IT CHALLENGE

The Challenge: Concerns about costs have IT managers looking for creative ways to manage their operations and still move projects forward. Here are some challenges facing four IT managers and how they are tackling them.

Hungry vendors mean opportunity for IT managers. Ask any CIO about their three greatest challenges and it's likely that cost containment and coping with the financial fallout from sluggish markets tops the list. For IT executives, that means looking over the organization with a fine-tooth comb, looking for savings where they can be found. After costs, though, the challenges vary, ranging from struggling with a lack of standards to maintaining infrastructure, hanging onto talent and finding the right technology to meet their needs.

Cost containment
Slumping markets have put a "hell of a lot of pressure on the expense structure and we're looking at how we can react," says Don Haile, president of Fidelity Systems Company and chief information officer of the Boston-based money manager. "We're looking very hard at our expense structure across the board."

For Haile that means figuring out "what's important from a business perspective" and prioritizing the many initiatives underway. It also means "looking at how we spend IT money. We're learning that we're spending more in what we call the production phase as opposed to the development phase. It's a trend we don't like." Because Fidelity builds a lot of its own tools, the cost of maintaining that is "growing like crazy" and Haile says the firm wants to "get better at spending money."

He's certainly not alone on that front. Mark Saunders, senior vice president and chief information officer at Toronto-based BMO Nesbitt Burns says that the main challenge he faces is continuing to "provide excellent value to the business" while "we continue to try to watch our costs."

Saunders says that although the markets are down and the industry is in a "tough environment, we have never been busier. There's no shortage of initiatives." The pressure is on, he says, to "deliver on time and on budget."

BMO Nesbitt, he says, has a "fairly large" IT staff with around 800 people, including full-time and contract personnel and about 200 people outsourced to a firm in the United States. The firm has made a number of acquisitions in the past, giving it a greater presence in the U.S. market, including banks and brokerages. "The whole strategy is to offer a product line where clients can get on the train at any point depending on their needs."

When the firm acquired CSFB Direct, its technology platform - which he describes as a "jewel" - became the strategic platform for the firm's private-wealth-management business. In this active environment, Saunders has taken some simple steps to manage his IT costs and leverage the market slowdown in his favor. When it comes to vendors, he says, "we're seeing a lot of flexibility. Vendors out there are hungry for sales. We're using that as an opportunity to partner with them."

He was able to speak to his UNIX supplier and move to a utility-pricing model by bringing in some new machines that consolidated 15 servers down to three and now he pays only for the cycles and capacity he uses.

As well, Saunders restructured some lease arrangements with disk-storage vendor EMC to replace used equipment with "fresher and newer" units. "We increased our capacity 50 percent and saved annual costs that were worth north of a million."

As well, he has negotiated with contract suppliers and has been "able to cut our contract rate significantly."

For smaller firms, though, it can be tough to squeeze out such savings but they can be had, notes Fred Spencer, chief technology officer at Batterymarch Financial Management, Inc., a Boston-based quantitative money manager with $7 billion of institutional assets under management around the world.

"Costs are always an issue" for small firms, says Spencer, and he's constantly evaluating and reviewing projects. He recently reviewed his market-data vendors and changed his pricing vendor, which "saved quite a bit."

Because of its size, he says, when it comes to technology projects, Batterymarch has a "fairly short list of what we can do." However, Spencer notes, it also means that it is "fairly important that projects not be shelved."

He says one of the biggest challenges a firm faces in a cost-cutting environment is preserving institutional knowledge "during periods of headcount cutbacks." The problem when you let go key individuals, he says, is not being able to handle the market rebound. While it's not an issue for him currently, Spencer has seen it happen before at other firms. He says there's usually a "handful of people everyone turns to who actually know everything. They know the history of where to find data and how the systems are put together. They're a key resource - lose them and you lose that facilitation."

Straight-through processing and standards
But money isn't the only concern facing IT executives these days. Straight-through processing and T+1 are also mentioned. While the Securities Industry Association has backed off its original T+1 deadline, that hasn't stopped people from thinking about STP, says Saunders. "STP is a prerequisite to T+1."

"For us, we're doing a lot of architectural changes to our technology environment to get it to real time." He says moving from T+5 to T+3 involved "incremental improvement to processes." Moving from T+3 to T+1, effectively means moving from T+3 to T+0 and a real-time environment. "You can't do incremental changes. You have to fundamentally change the system architecture to go to real time. That's another key challenge we're working on."

Spencer says he's concerned that firms might see the SIA's move to back off the T+1 deadline as an "excuse for people to slow down projects. "It may reduce the urgency for some firms looking hard at re-engineering their business processes for increased STP."

He continues to work on his STP initiative. One area that he's concerned about is standards. "We have on a big push here to replace proprietary-communications schemes, such as custodian-specific transmissions and our old way of shipping trades to brokers." The focus now is on SWIFT and FIX protocols, which "save us support costs and has had a big impact on the timeliness of our business processes." It's "more efficient," says Spencer, adding it frees up resources and allows firms to spend "more time managing your trade and order flow. It gives you more precise control over order flow than in the past."

Standards are also an issue for Tim Medlock, chief administrative officer at the New Boston Fund, a real-estate-investment firm that has raised $450 million in capital from high-net-worth clients. "One of the big challenges we, as an industry, face is we do not have the type of standardized investment reporting" that other parts of the financial industry have. Another issue he is grappling with is competing platforms. "We have several different platforms running and they're not designed to run interactively with each other."

CRM initiatives
Another challenge facing Saunders is breaking down the business silos across different units to "provide support for the wealth-management business." The big question for him is: "How do we cross sell between full-service brokerage and private-banking capability?"

CRM is the "key-technology enabler" that can help firms understand customers and their needs, he says, adding that his firm is implementing a CRM solution from Siebel Systems.

Developing better CRM systems is also an issue for Medlock. He really has three different sets of customers to serve - individual investors, tenants and investment advisers, who can provide access to investors' cash. The fund has some leads come in through the Web site, which attracts new investors, but more can be done to court investment advisers, he says.

Infrastructure
Spencer says that markets will eventually rebound and it is "critical" to continue investing in infrastructure, such as middleware and market-data distribution. Currently, Spencer is expanding his firm's client reporting. The firm is taking data from the portfolio-management system and turning it into better reports. As well, being a quantitative-analysis firm, Spencer is "looking at different technologies and different models to see if they add value" when it comes to analyzing market data.

Fidelity's Haile says that infrastructure is key moving forward. "We're re-looking at our whole infrastructure," he says, noting that computing has gotten away from mainframes. That means a growth of servers and standalone PCs. "We're now at the point of stepping back and asking are we doing the right thing?"