Demystifying TCO and the opportunity for savings
Transcription
Demystifying TCO and the opportunity for savings
REUTERS/Toru Hanai DEMYSTIFYING TCO AND THE OPPORTUNITY FOR SAVINGS BY PARAS SIDAPARA NOVEMBER 2014 The capital markets landscape has changed dramatically in the six years since the global financial crisis (GFC). It’s been a period of unprecedented change, driven largely by a regulatory juggernaut. The number of new regulatory alerts issued has grown exponentially year on year since 2008, sapping resources that could otherwise be deployed on revenue generating tasks. Coupled with this, market participants have had to grapple with huge increases in data volumes and new data sets. At the same time, the use of increasingly advanced analytical tools and methods for performance measurement has become critical, itself driven by regulatory requirements around the accurate reporting of risk management processes. But while risk management and keeping the regulators on side is obviously critical, particularly in light of the major fines that have been levied against some of the largest investment banks in the in the last twelve months, broader, enterprise-wide cost control is a challenge that cannot be ignored. Clarity on total cost of ownership (TCO) is essential. Despite capital markets firms embracing cost control and reduction, there is little transparency on technology spending. As Paul Rowady points out in his latest TABB Group study ‘Benchmarking TCO: Fueling the debate,’ “You cannot control what you do not measure.” The focus to date has largely been on tactical cost reduction, but in the landscape of increasing regulation and data volumes, you can only cut the cloth so much before the clothes no longer fit. Understanding the full TCO picture, and then looking for new ways to manage and reduce this is key. Moreover, CIOs and their teams aren’t simply being asked to manage with less, they’re being tasked with doing more, and to become champions of innovation inside their respective organisations. They need to be able to not only assess the TCO of existing solutions, but also to make comparisons with new delivery models and new, disruptive technologies. 2 DEMYSTIFYING TCO AND THE OPPORTUNITY FOR SAVINGS What to measure? The TABB report maps out the components that make up TCO. There are four in total: data and analytics, software and processing, hardware and infrastructure, and last but certainly not least, human capital. Human capital is the piece of the puzzle that has typically been missed in many analyses to date. Crucially, though, this represents the biggest opportunity for savings, with a 3:1 ratio versus non human capital costs (hardware, software and data), according to Rowady. The siloed nature of many capital markets participants means that their technologies, the infrastructure and the teams that support their trading capabilities are so fragmented that they find it difficult to know what they’re spending. This is compounded by the failure to factor in the human capital element, not to mention overlooking the costs of some of the underlying infrastructure and networking support. DISCOVERY Rowady’s research uncovers insightful figures, most notably that capital market firms are spending on average $461,000 per front office employee, per annum, on technology. This number may raise some eyebrows, and the research certainly breaks new ground in terms of putting a figure on TCO for the first time. However, if you scratch below the surface, you could argue that this number in reality should be larger. By his own admission, Paul points out some limitations of the study and areas for further exploration. The figures are based on a survey of 10 tier 1 participants, including a number of global banks with significant retail arms to their business. The net impact of this, is that the significant headcount associated with these businesses, brings a number of the technology spend averages down, impacting the final figures, almost unquestionably bringing the overall average down. It’s a small aside: the key point is that tech spend here is high, and offers big opportunities to find savings. NEW BUSINESS MODELS THE REALITY FOR CUSTOMERS Typically, firms have relied on vendors for data, hardware and software. They have looked to derive value and competitive advantage from how their people have configured these various assets, building out and configuring their own infrastructure in the search for alpha. However in the years since the GFC, managed services have come to the fore. Vendors like Thomson Reuters offer managed service solutions, managing the hardware and infrastructure in hosted facilities and providing the experts that can optimise and deliver these complex environments as efficiently as possible. Using a framework consistent with that presented in the TABB report, Thomson Reuters has been working with a number of clients to build an accurate picture of their TCO to date and what savings could be delivered through a managed service. The complex and often fragmented nature of these systems means that this measurement is extremely difficult. However, one tier one client verified that an Elektron Managed Services solution could deliver 19.2% of savings versus their current deployed client model. This efficiency comes in a number of forms, with the drivers for managed services focused on delivering a reduction in TCO, the ability to move from a capex to a more predictable opex funding model, the opportunity to scale requirements up and down and to reduce the time it takes to bring new solutions to market. Crucially this gives the ability for banks to reallocate resources to more value adding activities, thereby removing the burden and complexity of managing these largely commoditised systems. Managed Services not only help to deliver TCO savings, they crucially also give the CTO, CIO and CFO the transparency and predictability on spending they are lacking today. ELEKTRON MANAGED SERVICES The TABB Group report sets out a framework to define managed services, from consulting services, hosting and co-location, through to managed infrastructure and a fully managed service. This stack of services reflects those that Thomson Reuters has been delivering through its Elektron Managed Services offering for the last five years. It’s a business that has grown consistently fast over that period, and today has over 420 live customers across its 19 data centres. The Thomson Reuters approach is validated by this latest TABB research. The 3:1 ratio of human capital to non human capital costs, coupled with the cost of a front office technology seat averaging more than three times that of a middle office and more than 15 times a back office seat, make delivering front office services through managed services a compelling option. The important aspect for everyone involved is that this is just the start of the story. As the TABB report comments, not all use cases are appropriate for a managed service, but as acceptance grows the client base will do so too, delivering economies of scale that benefit the whole. In addition, the lines of what can be transferred outside an organisation and into a managed services environment are moving. Elektron Managed Services today offers data and analytics, platforms, connectivity and infrastructure as fully managed services. But the real opportunity lies in turning these service centres into market data ecosystems, where third party applications sit in the same centre as the customer and the data, delivering a menu of solutions in a cost effective way. Capital markets firms are getting used to measuring and reporting many different aspects of their operations. Taking the same approach to their technology total cost of ownership can open up a range of opportunities for them to reshape their businesses to fit the post GFC environment. Managed services are the key to unlocking those opportunities. Paras Sidapara Global Head of Managed Services, Enterprise, Thomson Reuters DEMYSTIFYING TCO AND THE OPPORTUNITY FOR SAVINGS 3 Visit financial.thomsonreuters.com For more information, contact your representative or visit us online. © 2014 Thomson Reuters. 1008739 11/14. Thomson Reuters and the Kinesis logo are trademarks of Thomson Reuters.