Since 2007, capital markets firms have been progressively reducing their front-office costs. IT costs, however, which are often fixed with respect to changing revenues, remain high, including the need for specialized organizations and resources to maintain and update custom applications. Certain leading firms are implementing transformational technology solutions, and in some cases, reducing IT costs by as much as 50 percent, by reshaping their technology applications, organizations and architecture.

While there is no one-size-fits-all approach to transformation, there are common principles and optimal paths to selecting the right technology transformation.

Leading practices

In Accenture’s work with capital markets firms, we have seen that certain basic principles for technology transformation hold true in many situations:

  • Costs should be moved from a fixed to a variable basis whenever possible.
  • Expensive and specialized custom development should be focused on areas of competitive differentiation. Generic, industry-standard and peripheral needs should be met with vendor software or shared utility solutions, where appropriate.
  • Architectural simplification should support organizational simplification. Ideally, a simplified architecture—with its lower costs—can support increased volumes of “flow” products while providing a strong, flexible foundation for the development of higher margin offerings.

Selecting the right path

We recommend firms consider the following categories of approaches when determining how target state applications and maintenance will be provided:

  • Customized – A system that is custom-built to specifications can help ensure competitive differentiation. However, it will also be more expensive and slow to implement.
  • Integration – Integration of best-in-class vendor software is another approach to providing target applications and maintenance. While this approach can be both cost effective and flexible, there are fewer opportunities for specialization.
  • Outsourcing – Firms have the option to outsource application management and maintenance or to use an industry utility. This is a flexible approach with low unit costs, but it may constrain flexibility.
  • Migration – Transitioning to new IT applications poses additional problems. A “greenfield” approach is usually fastest but offers limited savings and value added until the entire project is completed.
  • Replacement – Replacing groups of products all at once through the use of components allows for partial transformation, and delivers savings and functionality in a shorter period of time. However, the overall transformation may be longer with additional interim expenses.
  • Evolutionary – An evolutionary approach can modify and/or replace individual applications while they are still in place. This approach has lower upfront costs and does enable changes in strategy and requirements, but it’s also the longest path to transformation.

Every organization needs to make its own decisions about architectural and organization simplification. The key will be to overcome the obstacles that will stand in the way of your efforts. Next week I’ll explore some of those obstacles in greater detail.

To learn more in the meantime, download:

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