Only 1 in 5 firms excels at supporting new regulation and responding rapidly to client demands
Leading firms are rethinking their operations, forming external partnerships
NEW YORK, N.Y. – 21 Sep 2012: A new report released by IBM in collaboration with Broadridge Financial Solutions, Inc. reveals that increasing regulatory pressures and shifting customer demands are forcing financial markets firms to transform how they operate. Forward-thinking firms are breaking away from the industry’s long-held “not invented here” approach to managing operations to create a more open, agile and customer-focused model that expands the traditional boundaries of collaboration with external partners.
In a survey of 133 senior business executives and top IT decision makers from large and small firms located in the world’s trading centers – the United States, United Kingdom, Singapore and Hong Kong – 77 percent cite regulatory requirements and 59 percent point to more demanding customers as the top external market drivers triggering changes in their operating models. Only 22 percent of the firms currently excel at meeting both.
“Regulation and operating efficiency have always been concerns for securities firms, but the growing demands and sophistication of today’s financial services clients are requiring firms to innovate not just in the products they offer, but also in how they adapt and run their businesses,” said Ron Lefferts, financial markets industry leader for IBM Global Business Services. “Leading firms have looked at their own ecosystems and are embracing new operating models as part of their organizational DNA to get closer to their clients and create a differentiated experience.”
The battle to retain customers and grow share has become more intense for financial markets firms. In fact, industry analysts estimate 15 to 20 percent of wholesale and investment banking clients will be shopping for a new provider in the next few years.
The new research, conducted by the IBM Center for Applied Insights, uncovers how firms are changing their operating models in response to these challenges. The research shows that leading firms are gaining market share by looking outward, addressing how they interact with the marketplace. These firms are creating a different kind of operating model with a more holistic view across front, middle and back offices and into their clients’ own operations.
Leading firms are also collaborating more effectively. They are more inclined to build operating models that leverage their partners’ expertise, technology and scale to reduce fixed costs while creating business agility to respond to market opportunities.
“Based on regulatory, competitive and margin pressures facing financial services firms today, current operational systems are challenged to deliver the needed scale and cost efficiencies,” said Charles Marchesani, Corporate Vice President, Securities Processing Solutions, Broadridge. “Increasingly, financial firms are looking externally to adopt more flexible and scalable operating models to quickly respond to new growth opportunities and the continuous regulatory changes.”
While some firms have adapted to the current market challenges by redesigning their operations, an equal number of firms have been slow to respond. According to the report, firms fall into one of three categories based on how far along they are in effectively supporting both regulation and new client demands:
1. Leaders: excel at meeting both regulatory and marketplace requirements, typically able to introduce new products and services in three months or less
2. Followers: tend to focus on one priority – compliance or innovation – over the other
3. Laggards: lag their peers in adapting their operations to new regulations and quickly launching new products and services
The Leaders consistently outperform the Laggards across a number of key capabilities.
- Given their intense focus on clients, Leaders are 1.5 times more likely than Laggards to report high levels of customer satisfaction and almost 3 times more likely to differentiate the customer experience.
- Leaders are 2.4 times more successful than Laggards in stripping complexity out of their operations. A key contributor to Leaders’ agility is better insights. More than two-thirds of Leaders say their operating models provide better access to analytics, more than double the percentage of Laggards.
- Leaders are more inclined to tap external partners to acquire expertise that enables faster speed to market. Leaders are more than twice as likely as Laggards to share operational risk and to outsource highly standardized back-office processes.
- However, securities firms across the board tend to keep higher value-adding functions, such as risk management and trade and order management, in house, as the firms believe these functions provide a differentiated client value and deliver a competitive advantage.
- All firms are wrestling with the constant pressure to manage risk in a challenging environment. When it comes to operations, executives rank risk management infrastructure as their most differentiating attribute, even above trading and order management. Yet, nearly half admit their current risk management systems are only moderately effective at best.
To access the full report, “Beating market mandates: How winners are re-engineering financial markets operations,” visit: www.ibm.com/financialmarkets/opsleadership
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In April 2010, IBM and Broadridge signed a business alliance agreement to deliver an extensive portfolio of technology-based solutions and services to the financial services industry.
Broadridge is a technology services company focused on global capital markets. Broadridge is the market leader enabling secure and accurate processing of information for communications and securities transactions among issuers, investors and financial intermediaries. Broadridge builds the infrastructure that underpins proxy services for over 90 percent of public companies and mutual funds in North America; processes more than $4 trillion in fixed income and equity trades per day; and saves companies billions annually through its technology solutions. For more information about Broadridge please visit www.broadridge.com.