Digitalization by decree?

Twenty-five years ago, Bill Gates sent an internal Microsoft memo, saying, ‘We are an Internet company now.’ In the push toward data-driven product management, can asset managers achieve their transformation by similar decree?

In 1995, Bill Gates sent an internal memo to his Microsoft employees, saying, We are an Internet company now.

He recognized the “tidal wave,” as he called it, that the Internet would soon become. It was still young, but he could see it would change everything. And in his memo, he directly ordered his company to reorient itself to the coming revolution.

In the asset management industry, we can feel another revolution growing, as we find ourselves surrounded by a tidal wave of data. The conventional wisdom says we have to adapt and survive by transforming into “data-driven organizations.”

But what does this mean? And can we achieve it simply by decree? If we send a Bill Gates memo to our employees, saying “we are data-driven now,” does that make it so?

From MiFID to PRIIPs, the last decade has seen the scope of data management increase from a river to a flood, and with ESG reporting on the way, the torrent will only intensify. On top of regulatory requirements, the global 24-hour distribution chain is hungry for accurate, timely information, with multiple consumers and contributors involved in nearly every phase. Firms are dedicating more staff and systems to manage their rising data flows, at ever increasing cost. How does this serve the demand for alpha? And more importantly, just because you have a lot of data, can you say your organization is data driven?

Consider how these volumes of data are currently collected and managed. Complex procedures are required, with many possible entry points for requests and proposed changes. The product referential is managed as a monolithic SQL database, or an impenetrable spreadsheet, in a constant state of structural flux. Updates are captured in Excel sheets and Word forms, circulated endlessly via email, with data copied and pasted into multiple systems and channels at the end. These are fragmentary, imprecise processes, vulnerable to human error, so validation gateways are introduced throughout the workflows, with cross-checks and approvals, to ensure the data remain accurate and up-to-date from start to finish.

A firm that doesn’t trust the accuracy of its own data is not data-driven; it’s simply failure-averse.

In a truly data-driven company, data governance tasks and functions are pushed up as far as possible in the value chain. This establishes a clean and reliable data set with minimal gaps and redundancies, very early in the relevant processes. The trusted data are then circulated downstream, feeding processes and informing decisions.

In the asset management sector, establishment of a coherent data strategy must start in the product space. But this is one of the least-evolved functions in the industry, in terms of dedicated systems and formalized data management. Imagine the advantages that can be generated by truly embracing a data-centric view in this space. Product teams will define investment products quickly and efficiently, and disseminate clean, consistent information to all consumers. Leadership will monitor product performance and company health with confidence, using status reports and dashboards accurately reflecting near-real-time conditions. Operational functions will transform received data into reports, disclosure documents, and other outputs as a fast, cost-effective assembly line, with no need to slow things down for stop-and-start check-and-recheck validation.

The ROI is clear: increased attention to data at the front of the process, during product design and approval, buys exponential returns down the road.

This is the dream of the data-driven future. How do we get there?

Twenty-five years ago, when Bill Gates gave new marching orders to his company, he displayed several qualities which the asset-management leader would do well to note.

Taking the long view. Gates didn’t transform Microsoft overnight. He could see the goal ahead, but it took years of hard, patient work. He communicated the vision, and he kept the company focused. Asset managers must be able to visualize the new world of data, and drive toward it.

Being willing to embrace change. Gates knew achieving the goal would require his company to reinvent itself, to attack new challenges from a new perspective. Asset-management professionals must be unafraid to stride aggressively into the world of data.

Understanding that the opportunity makes the effort worthwhile. Gates didn’t expect the transition to be easy. He acknowledged that it would be difficult to adopt a new mindset, and change direction. But it had to be done, because it would launch the company into a bigger, more profitable future. The data revolution may be daunting, but the payoff will be enormous. In the old world, data management is a cost burden to be borne; in the new world, it will be a valuable resource to be exploited.

Establishing clear guidelines. Gates understood that the journey would be long, and that there was a risk of distraction and getting off course. He laid out a handful of simple targets and metrics to help people understand their progress and stay focused on the objective. On the path to becoming data-driven, all parties should remember one key principle: Data governance must be formalized and enforced as far forward in the relevant processes as possible. An organization that nails down its data and lets its people do their jobs is working lean and fast. An organization that requires multiple checkpoints for validation and correction is hurting its margins. It’s that simple.

Implementing systems to support the new vision. Gates knew that if his people were following the same processes and using the same tools as before, they would naturally follow old pathways, instead of breaking ground to the new goal. Over time, he reorganized the company and pursued new technologies, not just to help his people work more efficiently, but to support and emphasize his message that things were fundamentally different.

It’s important to understand that when we talk about implementing systems, we don’t just mean technology. To succeed in data transformation, best-in-class software must be considered in combination with the human workflows that require data interaction. Only then will your organization’s information become transparent, shareable, intuitive, and meaningful.

There’s an ongoing revolution in data science that offers new advances in tackling this challenge. Semantic database technology frees the data architect from the constraints of traditional methods, as information is recorded and connected according to its meaning rather than being limited by the structural requirements of hierarchical systems or the narrow processing needs of downstream dependencies. Data ecosystems can be developed more quickly, adapt to change more naturally, and scale more easily than ever before, and asset-management professionals are strongly advised to give a serious look at platforms using this model. There is a tremendous opportunity here, both for the industry as a whole and for the success of your organization as a market leader.

The stakes could not be higher. Asset managers who embrace the new data-centric view will leap ahead of their rivals. They will make decisions and react to changes faster than their competitors, and they will run more efficiently, reducing costs and increasing margins. Those who do not engage with this challenge will be left behind.

Which group do you want to be in?