Capital markets IT

An incredible growth

In the last 20 years, the very strong growth on capital market has triggered huge investments. For some companies strategy was pretty straightforward: any product, anywhere! Focus was definitely on growth and not on costs. The priority was to grab new market shares and revenues not to save cost or improve efficiency.

The direct consequence of this strategy has been a huge size increase as shown in the
following graph:

Goldman Sachs employees (Source Goldman Sachs)

Management capacity had to grow accordingly

This growth has not been possible without increasing management capacity. Going on with the Goldman Sachs example, if we consider that a team is composed of an average of 6 teammates, the growth in the graph above correspond to an increase of more than half a hierarchical level!

As experienced managers were not so common within Capital Markets IT, a lot of experienced managers, able to structure teams to sustain this growth have been coming from other industries or even other areas than IT.

Since the crisis, innovation and revenues race is over

The financial crisis is bringing a new situation: growth race is over, cost is the main focus. This is forcing the financial industry to move back cutting costs and jobs. This is where the main challenge is: how to scale down regaining efficiency? Will the managers that have been managing the scale up be able to manage the scale down?

This deep transformation is very difficult to trigger and is coming from top management which, seeing smaller or new competitors entering in the market, may realize that a deep transformation is mandatory. This transformation means cutting hierarchical levels building smaller teams, more agile and more efficient. 

Processes need also to be revised to be adapted to the new size, internal invoicing for example does not need the same effort for a smaller setup!

 The most challenging part is not to cut cost at the same efficiency but is to improve efficiency while cutting costs. This means for IT identifying and retaining the best profiles that are making a true difference and setting up with those profiles small and agile teams. One can understand how different this approach is from the past, where quantity was more in focus than quality.

IT and unmanaged processes

Quite commonly organizations have some undefined or unmanaged processes. This is giving the impression to C level that only IT enforced processes are working fine.

Then, to feel more comfortable, top or senior management triggers projects to automate those unclear processes.

Very often this IT enforcement is not mandatory : having a proper process definition and performing the proper checks would often be sufficient and by far cheaper!

IT is not the only way to setup a process

A little anecdote on this topic : a company was struggling in setting up a sensitive process dealing with revenue recognition between production and sales. As it was not working, it was decided to get it automated (!). IT has been called and implemented a process at unitary deal level creating an IT an administrative monster. Production and sales were fighting on each transaction blocking the whole process.

Stepping back for a while, it was clear that this was the wrong decision and a more manual approach was taken : a weekly report was produced and both parties were invited to discuss and sign it off. The sign-off was recorded in a basic document workflow making the agreement official.

This simplistic approach paid off : due to netting effect, production and sales were much more in sync, talking to each other every week instead of fighting through systems, also creating a smoother relationship.

 IT is not meant to be a change agent

Another impact of trying to automate unclear processes is that IT is being put in a difficult role: IT is becoming the change agent. Instead of managing the required change in the process from the business side, this change is becoming all of a sudden a change forced by IT. Business managers can escape from their responsabilities in managing the change letting IT doing it. This is not so comfortable for IT teams that have to manage the process clarification, its implementation and the change management.

Also, the small example above is telling that brutal force is not helpful. Enforcing systematically processes implementation through systems is not always bringing value although it is sometimes mandatory (managing transaction status, product lifecycle, purchase orders, …).

A lightweight approach can also be considered espacially when processes are unclear. IT is then not any more in the driving seat which gives back to business the change responsibility.