to support these kinds of changes. It doesn’t matter what it is, but you have to have the right amount of resources to do it or those are some of the risks that are associated with it.
I know, Ryan, I think you were going to jump in.
Ryan Silva: Yeah. I think what we see—and we sort of talk about asset owners as these living, breathing things, but the truth of the matter is it comes down to people. What we’ve found is the tolerance or the sort of stomach for how long a project can go can also largely depend on the tenure of the person making the decision. If the person is two years away from retirement, they may not want to take it on. But we see as people move around organizations and individuals start new roles, this whole idea like my first 100 days, right? What are they going to do? How are they going to set their mark? Where are they going to draw the line in the sand? And then they can have these big bold, ambitious ideas and a vision and a long-term view.
And it is quite people dependent, right? I think that’s the way it operates. And when we either go into our clients or we see consultants come into clients’ shops, I think that’s a critical question to ask in order to frame the time horizon. Who are the people that are going to be around? Because obviously, I echo everything that the panel has said about how a loss of sort of broad knowledge and what’s the complement that’s going to take it.
And just another quick point. In terms of de-risking the execution risk, what we’re also finding is that individuals, as they move, they will pick technologies that are familiar. So they’ll say, oh, I used this technology at this other place. I know it sort of de-risks my adoption within the organization because I can bring in a few people who know it. It may not be the best solution but it’s familiar, right? And I think that’s another way that people deal with that idea of de-risking what they implement and how long it takes to implement them.
Barnaby Nelson: I think, Ryan, that’s called career de-risking isn’t it?
Ryan Silva: That too. Yeah. We’ve been around long enough to know that. Exactly.
Mark Kerns: I think there is—just kind of on that point—there’s the people dynamic from the most senior executive through to the people on the program, that dynamic needs to be right. And Ryan makes the point, I think we all know, there’s examples of big projects that need to be done but they don’t get done because they’re just too big. And actually, often, people don’t want to make the decision to do them on their watch. I mean, that’s the reality. And you can sugar coat it, but that’s often the reality.
But at the same time, you don’t want to embark on a strategy where the length of execution is too long. So I think the strategy needs to be realistic, it needs to be focused, and the tenure needs to be reasonable so that people can see a start and they’ve got a strong view on the end date for that phase of what they’re trying to achieve.
I mean, for me, things that have got durations beyond three years, you really need to think about, actually, what are we trying to do here? It’s just too long. It doesn’t mean that there couldn’t be another phase, but I think you just need to set the parameters and have a clarity of plan that is realistic and you can action against it.
And similarly, I think the point of validation and PoC and so forth is an important one, but I think the decisions need to be business driven. Because often, an organization will get set off course because stakeholders within the group are pushing a particular agenda, and there’s no agenda that gets pushed more than a technology agenda.
So I think we’ve all seen examples of people diving into a PoC and then you have to step back and say, well, wait a minute, we haven’t actually finalised what the strategy is and you want to do a PoC; that makes no sense at all. But that needs to be part of the plan and the governance and that objectivity across the stakeholders.
Barnaby Nelson: Yeah. Absolutely. So I think to that point, this idea, effectively the right amount of time for a project, I mean, one of the things from the research was that ultimately, at the mega-fund end of the scale, you’re talking about up to about seven years of time horizon that people are comfortable with versus one year at a kind of smaller sub-1 billion AUM level.
Maybe, Geoff, just as a kind of question on that, first of all, do you think that that’s right, ultimately, how the smaller people, smaller organizations managing all of this when their time horizons are so short? And then, just given your experience also, if you throw regulatory enforcement into this, do people have the luxury of a seven-year or three-year time horizon in many cases?
Geoff Hodge: I think what you’re seeing there in that one year versus seven year is a different definition of what a project is. And I think to Mark’s point, I’d probably even say shorter than three years, but if you’ve got a strategy that involves transforming or a technology is a piece of it, you’d better have some instalments along the way for a range of reasons. One is to test that you’re on course and that forecasting works because forecasting the transformation programs is, the longer the period, the longer the likelihood that you can track away from the objective. You also insulate yourself against key person dependencies a bit.
But the idea is I think with anything longer than, I would say, a 12-month period, you want deliverables happening along the way, and the strategic outcome, you want to be able to paint that outcome, but you want to be able to know that the instalments that you’re making are taking you in that direction. And I think one of the real tricks for people that have got experience of transformation is taking on a series of things that look like tactical steps but are in fact building blocks towards a strategic outcome. I think the concept of a single strategic [whacko] let’s do it all in one go, I think that really isn’t a good experience for anyone. And I think the—so from a financial management, from a risk management, from a people—people are real and a number here have said that keeping the people engaged and dealing with the fact that they have careers that end and all that kind of stuff, all that is best dealt with by having something that runs in that period.
But I would say where you’ve got smaller firms saying one year, that’s simply the time horizon over which they can make an investment decision with certainty. I think the larger firms can make an investment decision over a longer period of time. But I expect if you took some time [series] of that, that longer period of time is getting shorter. In any every other industry that used to look at 5- and 10-year horizons, that’s down to 3 or less, and often 12 months as well. And I think the way that that will be resolved is to understand that I might have a longer-term strategy or vision or whatever that thing’s going to be called, but my projects are going to be instalments that have to deliver on that journey.
Barnaby Nelson: Yeah. I think the word instalments is a great one because I mean there’s so many linkages in your mind to exactly what you’d expect from an instalment. That’s really what you’re saying, isn’t it, is basically, yeah, that quick return. Brilliant.
Well, look, so to bring this all together then, I mean, we’ve gone through an enormous journey over the last few conversations. People listening to this are obviously vested interests; they’ve invested the time in listening. So what are the kind of top three things that, from all of this that we’re saying, has key enablers, key steps that need to be taken right now, if you’re in that kind of heavily spreadsheet-based environment, aware of all these different pressures, struggling with the business case and so on and so forth?
Maybe, Christine, ladies first, your top three steps for fixing the world?
Christine Knott: I don’t know if I have the top three steps. I think, ultimately, it’s having the right people at the table because it always starts with the people. And then, to both Geoff and Mark’s points, coming up with what the right strategy is for you as a firm and then delivering on that, but delivering on it thoughtfully and in a way that you’re gaining advantage along the way, because you don’t have the time or this longer-term view of the world. So for me, it’s always about the people, the process, and then the technology and really looking at it from that perspective.
Barnaby Nelson: Brilliant. Thank you. Mark, what’s your take?
Mark Kerns: I mean, Christine has nailed the top three. You know, I’ve rebadged them, Christine, if you don’t mind. I’ve said right people, right plan, right execution.
Christine Knott: That’s a good rebadging.
Barnaby Nelson: Ryan, can you top that?
Ryan Silva: No, I can’t. I mean, I think we all understand that those are the three success factors. The one thing I will say is, in all three of those factors, to add levels of honesty, be really sort of clear about what’s happening because I think large organizations can get lost in a lot of noise in terms of all those, the right components. Be truly honest with yourself. Speak to the right people and accept the truth for what it is because it will considerably increase the success of your transformation.
Barnaby Nelson: Yeah. Absolutely. Geoff?
Geoff Hodge: Yeah. These are probably overlaps on maybe some subpoints in some cases, but I think the big one that Christine started with was about thinking strategically. And in my mind, that means across the whole firm, not just elements of the firm that you’re focused on today, and that includes the supply chain. The operating model includes the supply chain.
The second thing I think is recognizing where returns come from and where risk lives in the organization. And one of the observations is—and you need to allocate focus and capital accordingly. So getting rid of what I call salary bias where the highest paid people get to have what they want and nobody else does; that’s not a good outcome. But, if you look at the asset allocation process that generates 70 or 80% of returns, it’s probably the least well-funded part of the organization compared to other pieces. So that alignment is important.
And the other one that I think has been talked about a fair bit is, if you haven’t got all the answers, that’s okay. If you’re short on some competencies and/or capital and focus or something, partner with organizations that specialize in that thing. And if it’s what they do as a core business, you’ve got a much better chance of them being someone who’ll partner with you and not be distracted by something else. And I think we’re seeing that starting to happen where you look at the larger funds talking to boutiques and talking to fintechs and so on. They’re looking to widen the places that they actually take and input from and that can only be a healthy thing.
Barnaby Nelson: Yeah. Brilliant. So thank you very much, all of you, for bringing that together. I mean, the agreement is a good thing because it means that ultimately, there is a reasonably consistent path forward. But I think what’s brilliant through this conversation is I think many of the pitfalls and risks we’ve talked about along the way have really helped to draw out everything from technical bias, salary bias. There’s a lot of challenges, obviously, that are going to pull people off course, undermine the projects, not least of all absence of honesty I think really resonates. So the ability to have those front of mind and see them as obstacles as they come is as useful as the positive kind of strategy I think. So thank you very, very much for pulling all of that together.
If anyone does want to refer back to the research that we’ve been talking about, it’s available at thevalueexchange.co. But more importantly, please do reach out to the Milestone Group, to RBC, to Citisoft, to Adapa Advisory if you have any questions and want to take this forward because, obviously, this is just the beginning of the conversation.
So thank you very much and have a good afternoon.