Many financial service companies were only able to survive last year's recession by slashing staff and utilizing automated technology solutions to support customers, advisers, salespeople and their remaining workers.
As the economy begins to recover and business picks up again, some experts say firms can use this same technology to maximize profitability, increasing workloads without adding more staff -- including in the IT departments.
"Firms should try to be efficient now, so that when things pick up, you don't have to add head count," said Michael Stoeckert, chief technology officer at SunGard Institutional Asset Management.
Financial services firms were forced to make dramatic reductions in staff levels when years of market growth slammed to a halt, and firms that acted quickly to augment those layoffs with better structuring and use of technology were able to minimize profit declines.
According to the Department of Labor's Bureau of Labor Statistics, the financial sector has lost 541,000 jobs since the recession began in December 2007, and is down 660,000 jobs from its peak of 8,362,000 in December 2006.
Optimists are already talking about an economic recovery, but the numbers don't quite back it up yet. And many don't expect the labor market overall, let along in financial services, to return to pre-crisis levels.
"Costs have been a big concern for the last 12 months," said Peter Noll, global chief technology officer at Pioneer Global Asset Management. "Assets are still shrinking and costs are lagging."
Keeping Cost Cuts
As markets pick up and assets under management increase, it may seem logical for firms to start replacing the staff they lost, but doing that would be counterintuitive to technological innovation.
"The last thing we want to do is add staff," Noll said. "We need to fine-tune technology to provide better service in the future with fewer people and more automation. We should try to keep the engine running as close to capacity as we can while keeping costs down."
The surge in automation of recent years has led to the need for powerful information technology departments to build and maintain the ever-expanding systems, but the constant need to stay up on the latest technology trend has some managers wondering if it's worth the high cost to stay on the cutting edge.
"Most businesses are woefully bad at IT planning," Noll said. "Most companies did not think ahead or prepare during the last crisis and just responded to knee-jerk reactions in finance."
Firms need to optimize their organization so they don't waste time doing things that don't benefit the organization, he said.
The key to affordable and useful information technology is through the extensive use of automation, which means getting rid of manual processes. Often this will mean outsourcing IT jobs, buying an automated system or buying an IT service, Stoeckert said.
"Increase quality, decrease costs or keep them flat, and do it faster," he said.
Some companies are even targeting their own IT departments for automation, automating the IT folks right out of a job.
While many IT experts say it's an extremely short-sighted mistake to limit IT funding, some managers feel that IT departments are a disorganized, bottomless pit that will find ways to spend all the money they're given.
"Traditional IT departments are not structured very well," said Chris Perretta, global chief information officer at the State Street Corp. "Every large business is spending tens of millions of dollars a year on technology."
Due to the convoluted way many IT departments are structured, "sometimes it's easier to collaborate with the outside world than to communicate with the person sitting in the cubicle next to you," he said.
Technology has a tendency to add layers and features as it grows, but after a while, those layers begin to bog down operations, regardless of how speedy the computers have become. Careful efforts to restructure and streamline technology departments can make a huge difference in performance, Perretta said.
"It is impressive how much business benefit you can extract [through restructuring]," he said. "If we don't take advantage of this, we will have really missed a great opportunity."
One place to start is with the enormous archival system growing like a dragon in the basements of mutual fund companies.
Thanks to Moore's Law, the size of data use has exploded, while storage costs have come down steadily. Storage is now so affordable that many firms hold on to old data forever, partly because it's easy and cheap, and partly because of their compliance paranoia that regulators could ask to see it someday, Noll said.
"We are doubling our data storage yearly," Perretta said. "The industry is experiencing huge growth rates in storage requirements, adding tens of terabytes per month. It makes me think that traditional ways of organizing IT around data and storage will require improvement."
The data is already beginning to bog down regular operations. People can't find archived information if it isn't searchable across the organization, but if everything is searchable, the search function becomes clogged with irrelevant, out-of-date information.
"There is so much data out there that it has multiplier effects across your organization," Noll said. "Warehousing is not the answer. As soon as you move that data, it's stale. Firms need to have a process in place to destroy their old data. Any piece of data that's gone beyond its use and is sitting there becomes a liability."
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