Transformation – Fail to Prepare, Prepare to Fail

Drivers for change - 2021

At the end of 2020, our expectation was for transformation activity to be driven by;

• ESG propositions,
• Regulatory requirements (e.g. product governance, operational resilience and SFDR),
• Mergers and acquisition,
• Strategic relationships, and
• A focus on product and capacity expansion, chiefly leaning on fintech solutions.

Our view has not changed, and indeed we are already seeing significant activity in these areas. However, in delivering this change, there are several interconnected challenges, which if not correctly addressed, could result in sub-optimal output, and even render all efforts to the dustbin of expense without benefit. In short, if you are going to go ahead with your transformation, then do it properly!

Let’s explore some of these challenges in a bit more detail…

Defining your strategy

Simply put, it’s time for some corporate introspection and considering where do you want your organisation to be in 10 years (and beyond) and why? This is very much a decision for the executive team and one which will have a huge impact on the firm’s vision, reputation, products and future market share.

Chief Executive Officers, supported by the board, are challenged with setting firms on a path that will deliver long term success through strong and consistent stewardship throughout their tenure. A key component of effective leadership is an entrepreneurial skill set that enables the executive team to identify fledgling opportunities and then make decisions around these, whilst holding steady in their conviction that the benefits may only start bearing fruit years down the line. This is perhaps easier done for a private company answerable to a handful of shareholders, who potentially may run the company too, than a listed company, where the pressure to show quick results often obfuscates decision making, and can lead to sub-optimal strategies being adopted.

The industry consists of many participants, including asset managers, custodians, fund accountants, transfer agents, middle office, data providers, fintech firms, platforms, industry bodies, regulators and, most importantly, the clients. An effective board allows the executive team to have a ‘helicopter view’ understanding of how the firm fits into this environment. It is from this holistic awareness that entrepreneurial ability enables the less obvious opportunities to be identified. A great example of this is a decision by Blackrock to build and adapt the Aladdin platform, creating an integrated platform that cuts costs by removing several superfluous functions and services that would have been otherwise purchased. Aladdin is not only used by Blackrock, but has been packaged, commercialised, and implemented by many other asset managers, earning Blackrock billions of pounds a year. Kudos to Blackrock!

Executing your strategy – the how

Your transformation starts off with strategic decision making, though it can often fall at this first hurdle if teams are not appropriately briefed, engaged and mobilised to execute your grand plan.

So, following on from the board (and regulator in some instances) approving your transformation plan, your project is well underway and the clock is ticking! It’s important to remember at this point that significant change does test a firm’s values and culture, and is likely to be a determining factor in how smooth or bumpy your transformation will be. For example, organisations’ cultural aspects include;

• How staff collaborate irrespective of their location,
• A firm’s attitude to risk and due diligence activities,
• The presence of symbiosis amongst the various functions within your firm,
• Leadership and decision making, and
• The way communications are perceived by internal and external stakeholders

Being honest with yourselves on how your firm performs against these cultural points will be key to your success as it allows you to address each appropriately. We will now discuss them in turn.

Homeworking. Homeworking has become the norm in the last 12 months. It comes with its own challenges, for instance, collaboration is not deemed as effective remotely as it was when a group of people sat in a room together to find solutions to address delivery hurdles. There is also limited cross pollination of ideas and knowledge that are typically inherent when different teams are housed under the same roof. Homeworking also might not be as inspiring an environment for some people! Despite such hinderances from a market perspective, failure is not an option. Firms should be looking to find innovative ways to create collaborative working that keep staff engaged and motivated.

Due diligence. At the very outset, and for large transformation programmes, firms are challenged with informing their shareholders and other stakeholders of a realistic plan to execute and complete their transformation successfully. This requires input from highly skilled practitioners with a diverse range of expertise, and comprehension of how the firm fits into this myriad of activities within the asset management industry. This group of experts are required to efficiently perform the necessary due diligence, and produce a credible and realistic plan that the firm can stand by and announce publicly. Due diligence exercises will also be required for subsequent stages of the plan. The industry is challenged continuously with performing appropriate transformational due diligence, as genuine expertise is in limited supply. Poor implementation is likely to have a significant adverse impact on delivery, so it’s worth spending time identifying those areas you need to focus on and resourcing them appropriately.