Detecting the ROI Signal

The usual rule of thumb in purchasing enterprise software is to double the purchase price to gauge the final cost of implementation. When it comes to capital markets data projects, however, it is not uncommon to see costs rapidly expanding into multiples over the original price tag. Indeed, one common metric is that for every dollar of data content purchased, it takes up to $5 to get it to a business user.

With an ever-increasing spend on data services and related software applications for financial services companies, it's no wonder that finance directors look at their spend and heave a big sigh.

A NECESSARY EVIL

Capital markets data content is an essential ingredient in today's international securities and banking firms. Unlike other industries, however, data content is no mere commodity. It comes in many different forms from a wide variety of suppliers, none of whom offer a one-size-fits-all menu. Furthermore, firms also produce a lot of their own content, which is essential for their operations.

In order to be of use business users, this data content needs to be integrated into a seamless whole, and distributed across the enterprise in the fastest, most reliable and secure manner possible. It's no wonder that technology plays such a big and mission-critical role to daily operations.

It would be wrong to assume that data content is a simple, easily substituted commodity such as iron ore going into a steel foundry. The fact is that it is a raw input to a very sophisticated and complex value added chain touching on numerous parts of not only the firm's business, but also its clients.

On top of this are the immediate risks associated with an interruption to this input – even a minute of service interruption can easily impact the bottom line leading to a series of related problems in back-office processing. Throw in the increasing demands of regulatory oversight, and it's easy to see that this is no easy task.

COMPLEX CONTENT MANAGEMENT

The core of this situation is that in order for a firm to generate returns on its spend, it must make the data content fully operational and accessible to the whole enterprise. That may sound simple, but the fact is that it is a highly complex initiative driven by the complex requirements of a pretty complex business, including:

• Performance: some of this content needs to be delivered in real time across the organisation, other content needs to be available on demand to satisfy the needs of today's automate systems
• Scale: with a universe of over five million securities defined by over 500 statistical facts, across approximately 200 countries, global availability is a non-trivial achievement
• Access: having the (rather expensive) technology infrastructure to make the data content available to those who need it across the firm as and when required
• Increasingly complex administration: requiring firms to account for and report on not only actual usage, but also entitled usage (those who might make use of the content)

When looked at from a purchasing perspective, it's a perfect storm of complexity. Not only are purchasing and implementation required (neither of which is ever cheap), but the ongoing management also has a variety of additional and demanding dimensions. The problems aren't impossible to overcome, but they do require an open mind and a farsighted approach to servicing the firm's business data requirements.

BUILDING A LOGICAL FRAMEWORK

By far the most important point to realise is that the ROI problem is not a technology problem. Rather, the missing ingredient within a firm is a common logical framework or catalogue that defines the universe of content.

This problem is arrived at honestly enough as a result of running separate businesses and growth through acquisitions. However, it remains for most firms a glaring shortcoming in their data management infrastructure.

Resolving these problems places a premium on specialist domain knowledge and skills in order to compile an enterprise-wide inventory of data content that is actually used, and cross-reference it with the data vendor bills that come in. By its very nature, this is not technological knowledge, but rather business expertise.

Technology can help, certainly, but unless all the firm's content is accounted for and under dedicated management, there is no chance to develop business and technology plans to rationalise the situation.

From a financial perspective, the lack of a common data framework presents three persistent problems:

• Cost duplication – both data purchase and related implementation and support costs
• Lack of reuse – a severely limited ability to reuse content across the firm at near zero marginal cost
• Operational risk – the lack of direct visibility and accountability introduces additional risk to operating capability

COMPANY-WIDE EFFICIENCY

Identifying the potential for return on the market data investment (both fixed purchase costs and associated operating costs) has traditionally been limited to looking at single, stand alone projects. This obviously contradicts the risk management and operational efficiencies that firms are looking for in an increasingly competitive and technologically dependent business.

The move to a single frame of reference for the data content is the first step in bringing both the direct fixed costs as well as the opportunity costs into the same management context. The benefits can then begin to accrue from the deployment of the first project:

• Accountability – all data content actually used by the firm can be tracked and accounted for, resulting in a far more detailed discussion with data vendors and other suppliers
• Time to market for next-generation technology projects is greatly improved as the data content complexity is taken off the critical path
• Reuse – current content is available on demand for new applications, so reuse becomes the rule rather than the exception, as there is no need to purchase additional services to address new applications

In short, firms stand to benefit from reducing their costs and improving operating efficiency for a relatively modest investment. It doesn't come for free – new roles to provide data management, distribution and support services to the firm need to be created, but the gains make it worthwhile. And best of all, once in place and rolling out across the firm, the task of identifying and measuring the return on investment from market data content and technology spend becomes a more familiar exercise.

Obviously financial firms can and do make profits without moving in this direction. But in an increasingly globalised world, with tighter and tighter profit margins, sooner rather than later the business questions will be asked:

• Can the business be delivered in a less painful manner?
• Can we achieve re-use of the commodity in an efficient manner that can be accounted for?

Putting in place a firm-wide market data inventory and managing it going forward provides the basis on which costs can be measured in order to support the business and ensure a suitable return of investment.