By Andrew Barnett, Global Head of Product Strategy, RIMES
In a recent poll, 97 percent of asset managers said that they intend to explore outsourcing their data management infrastructure within the next three years. Seventy-eight percent said the same of their data operations. This survey adds to a growing volume of evidence that data management outsourcing is coming of age. However, if Chief Data Officers (CDOs) and other data management leaders within firms are to convince the C-suite of the need or change, then building a strong business case will be critical.
The need for change
Doing so may be tough. Over the past decade, aiming to centralize data governance, firms invested heavily in Enterprise Data Management (EDM) platforms, Extract Transform and Load (ETL) tools and data warehouses. Over time, these systems proved inflexible, time consuming to configure and unable to support exponential data growth. One survey of North American investment managers found that just 4 percent are very satisfied with their data management approach.
Outsourcing data management offers a way out of a vicious cycle where CDOs keep haemorrhaging money on the latest iteration of their vendors’ platforms, with little to show in the way of improvement. Data leaders have come to realize that by outsourcing data management they can free themselves of the burden of sourcing, validating, mastering and distributing data. Leaving these processes to experts can provide a timely and quality assured source of financial data that’s ready for immediate use and fully transparent, enabling firms to get on with meeting client mandates.
Identify what to outsource
However, having had their fingers burned on previous data projects, the C-suite may be unwilling to sign off on yet another data operating model. That’s why building a strong business case is so important.
The starting point is to define what to outsource. A dividing line needs to be drawn between core and non-core activities. The former are activities that help firms gain new assets to manage, deliver better returns, and differentiate propositions. Non-core activities are ripe for outsourcing: data operations focused on data quality management and governance. These are all important but can be better managed by firms that treat it as their core.
Weigh the costs
Once you have identified the activities you want to outsource, it’s important to assess the associated costs. Projections should include the costs of the initial project and future costs that may arise from later change projects. This proved a stumbling block with EDM platforms, as firms discovered that each additional functional extension was a major implementation activity with escalating costs.
Outsourced service providers can help firms address a range of significant challenges including fee pressure, increasing regulatory requirements, resource contention from competing change programmes, the need to differentiate products quickly and the imperative to manage fast growing data volumes. The latter is particularly salient as firms pivot towards new and complex investing areas such as ESG and ETFs, which involve large and growing volumes of data as well as evolving regulatory requirements.
Tailor the service
A third area to consider is what type of managed service works best for your business. Outsourcing can be delivered across a spectrum of engagement levels depending on how much hands-on management you want to retain. If you require a largely technical service and wish to actively manage the data in-house, you can opt for Data as a Service propositions. However, if you wish to focus exclusively on your core activities, you can opt for Data Management as a Service offerings. Here, a strategic partner effectively augments the CDO function with a complete data foundation on which you can run your core activities.
The financial services sector is increasingly shaped by data, automation and insights. The embrace of managed data services is an important foundational step towards more efficient and effective data-driven business. Firms that get the business case right will realize value soonest and free themselves to focus on what they do best.