Published on January 25, 2013 by Guest Blogger
It is that time of the year when the pundits predict the course the industry is likely to take over the next 12 months. Since the 2008 financial crisis, a lot of ink has been splashed every year on reiterating the shaky foundations of traditional investment banking and the challenges to the brokerage model. Similarly, there has been plenty of analysis on the issues that asset managers face and the need for change. Much of this holds true even in 2013, but external commentary does not do complete justice to the major front-office changes and efficiency improvements underway at many firms.
In my role at Acuity Knowledge Partners, I get to meet a lot of senior executives (COOs, CIOs, Heads of Equities/Credit, Heads of Distribution) across the capital markets spectrum. Many of them are leading or participating in strategic plans designed to reshape their organizations to compete in these market conditions. Those having success seem to embrace three common themes:
1. Plan for volatility
2. Define front-office efficiency
3. Build teams that can execute the new model
Plan for volatility
Firms making the most progress appear to be the ones that don’t spend time debating the “new normal” or forecast a dramatic recovery in market conditions. They are more focused on retooling for an operating model that can better deal with volatility. An asset management client, for example, has re-engineered their sales and marketing operations processes to handle a significantly higher volume of client opportunities, but at lower fixed costs. All these executives have both revenue enhancement and cost reduction targets. What they have done differently over the past couple of years is to adjust their operating model to be able to better withstand downswings and still be armed with the firepower to take advantage of competitive and market opportunities.
Define front-office efficiency
The front office is under considerable scrutiny for cost savings. However, thoughtful executive teams are using this opportunity to sketch out expectations of front-office efficiency that leverages advances in technology, greater productivity from expensive resources, and relevant shared services that eliminate expensive duplication and personal “fiefdoms”. For example, an investment bank added a pool of outsourced support resources for senior bankers across various sectors and incorporated technology automation into the production of pitchbooks and standard collateral. Subsequently, they set clear metrics for higher productivity (more client meetings, higher win rates, and better quality pitches). The goals, in this case, were to reduce costs through the consolidation of resources and enhance top line from greater productivity. These changes were not easy to implement, but they enabled sustainable value creation rather than just cost cutting alone.
Build teams that can execute the new model
Wall Street remains a “talent” business. Despite downsizing initiatives, firms are focused on attracting, managing and retaining the best talent that drives differentiation and market share. Front-office professionals are successful and strong willed and often valued as independent contributors. These traits sometimes conflict with the need for a change in the operating model. Until a few years ago, many firms would try a consensus-based approach to front-office re-engineering, leading to mixed results. Today, firms appear to have found the right balance between top down mandates owned by a senior leader and bottom up execution by experienced professionals. These leaders work hard at explaining the vision for change, expected results and specific milestones while building support from the bottom up. Successful firms have found talented leaders that excel at their day jobs and buy into the front-office change vision. It is very difficult to do this if there is heavy internal resistance.
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