As an industry with roots stretching back two centuries and all the advancements of recent decades, why then are asset management firms still grappling with the ins and outs of transformation? Indeed, why does the industry generally continue to struggle with implementing effective change?
In this article we start by positioning the old adage ‘Fail to prepare, prepare to fail’. In other words, we advocate the need to get back to basics and look at some of the simpler steps which, although frequently overlooked, are often key to delivering successful transformation projects. We conclude by summarising why these steps are a function of three key elements that define firms’ overall transformation success.
Drivers for change - 2021
At the end of 2020, our expectation was for transformation activity to be driven by;
- ESG propositions,
- Regulatory requirements (e.g. product governance, operational resilience and SFDR),
- Mergers and acquisition,
- Strategic relationships, and
- A focus on product and capacity expansion, chiefly leaning on fintech solutions.
Our view has not changed, and indeed we are already seeing significant activity in these areas. However, in delivering this change, there are several interconnected challenges, which if not correctly addressed, could result in sub-optimal output, and even render all efforts to the dustbin of expense without benefit. In short, if you are going to go ahead with your transformation, then do it properly!
Let’s explore some of these challenges in a bit more detail…
Defining your strategy
Simply put, it’s time for some corporate introspection and considering where do you want your organisation to be in 10 years (and beyond) and why? This is very much a decision for the executive team and one which will have a huge impact on the firm’s vision, reputation, products and future market share.
Chief Executive Officers, supported by the board, are challenged with setting firms on a path that will deliver long term success through strong and consistent stewardship throughout their tenure. A key component of effective leadership is an entrepreneurial skill set that enables the executive team to identify fledgling opportunities and then make decisions around these, whilst holding steady in their conviction that the benefits may only start bearing fruit years down the line. This is perhaps easier done for a private company answerable to a handful of shareholders, who potentially may run the company too, than a listed company, where the pressure to show quick results often obfuscates decision making, and can lead to sub-optimal strategies being adopted.
The industry consists of many participants, including asset managers, custodians, fund accountants, transfer agents, middle office, data providers, fintech firms, platforms, industry bodies, regulators and, most importantly, the clients. An effective board allows the executive team to have a ‘helicopter view’ understanding of how the firm fits into this environment. It is from this holistic awareness that entrepreneurial ability enables the less obvious opportunities to be identified. A great example of this is a decision by Blackrock to build and adapt the Aladdin platform, creating an integrated platform that cuts costs by removing several superfluous functions and services that would have been otherwise purchased. Aladdin is not only used by Blackrock, but has been packaged, commercialised, and implemented by many other asset managers, earning Blackrock billions of pounds a year. Kudos to Blackrock!
Of course, regardless of whether strategic gains are to be achieved via a merger, acquisition, product diversification or from new relationships, it remains important for firms to create a credible roadmap to deliver their vision. This then needs to be effectively communicated to their staff and shareholders, in order to maximise buy-in from both. Early agreement in this regard will go a long way towards alleviating any of the unpleasant distractions that have become synonymous with change.
The key challenges here are:
- Entrepreneurial ability
- Communication and buy-in
Undoubtedly there are firms out there planning bold and disruptive strategic moves with, we believe, fintech at the core.
Executing your strategy – the how
Your transformation starts off with strategic decision making, though it can often fall at this first hurdle if teams are not appropriately briefed, engaged and mobilised to execute your grand plan.
So, following on from the board (and regulator in some instances) approving your transformation plan, your project is well underway and the clock is ticking! It’s important to remember at this point that significant change does test a firm’s values and culture, and is likely to be a determining factor in how smooth or bumpy your transformation will be. For example, organisations’ cultural aspects include;
- How staff collaborate irrespective of their location,
- A firm’s attitude to risk and due diligence activities,
- The presence of symbiosis amongst the various functions within your firm,
- Leadership and decision making, and
- The way communications are perceived by internal and external stakeholders
Being honest with yourselves on how your firm performs against these cultural points will be key to your success as it allows you to address each appropriately. We will now discuss them in turn.
Homeworking. Homeworking has become the norm in the last 12 months. It comes with its own challenges, for instance, collaboration is not deemed as effective remotely as it was when a group of people sat in a room together to find solutions to address delivery hurdles. There is also limited cross pollination of ideas and knowledge that are typically inherent when different teams are housed under the same roof. Homeworking also might not be as inspiring an environment for some people! Despite such hinderances from a market perspective, failure is not an option. Firms should be looking to find innovative ways to create collaborative working that keep staff engaged and motivated.
Due diligence. At the very outset, and for large transformation programmes, firms are challenged with informing their shareholders and other stakeholders of a realistic plan to execute and complete their transformation successfully. This requires input from highly skilled practitioners with a diverse range of expertise, and comprehension of how the firm fits into this myriad of activities within the asset management industry. This group of experts are required to efficiently perform the necessary due diligence, and produce a credible and realistic plan that the firm can stand by and announce publicly. Due diligence exercises will also be required for subsequent stages of the plan. The industry is challenged continuously with performing appropriate transformational due diligence, as genuine expertise is in limited supply. Poor implementation is likely to have a significant adverse impact on delivery, so it’s worth spending time identifying those areas you need to focus on and resourcing them appropriately.
Symbiosis. Have you ever tried to lift a two handled pan full of boiling water with one hand? Very likely you will scald yourself and end up with a pool of boiling water on your floor. This exemplifies what happens when the left and right hands are not working together. This is also true of what could happen when teams do not act in harmony, whether they are internal or external. Delivery is hampered continually by workstreams and organisations adopting siloed approaches and protectionism. Ultimately, the entire organisation pays the price for such poor practices. Robust coordination is required that ensures all vertical and lateral touchpoints are woven into planning, whilst establishing an effective cross-workstream communication plan. Working in partnership throughout the process with all stakeholders is key and it is equally important to any outgoing relationships!
Leadership. It’s vital that as leaders, you keep close to your change programmes and listen to your teams. An ability to pick up on subtleties that may affect your programme will be important and, at the same time, more challenging in the current home working environment. Therefore, make sure you ask yourself how you are keeping your staff motivated and working collaboratively. When faced with a complex programme and short timescales for good decision making, your leadership certainly will be tested – so be prepared!
Maintaining client focus. It’s very easy for teams to lose sight of why they embark on transformational initiatives. Firms undertake these complex transformation programmes to create value for their shareholders, whether these be owners of the firm, or investors in funds. This is at the heart of the programme, so ask yourself if it’s worth regularly reminding your teams of this. Keeping your shareholders in mind during your planning will cater for good decision making and appreciation of why such decisions are made. This doesn’t mean halving your project costs, but rather means identifying how value will be created. This appreciation will help you in defining an optimal delivery path that pays due regard to the timeline, skills, and appropriate support budget required.
Reflecting on your transformation journey
The importance of continual reflection throughout and at the end of your transformation journey cannot be understated. It’s an integral part of this process, to be honest and to learn from your mistakes. Reflect on previous activity, what could you have done better? An effective transformational initiative starts with a clearly articulated strategy, combined with buy-in from key stakeholders. Culture will be a key factor in how bumpy or smooth the execution will be. Every business is built on people; getting your fundamentals right will create long term success for your business.
In summary, an organisation’s entrepreneurial ability, its culture and a focus on its people are vital in delivering an optimal strategic transformational initiative. So, remember, ‘fail to prepare, prepare to fail’ and make sure you’re prepared to succeed!
Our team at Devlin Mambo have a strong appreciation of the challenges posed by transformation activity and the importance of always putting your clients first. This is founded in our extensive experience in successfully delivering complex transformation initiatives, covering multiple parties. We know what ‘good’ looks like, but always strive for ‘excellent’. Our practitioner expertise spans the breadth of asset management and allows us to assist you throughout your transformation journey.
For more information on Transformation insights, please feel to contact Simba Mamboininga directly, or speak to your Devlin Mambo relationship contact.