Not too long ago, a typical operational outsourcing project went something like this:
· Operations Chief decides to explore outsourcing
· Assesses options, performs deeper due diligence
· Brings recommendation to CEO for discussion and approval
Today, the CEO is involved in the outsourcing strategy much earlier in the process, even initiating it. Why has this happened and what key questions must the CEO consider?
Two primary drivers of earlier involvement are:
1) the realization that agility – organizational, operational, and technical – is essential to compete
Asset Managers want to focus on differentiating through product, performance, distribution, and client servicing. Challenges with data, operational silos and capacity, restrictive and expensive technology, and organizational alignment are inhibitors to nimbly executing their strategy. This has led the CEO to view outsourcing in a different light, beyond a cost play. Whether it is acquiring and bolting on an alternative investments capability or providing a path to get out from under decades of legacy technology, the CEO is looking at outsourcing as a key consideration to engineer in agility and enable transformation.
Asset servicers have invested mightily in emerging flavors of front-to-back outsourcing models, expanding into value added services like outsourced trading and data-as-a-service, targeting asset managers of all sizes as the answer to their operational agility question. The elevation of data in this model is noteworthy. Management and exploitation of data is a critical enterprise endeavor and should be viewed as a tool to bring down traditional operational walls, eliminate friction, and enable better decision making.
The pandemic shone an even brighter light on the inadequacies of legacy operating models to respond to the forces squeezing the industry. Simultaneously, COVID has also raised comfort levels with virtual work models, making outsourcing arrangements more palatable.
For these reasons, the asset manager CEO is actively entertaining the leading asset servicers’ corner office, sometimes even affirming the broader service partnership concept before deep due diligence is conducted. The CEO is uniquely positioned to drive transformation front-to-back, recognizing that an operational platform built for growth and change is an imperative, as it allows for laser focus on core competencies and strategy execution.
Key questions to be addressed at the outset include:
1. My operations must be an enabler of my strategy, not an impediment. How specifically will outsourcing help us innovate, compete, win and grow?
2. Building a data culture is important, and elusive, to us. Help us understand how outsourcing aspects of data management and analytics will help us safely achieve that goal?
3. Our industry has a long history of bumpy operational outsourcing projects. Why should we consider outsourcing more critical business functions, potentially to a single provider?
Outsourcing is on the rise, but not without material questions such as these to determine if it is a fit for your organization. Past outsourcing initiatives have taught the industry hard lessons about “underground” organizations, replicating vs. renovating, and functional-centric vs. data-centric approaches. As the Asset Manager Operating Model of the 20’s is defined and implemented, it is essential that outsourcing is viewed as a partnership, an extension of the asset manager, not a transaction or a pure cost play, and the full investment management process is considered early and often.