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Monday, 12 December 2011

"Memo to Management"

Bloomberg Enterprise Technology Summit took place last week and is the inspiration for our recent blog posts [full videos to the event are available on the Bloomberg Terminal exclusively through the function LINK]. The hallmark event allowed technology decision-makers in the financial services industry share ideas and address issues they care about most. In attendance were technology industry leaders and technology executives.

The event was buzzing and the main themes were the macroeconomics underpinning the IT department, disruptive technologies, market trends including mobile and virtualization, and data security. Paraphrasing Dr Mike Lynch, founder of Autonomy (recently acquired by HP), who spoke at the event, sums up the relevance of this event: “Today, we cannot rely on yesterday's technology to give us tomorrow's competitive advantage.”

Dr Alexey Buditskiy, Amoo’s Investment Director, who was one of the speakers on the "Memo to Management" {click to watch on YouTube} panel, asserted that now is the right time to invest in technology. Alexey specified three major factors which generate value for any financial company. These are people, customers and technology. On technology, Alexey stressed that we need to invest now otherwise a company might lose its competitive advantage. He said he was surprised to hear that significant cuts are taking place in IT departments of major corporations. From Alexey’s point of view, this might look good in terms of short-term economic environment; however, it could be value destructive for the whole business in the medium and long periods. Greg Dowling (Managing Director and Global Head of Solutions and Functional Architecture, Global Banking & Markets, Royal Bank of Scotland), also on the same panel, supported Alexey’s statement with a light-hearted quote from his CEO claiming the banking business is about leveraging great technology - people, including employees and clients, are just a bolt-on.

On employees, the panel argued that nowadays going into an office feels regressive in terms of technology used. The shift from the old paradigm of going into work to use the latest computers and software needs to revert. Significant resources are spent to train new staff to utilize company’s software. Alexey went further to compare this with using analog machines in a digital world. He believes there should be more investments in upgrading the systems and expression of technology such as mobile and social networking within the corporate space. Technology should be more intuitive and user-friendly thereby leveraging employees existing IT skills. As an example, he mentioned Asana, a project management tool created by one of Facebook’s co-founders. Asana is simple to use and contemporary in expression. This sentiment was eloquently underscored by Vineet Nayar, the founder of HCL Technologies Ltd, in an earlier keynote speech titled, “Employees First, Customers Second.”

Speaking about the third value factor - customers - Alexey mentioned that customers are looking for transparency and innovation in technology. Only then will they be happy to invest and engage with institutions. Simon Goodman, CTO at Marshall Wace LLP, disagreed with Alexey giving the example of his company where user friendly technology is not relevant because they deal with institutional clients such as pension funds.

Panel speakers and members of the audience agreed that there was room for technology innovation and investment in many business areas. A thought experiment proposed by Greg from RBS was for us to consider what our in-house IT infrastructure would look like now if it had been built by Google five years ago.

Ulf Svensson, Enterprise Products & Services – Strategy & Business Development, Bloomberg L.P., who moderated the panel, enquired about future role of Chief Technology Officers. Alexey was again very optimistic about that. He said that more and more companies will have this position. CTOs will need to be more savvy and business oriented. Apart from that they will combine responsibilities of Chief Learning Officer, Chief Information Officer and Chief Risk Officer. Simon agreed on growing relevance of the CTO but not up to the same level.

The panel stated that corporations could invest more in tech startups. We believe this and go a step further to add that corporates should create in-house venturing for this purpose as well as to gain significant competitive advantage at low cost.

An interesting question from the audience was on which metrics can be adapted from the VC / PE space to assess technology projects within corporations. Alexey replied that it is difficult to suggest a unique approach because VC metrics include many quantitative and qualitative measures such as management team, potential for technology, IRR, break-even period etc. Therefore, the emphasis should be on adding long-term shareholder value to the business which cannot always be measured by one single numeric indicator. Simon felt an objective measurement was possible and this echoed Kevin McGilloway's (Enterprise Products & Services – Strategy & Business Development, Bloomberg L.P.) sentiments. Kevin mentioned a Lehman Brothers in-house evaluation system called Risk Adjusted Returns on Technology Investment (RAROTI) that was used to decide on projects before they were deployed. This was benched at 1 i.e. a return of 1 means no loss or gain while 1.3 means a 30% ROI is obtained.

The rest of the day was packed with debates, roundtable discussions and one-on-one interviews delving into the crux of technology's role in creating competitiveness in financial services. It is always good to see tech for grownups (corporates) consistent with the electricity that tech for startups generate.

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