Impact of technology on Gulf investment industry
Implementation of STR key
The
pace of technological change in the financial services sector is increasing; no business model or region is shielded from its impact, the Gulf Cooperation Council (GCC) included. To succeed in this environment, management teams must consider the impact of technological advances on the investment management industry with the same sense of urgency and diligence with which they approach the overall strategic planning process.
Technology has always played a vital part in the evolution of the financial services industry. Whether it has been to support the meteoric rise of trading in complex derivatives, or to introduce highly efficient and scalable back office processing, technology has acted as a key enabler. Arguably the rapid rise of the financial services industry could not have taken place without the support of technology providers.
Yet with the rapid ascent of global financial technology firms (“FinTech”) this historically symbiotic relationship is at risk. Today’s technology innovators are increasingly attacking their dependents in financial services on multiple fronts across their value chains.
From a GCC perspective, technological change impacts the competitive landscape in two ways. Firstly, as new technology is introduced to the market — through local and international institutions — it can quickly become established as an industry ‘standard’. An example of this is the introduction of sophisticated online client servicing and portfolio management tools. Initially introduced by international financial institutions, it is swiftly becoming a must-have for an increasing number of GCC clients.
Secondly, globally scalable technology platforms allow new competitors to enter the region with a limited footprint. The emergence of international low cost online brokers in the region, which afford retail investors cheap and efficient access to global trading, is an example of this.
In both scenarios, GCC firms need to decide whether to invest in technology to catch up with the competition or risk losing market share.
When assessing the impact of new technologies, the most important part is to adopt a systematic approach that can be tracked over time.
This can be achieved through the implementation of a Strategic Technology Roadmap (STR) analysis alongside the overall strategic planning process.
An STR involves a detailed review of all existing technologies, no matter how insignificant, ranking them according to the relative importance to the overall business model. The STR should capture an up-to-date benchmarking against alternative solutions and also address how each technology fits into the overall strategy (short, mid, and long term).
Broadly speaking, the STR can be broken down into three categories: (i) front enabling technologies, (ii) operational effectiveness technologies, and (iii) disruptive/ emerging technologies.
Front enabling technologies include technologies which are have a direct touchpoint with the client and which form an integral part of the overall client value proposition.
This can be either within the sales process (such as mobile applications for financial planning and client onboarding) or in the service delivery (such as online investment management and trade execution tools).
Operational effectiveness technologies encompass all business support technologies; ranging from back office software to trading and portfolio management systems. It is an area that is often overlooked as shortcomings of legacy systems can — at least in the short term — be managed through manual overlays.
Finally, emerging and/or disruptive technologies should be closely monitored and the focus should be on solutions which can potentially alter the way in which business is conducted, with an impact on cost or revenue.
An example of an emerging and disruptive technology is the rise of robo-advisors: FinTech start-ups are able to offer financial advisory services at a fraction of the cost of financial advice offered by human beings because they are based on automated, algorithm-based portfolio management.
To maximize the value of the STR process, there are a few areas which should be mastered by management.
(i) Understand your value chain: It is no longer enough to rely on broad superficial knowledge about internal processes. To be effective technological decision makers, managers today need to have a more detailed understanding of key operational processes than ever before. In particular they need to understand process pain-points both internally and for clients. This understanding is a prerequisite to be able to make an informed return on investment assessments.
(ii) Monitor the global FinTech scene: Similarly, keeping abreast of new technologies is vitally important in order to understand how they can help position your business for the future; either by reducing costs or driving revenues (be it existing or potential new revenue streams).
(iii) Make technology a board and management priority: As a core competence technology evaluation can no longer be delegated to IT departments and divisional heads; rather it must form an integral part of the board level strategic planning process and thus requires active and detailed involvement by senior management.
To get ahead of the technology challenge, investment firms in the GCC must recognize that the sourcing, selection, and implementation of technology has become a core competency in the industry. It is necessary to master the above in order to compete effectively.
It is certainly tempting to view the impact of technology as a danger. However, for those who manage their technology platforms through careful deliberate intent rather than by chance, as is often the norm in the industry, the potential opportunities are substantial and astute and agile firms will thrive.