Digital transformation represents a cultural shift, particularly for the sell side. The changes that have taken place in equities, such as electronic order books, alternative trading systems, and algorithms, and which are now starting to carry over into fixed income, require shifts in mindset as much as advances in technology.
“It’s a real change from picking up the phone to an aggregation of different applications on the desktop and electronic markets,” said John Reilly, managing director of capital markets trading at Wells Fargo Advisors, the retail brokerage division of Wells Fargo Corp. “The trader now has those tools available to them at their fingertips, in front of their faces, without having to go to the phone. It's a much more efficient process. The aggregation of the information is an incredible change.”
San Francisco-based Wells Fargo has a company-wide initiative to encourage employees to come up with new ideas and question the old ways. “The cultural shift isn't going to happen by itself. There's a big effort to push it along and to try and change things,” said Reilly. “Some of these municipal bond traders have been here 15-20 years. We have to force them out of their comfort zone and ask them to question their processes."
"We also ask them to question our policies," Reilly continued. " What can we do be doing better? How can we leverage all this information that's now in front of them to make their jobs not only easier but more productive?”
Brokers are being called on to adapt to the continuous sophistication of market participants, protect their information, manage their footprint and empower more users, said John Donahue, senior vice president and head of equities at Fidelity Capital Markets.
For example, Fidelity Capital Markets Service Bureau allows its clients to optimize routing and trading algorithms to enhance existing workflows and improve trading performance. “With Service Bureau, clients have been particularly enthusiastic about our analytics capabilities and expertise as a best-execution partner,” said Donahue. “We leverage our proprietary comparison tools to explore, rank and select the best situation-strategy combination for a specified trading objective.”
“It has not only initiated a deeper dialogue between our clients with their brokers leading to performance improvements by improving or identifying the right liquidity and execution offering, but it has also better aligned the order-allocation process to generate performance improvements for investors,” said Derrick Chan, senior vice president at Fidelity Centralized Electronic Trading.
Companies need to create an environment where employees are encouraged to explore opportunities for transforming customer experience, operations, and business models.
“Every company needs to figure out how to develop their own digital maturity,” said George Westerman, research scientist at the MIT Sloan Initiative on the Digital Economy. “We see this as being a very top-down effort led by a very strong vision for how you're going to be different and then driving that transformation through the organization.”
Many companies make the mistake of putting technology people in charge of the digital transformation. “That’s the wrong way to go, not because the technology people are bad, but because the real value comes from changing the way you operate,” Westerman said. “What you want to do is have a very strong top-down transformation that you're leading. That's business and IT working together. It's not something you just delegate to technology.”
Westerman, whose research and teaching focus on digital technology leadership and innovation, uses the term “digital masters” to define corporate leaders in digital transformation. “We definite digital mastery in terms of two dimensions,” he said. “One is digital capability, and the other is leadership capability, which is how to envision and drive change.”
Companies that are higher on digital capability tend to generate higher revenue, while those that are higher on leadership capability tend to be more profitable, averaging 26% higher profitability than their peers, according to Westerman. “The technology is one thing, but leading the transformation, envisioning, engaging, governing is even more important,” he said.
Featured image by alphaspirit/Dollar Photo Club