The Cost of Value-Add

In today’s world, all asset management organizational strategies should include one guiding principle: human capital and expenditures must be aligned to a value-add proposition. As a strategic advisor, our obligation is to understand the frustrations of investment professionals who spend an inordinate amount of time generating and validating the data they require to make decisions.  We try to understand the root cause of why operations professionals spend valuable time catching and fixing issues.  We analyze why reporting is so difficult and time consuming, and why information technologists' primary attention is on solutioning for deficiencies and maintaining problematic architectures.

Asset managers today still wrestle with the fundamental blocking and tackling required to operate efficiently at scale while getting the most out of their people’s core value-add.  This is true for institutional, hedge fund, asset owner, and alternative managers.  The reality is many organizations are holding onto what they believe are low cost operating models, yet these models contain antiquated systems and a proliferation of tactical stop gap solutions and manual processes.  Perhaps they operate new and modern platforms but have poorly integrated them, lack the proper operating model, or simply need to take better advantage of their capabilities.  But when valuable headcount is allocated simply to cover for these platform or operating model deficiencies, are they really low cost? 

There is no published metric I can reference but having worked as a consultant in the industry for nearly 20 years, I’d wager that more than 75% of asset managers haven’t strategically focused on eliminating manual processing through innovation, automation, and continual process improvement practices.  Most organizations simply do not know if the cost of implementing or enhancing new technology presents compelling business value versus their current “low cost” model because they don’t fully understand the human capital and operational risk variables.  Further, why should high value professionals be checking and fixing when they should be analyzing, innovating, and providing a competitive advantage.

Executing a strategy focused on creating a value-add operational and support organization requires strong leadership, collaboration between business lines, and the rethinking of organizational values, structure, skill sets, and responsibilities.  The investment in such a strategy should not be constrained by the perception of incremental cost, as in reality the cost of not creating a value-add organization is much greater.