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Trading Technology

01:48 PM
Larry Tabb
Larry Tabb
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The Bad Side of Good News

The economy is humming, corporate profits are up, brokers' earnings are up and firms are increasing their technology spend - fantastic! But, where does that leave the industry's IT cost control and management accomplishments of the past four years?

The economy is humming, corporate profits are up, brokers' earnings are up and firms are increasing their technology spend - fantastic! But, where does that leave the industry's IT cost control and management accomplishments of the past four years? Will the structures that firms have put in place vanish with the drive to capitalize? Will we go back to annual 20 percent increases in IT spending and many of the bad habits that we purged over the past half decade?

The upswing will mean IT reprioritization. The industry will shift from its laser-like focus on cost, technology management and regulatory initiatives toward capturing opportunity as it presents itself. This shift in priority historically has been dramatic.

The quest for opportunity has begun. Traders, sales staff and bankers are trying to capture advantage by creating, underwriting, acquiring and delivering novel products and services. But, while opportunity drives the market during an upswing, many operations and IT departments will not be ready, because during the past four years, we have automated, centralized, cut budgets, shrunk capacity and generally avoided opportunity.

The first time operations and technology tell a trader they can't process a transaction, businesses will wonder why it takes so long to implement new products and book new deals, and why their operations and technology groups are "non-responsive." IT, on the other hand, will think, "What do you expect?" The same C-level executives who had to sign off on every expenditure a few months ago now are asking, "Why aren't you prepared?"

It's all so predictable, but how do we change it?

No one likes to hear it, but change requires investment in technology infrastructure - the pesky stuff that delivers little, is un-cost-justified and invisible to mere mortals, but is at the heart of a firm's agility. Firms must create an infrastructure that is both flexible and responsive; built for speed, but easily modifiable.

To build this agile infrastructure, a long-term plan is needed. The plan must take you from where you are to where you want to go, but the tasks must be small enough to implement and fold into projects that can be prioritized and built. Componentization is key so tasks can be accelerated when the money is flush and throttled-back when budgets are austere.

To build the plan, firms need to think about a centralized data model surrounded by a decentralized architecture. A plethora of processing systems built on tightly integrated disparate technologies removes flexibility. Relying on the unified "all singing, all dancing" central application may be cost effective, but it will provide a central point of failure, however, and a project prioritization nightmare.

So the answer is a few key back-end processing systems architected around a central data model, enabling communication and independence. Around this core infrastructure and model are the firm's business applications, enabling bankers, portfolio managers, traders, salespeople and brokers to underwrite, invest, trade, sell and manage customer relationships better.

As the good times roll, we do not want to disassemble the IT management rigor with increasing pressure to perform. The past four years have been difficult, but we have learned to get the most from vendors, outsourcing non-critical or high-cost services, doing things in small steps and better managing our IT development and our users. As our businesses begin to search for opportunity, it would be a shame if our success created an environment of failure. If we take a little time in doing this right, the benefits will outlive us, long after the next business cycle has come and gone.

Larry Tabb is the founder and CEO of TABB Group, the financial markets' research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the interview-based research methodology of "first-person knowledge" he developed, TABB Group ... View Full Bio
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