August 8, 2024 - Companies using the world’s most advanced quantitative investing algorithms are often not applying nearly as much analysis to run their actual business.

According to our recent survey of 1,000 leaders at midsized, privately held companies, 42% of financial services (finservs) firms admitted they had not updated their enterprise resource management (ERP) system in 6-15 years. Two percent hadn’t updated theirs in more than 15 years. That means nearly half of all finservs have missed the last decade or more of technological advancements.

These firms are unable to integrate their ERP with modern tech stacks, adopt modern data models, or slice data as granularly as peers. They may be advanced data adopters when trading, but they’re missing the application of technology in their own operations.

Firms should be just as avid about using backend data to improve their own operations because if they don’t, they tend to run into three major challenges:

Challenge 1: They’re stuck automating past inefficiencies

Automation applied to an inefficient process will only yield greater inefficiency. This is a truism in business. But how many finserv companies apply this thinking to their back-office? Their old ERP system simply perpetuates whatever suboptimal process existed when that implementation took place.

In 2017, just 6% of companies were using AI compared to 73% today. According to our report, the biggest blocker to companies realizing a return on their AI investment is that their data and internal processes are not ready.

It would also be a mistake to purchase a new ERP system without first updating those underlying inefficient processes. “Do not just lift and shift an old process to a new system,” warns Citrin Cooperman’s Director of Digital Transformation Practice Smija Simon. “Use the opportunity to improve on underperforming processes. If one changes, so must the other.”

Do not upgrade your ERP system until you can explain your workflows to others in simple enough terms they can fit on a whiteboard. If you diagram yours and some areas are blank, those are areas to investigate further — possibly with the help of an outside specialist.

If you can’t explain your process, newer software and more automation is likely to increase inefficiencies.

Challenge 2: Change only grows more difficult with time

Just a fraction of any given finserv organization's processes are documented. Much of what occurs is simply unspoken institutional knowledge, and people are generally resistant to changing these methods and models. It’s why only 34% of change management initiatives succeed, reports Gartner, and why half of all cloud transformations are “abject failures,” writes CIO.com. The people element is powerful.

If you want to escape this trap, enlist outside help in understanding your own underlying process. Third parties not subject to internal politics are sometimes better able to identify blockers and what’s not working. It is important to pair them with someone internally who knows the company intuitively.

Have that professional consult on what systems to implement and how to do so given your organization — e.g., a rollout with clear phases, milestones, and provisions for rollbacks if needed. Select champions on each team to explain the changes to peers.

Challenge 3: They’re suffering back-office data disintegration

In the 1990s, all-in-one software providers tended to win deals. These became the back-office software giants such as SAP, Oracle, and Microsoft. But in the early 2000s, the all-in-one rationale flipped. The cloud revolution and simpler, cloud-based bidirectional integrations made it possible for every team to select its own preferred point solution software. They could plug that software into the central system, such as the ERP, CRM, and HCM, sometimes without IT approval.

The point solution revolution didn’t work exactly as intended because of Metcalfe’s Law: When you add points to a network, it grows exponentially more complex.

Companies ended up with thousands of software databases housing important information that wasn’t connected. All that fragmented data wasn’t usable — it held the business back and it made it difficult to consolidate.

Businesses should consider centralizing on a single world-class ERP. Rather than maintaining multiple core systems such as ERPs, CRMs, and HCMs within your subsidiaries, standardize and use data integration systems like Dell Boomi, Salesforce’s Mulesoft, or Syncari during the migration to get all that data in one searchable, actionable place.

Finserv companies need data-driven back-offices How will you know the trends in your own operations if you don’t have accurate data? How can you spot fluctuations in purchase and prices, and use those same trading skills to anticipate and react to change? Without a strong backend system like an ERP, it’s difficult. Whenever a company has waited 6-15 years or more to upgrade, it is likely long overdue. To avoid major challenges, it is crucial that finservs understand the importance of backend data to improve their operations and achieve the business’ strategic vision.

To learn more about how outsourcing can benefit your business and help to mitigate talent shortages, please contact Mike Zyborowicz or Kieran Higgins.

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