Live workshops with focus on risk, cost and growth

The business challenges within the areas of risk, cost and growth were individually analysed and further debated in three live workshops presented by experts within these fields. To combine academia with practise, SimCorp Dimension specialists offered their know-how and explained how the flexibility of SimCorp Dimension can meet the challenges the industry is facing within the areas of risk, cost and growth.

INCREASED FOCUS ON RISK MANAGEMENT

Caspar Rose, professor at the Copenhagen Business School and editor of the book ‘Understanding the financial crisis: investment, risk and governance’, discussed the various aspects of risk in the workshop ‘Mitigating risk’, including governance, compliance, systemic, market, credit, liquidity, reputational and operational risk. In particular the areas of credit risk and operational risk were analysed. While depicting the current market situation based on recent research, Caspar Rose, challenged the audience to evaluate their own risk exposure.

A survey conducted and published by SimCorp StrategyLab in April 2009 revealed that despite the current situation in the financial markets, the risk function has lost status in organisations and has moved down the reporting line. At the same time, the role and responsibility of the risk function has been extended. Casper Rose demonstrated how current risk management models have turned out to be insufficient, how government and board supervision have failed, and how increasingly complex financially structured products have further impaired the situation. During a situation of financial crisis and instability, it becomes easier to spot operational risk with focus primarily on fraud, wrongful advice, and IT breakdown. It becomes increasingly crucial to identify the key risk indicators, and proper IT solutions play an important role in the resolution process.

Having discussed the predominant strategic challenges investment managers are facing from a risk perspective, experts in the workshop demonstrated how SimCorp Dimension may directly or indirectly provide the solution to the above challenges.

SURVIVAL OF THE FITTEST – ADAPTING TO SURVIVE

‘Reducing cost’ was the theme of another workshop hosted by principal at Deloitte Consulting in New York, Adam Schneider. While the recessionary climate has shifted IT from being strictly a support function to playing a critical, strategic cost management role, organisations depend more on IT than ever before. Asset managers increasingly see technology as core to their cost structure, operations and service strategy and thus central to differentiation and competitive advantage.

The credit crunch crisis and the effect it has had on investment management firms has, among other things, forced financial institutions to look more closely at their cost structures. Assets under management have declined significantly and margins have been cut. Consequently, investment management firms have looked to the nearest and most basic tools for cost cutting such as reducing headcount to cut the cost of labour and closing down business lines. These are traditionally short-term and very tactical solutions, but looking ahead, professional investment managers will need to consider more strategic answers as other challenges face their business environment including increased competition, tighter regulatory requirements, and increasing demands from clients. Adam Schneider argued in his presentation that it is not necessarily the strongest of species that survives in this environment. More importantly, it is the one most adaptable to change. According to Mr Schneider there are four key challenges an investment management firm must adapt to in order to survive: regulatory change, relationship repair, product failures and financial repair. Adam Schneider’s formula for cost reduction is a three-step-model: define the goal, define functions and benchmark, and finally, adapt the business model for the future.

While it may sound simple, Adam Schneider concludes that no one has really come up with an easy-to-execute plan, but advises financial firms to aim for improvement – it will never be perfect in any case.

BACK TO NORMAL? THIS IS THE NEW NORMAL

In the last live workshop, professor Paul Verdin debated the strategic challenges of how to ensure profitable growth in the aftermath of the crisis. Under the headline ‘Enabling growth’, professor Verdin offered insights into growth in the investment management industry and SimCorp Dimension experts suggested efficient solutions to meet the challenges as seen from an IT architectural perspective.

Paul Verdin, who, among other positions, holds the Chair of Strategy and Organisation at Solvay Business School in Brussels, began his presentation by drawing a picture of the scene today. Though we are moving beyond the worst of the crisis, there are still a number of governance, leadership and management issues in the financial industry that remain unsolved. A consequence of the credit squeeze is the limited pass-through of liquidity in the economy and there is still enormous potential for policy errors. Those who wait for a return to ‘normal’ will wait in vain. This is the new normal, Professor Verdin said. More importantly, those who blame the economy or the industry for the circumstances have misunderstood the situation. A company’s success is entirely dependent on what the company does, or does not do. A company does not fail because of what the world does to it, but because of what it does to itself. In other words, the most important thing a company can do is to know and understand its clients, the market and its own strengths and adapt accordingly.

A first step forward is establishing a solid strategy that addresses at least three basic questions: Do you understand the competitive dynamics in your industry? Are you clear about your competitive advantage? And do you know your core competences, your unique strategic assets and treasure and nurture them? Paul Verdin points out, however, that growth is not a strategy in itself. Growth is the result of a good strategy, and a good strategy is one that makes money in a sustainable, durable way. Professor Verdin emphasises that a good strategy includes continued investment in the future. It is focused on continuous value creation for clients and this obviously requires that businesses know and understand what signifies value to its clients and how to deliver it better than anyone else. Old-fashioned client-orientation is paramount.