In the area of technology, what attracts C-Suite the most is the shiniest toy out there. More likely than not, it is fashionable, talked a lot about and everybody’s peer wants to use it. In reality, the shiniest new toy with all the right marketing terms may not be what’s best for the firm. System vendors will market their products like cola companies market their cola, in other words, “Happiness is just a purchase away.” This article will focus on the performance field but can easily be applied to other fields of the investment industry. Furthermore, this is not an article about vendor bashing because when it comes to purchasing, implementing, and migrating systems, the firm has the most responsibility.
Having been baptized by fire by being thrown into implementing performance systems, I learned quickly the "dos and don’ts." In my consulting career I have cautioned firms from taking systems too lightly and the few that have heeded my words, did not have to go through endless suffering, delays and cost overruns. For the rest, the lure of the “fix it all” system that will relieve them of the tedious and difficult day-to-day operations is too much. The cola effect has taken hold.
Sadly, once firms have signed on the dotted line, they quickly discover that much of the success of the implementation will depend on them. In other words, the same staff that is overwhelmed with the day-to-day, now has to deal with implementing a system. Institutional Investment Firms have performance departments that are composed of specialized staff based on tasks and a constant turnover of juniors. The structures of these departments create knowledge gaps when it comes to systems implementations. For this reason and others, these performance departments are heavily dependent on the vendor and only react to what is requested. A proactive approach is rare. As things move along slowly and progress comes to a halt, the firm will blame the vendor and the vendor will blame the firm.
Who’s to blame?
Well, the vendor sales team will always oversell the ability of their product and the firms with poor leadership will easily fall for it. The vendor’s product experts will bring the firm down to reality, with the firm being quite upset that it has to do a lot of the heavy lifting. Adding fuel to the fire, will be the vendor’s poor support system in place; where the same question can result in multiple answers, depending on who is replying. The firm has an extremely important role before ever even approaching a vendor: “know thyself.”
It is very common to find that the largest and most sophisticated firms do not have all of their processes, procedures and controls documented and centralized. In most firms you probably have to go through a few people until you find the one person who is an expert on the subject matter. Firms need to fully understand and document everything they do. From top to bottom. For that, you need the experts who truly understand the subject matter and not generalist business analysts that will produce nice reports with little added value. Once that is done, the firm has a far better understanding of what kind of system is a fit for them and are then capable of conducting a thorough due diligence on the vendor.
In my training seminars I always like to present real life examples so people can understand that this can happen to anyone. Here are a few:
Example #1: “You had me at Hello.”
A firm was looking for a new system to handle the day-to-day performance calculations and reporting. The project leader wanted to ensure that the vendor was able to handle derivatives. The sales pitch was made and the client was excited to sign on with the vendor, satisfied by the vendor’s sales pitch. Move forward deep into the implementation, the client discovers the system can’t handle futures. The senior support staff of the vendor presented customized workarounds at a cost. The project leader was furious and blamed the vendor. It is easy to blame the vendor in this case but what was it the sales staff actually said? It’s more likely the client heard what they wanted to hear. In other words, “you had me at hello.” What the project leader should have done was to have a documented process of the way futures were being handled within the firm, with data and results on hand. She then should have asked the vendor for an actual proof of concept. That is, use our data, get our results and show us how you did it.
Example #2: “Ooops, I did it again.”
Responsibility doesn’t always lie with the client. In one instance, a vendor sold a reporting system to a client with all the bells and whistles that the client desired. Once implemented, testing was left to the client, who in this case, had developed a thorough testing program. Although the reporting module looked fine from afar, as soon as the client began testing, issue after issue kept popping up. Assurances were made and corrections were attempted by the vendor. Even after all that, issues kept arising until during a client testing phase, the vendor unilaterally pulled the plug on the project to re-evaluate everything. I would be understating how upset the client was. Luckily for the client, they were well prepared for contingencies and had already begun working on other options.
Example #3: “I gotta be a macho man.”
This final example, comes back to the firm. In this case, an implementation was reaching its conclusion with attribution being the last component requiring configuration and testing. A new director to the firm, with no knowledge of or experience in performance decides, with the support of senior management, to take over the implementation of the Attribution system. Until that point things were moving smoothly and swiftly, but with these poor decisions, the project came to a screeching halt to the benefit of no one.
Throw Caution to the Wind
The key ingredients to a successful implementation lies in, first, hiring an expert in the field in question. While technology staff is required, relying too heavily on them will leave huge gaps in understanding how the system works and what it is supposed to produce. Let the tech consultants focus on the technology and let the experts focus on the math, processes and results. In addition, it is better you take your time, get organized, understand your own operations to the finest detail and the needs of every department impacted by the new system. For the executives, rely heavily on the people who work day to day in performance. Everyone else should not take precedence. Lastly, although it sounds easy, it is often the most difficult thing for a company to do; that is, use some common sense. It’ll save you a lot of headaches, time and money. It’ll leave your staff with a feeling of importance having contributed to the process rather than having it had imposed on them by senior management who don’t get to experience what they go through.