The Gateway to Algorithmic and Automated Trading

A Tech Strategy for Multiple Futures

Published in Automated Trader Magazine Issue 27 Q4 2012

Lower volumes and margins inevitably pushed technology cost reductions up the agenda post-2008. But achieving these alone is no longer enough. As Stanley Young, CEO of Enterprise Products and Solutions at Bloomberg explains, the firms that will survive and thrive in the future are those whose technology infrastructure also delivers the flexibility and performance to address business risks and challenges that are continually changing.

Stanley Young

Stanley Young

After years of relentless, often brutal, cost cutting, many corporate infrastructure managers were hoping that 2013 would bring a bit of budgetary relief to allow them to address legacy issues, undertake delayed maintenance and enhancement projects. Instead, 2013 looks to bring more pressure than relief, with heightened regulatory/risk requirements, additional budget cuts, and prioritization of new revenue-generating projects ahead of stabilizing projects. The cumulative effect is that many firms are nearing a tipping point where their infrastructures can remain viable under the nearly impossible 'more for less' balancing act. At moments such as these, where necessity is indeed the 'mother of invention', the FS markets have always demonstrated a tremendous resiliency and ability to face the stark realities and re-invent themselves. The challenge each time is how to change the wheels while speeding along in a frenzied global market? Happily, the answer is beginning to become more obvious as well: think like a start-up.

Assume that you want to create a small hedge fund. You can engage a firm to set up virtual global office space, complete with website, meeting rooms, administrative support, and smiling receptionists. It is just as easy to reach into the 'cloud' computing domain to secure access to a global network, with an essentially unlimited amount of computing power, storage capacity, programming resource, and network capacity - all with full disaster recovery. Accounting, back office, legal, and other downstream processes are all available as cost-effective managed services. Within a few weeks, you can literally open your doors for business and focus on your core competency: building and executing money-making strategies on a relatively level playing field with the entrenched players. Quite a juxtaposition to the corporate image of a lumbering battleship trying to orchestrate dozens of organizational groups through complicated logistical plans to effect minor shifts in direction. It is therefore not a surprise that the large corporations are undergoing substantial downsizing and revenue stress while small businesses are experiencing strong economic growth. Similarly, business and financial innovation has shifted from the corporate to consumer sectors; with teenagers often having more sophisticated technology available on their mobile phones than seasoned managers have on their desktops. So the answer seems clear --- think like a start-up, think small. But how?

To effect this change, corporations must execute strategies to unbundle the massive infrastructures they've created over the last 4 decades. One option is to literally think like a start-up, and begin unbundling everything into the 'virtual' and 'cloud' solutions. Unfortunately, this also removes any competitive advantage arising from the positive aspects of their infrastructures - totally leveling the playing field. The other alternatives are to unbundle the infrastructures by leveraging the scale through one of 3 approaches:

1. Outsource at some favorable discount to a more massive scale provider with a lower cost base, trading off flexibility and control for efficiency.

2. Build enough scale within your own corporation through consolidation, acquisition or providing 3rd party services to become a massive scale provider yourself (which runs the risk of creating massive drag factor if not successful); or

3. Move the scale into managed services run by an industry leader or by a group of industry leaders (i.e. utility), getting the benefits of a larger scale provider within a clearly defined set of managed services with 'open' architectures to facilitate some flexibility to build differentiating capabilities. The risk here is how to find a managed service that can strike the proper balance between enforcing standards for efficiency and permitting customizing for differentiation. The classic 'herding cats' risk.

Underlying these approaches is the common theme of collaboration: to get 'small', corporations will have to find structures that are capable of supporting their business needs of both efficiency and flexibility within increasingly complex webs of service components with dozens of interwoven providers. Corporations must replace the traditional 'we own our complete service chain' thinking launched in the late 19th century with this new collaborative thinking, as is evidenced by the upsurge in outsourcing, partnering, consortia, industry utility models. Clearly, different aspects of an infrastructure are more aligned to the different options.

Functions that are viewed as truly commodity require less control and flexibility and align well with dominant industry players who have invested to create highly efficient, standardized infrastructures that can deliver competitive equivalence by absorbing other infrastructures. Functions that are less easily standardized and more central to business success align well to industry leaders who have the global scale and subject matter expertise in a specific area to bring the required flexibility for differentiation at slightly lower efficiency than the mass scale providers.

Working within the managed service context, Bloomberg's Enterprise Products and Solutions group of 300+ global professional was formed in 2009 to extend Bloomberg's global scale, subject matter expertise and trusted partner role in Information Management that's been built over the last 30 years. EPS has been aggressively building out solution sets of managed services in whatever form makes sense for our clients - as Bloomberg-only provided or in collaboration with clients and even competitors. As an example of this collaborative thinking, Bloomberg recently purchased a company, PolarLake, in the enterprise data management software space and is in the process of creating the first end-to-end multi-vendor reference data managed service. This service, which will be operated as an independent 'center of excellence' in Dublin, will take cost and complexity out of client environments while improving the quality and consistency of their data. A great example of how everyone wins by working together.

To make this work, and to address the standardizing vs customizing issue, Bloomberg has embraced an open architectural approach, providing open technology (e.g. API) and open information symbology that provides clients of the managed service the flexibility to augment the baseline service with various differentiating components appropriate to their business. We at EPS think that this approach makes the most sense for firms looking to optimize their Information Management infrastructure - and we are still learning a lot about the potential for such solutions, working with clients on a variety of disruptive, innovative new ideas.

The precise forms of how corporate infrastructures will restructure themselves are still evolving, but it is clear that new disruptive models will have to be embraced. Corporations must 'get small by thinking big' through new collaborative relationships across the entire business and technology spectrum. Bloomberg EPS is committed to working within this spirit to assist our customers to address the challenges and exploit the opportunities that the markets present to us. We look forward to working with our clients towards that end.

Bloomberg Enterprise Products & Solutions is a complete package of enterprise-class managed services, applications and data that enables firms to leverage the same data and technology that supports the Bloomberg Professional service for its internal applications and processes. We are uniquely equipped to meet the data acquisition, management and distribution needs of global firms across abroad range of asset classes. With Bloomberg, you leverage far more than data; you leverage our entire operational infrastructure - proven solutions designed to withstand today's volatile markets.