The idea of ‘disruptive innovation’ was first set out by a Harvard professor in 1997. After decades of research, Clayton Christensen published a book, The Innovator’s Dilemma, in which he explained how a very successful company can do everything ‘right’ and yet still lose its market leadership to new competitors that are embracing innovation. His argument was that those companies that rely solely on the practices that enabled them to build a successful business in the first place miss out on new waves of innovation that will keep them successful.
One of the most compelling examples in recent history of an extremely successful business that looked outside the box is Amazon. The company started as an online book selling service—operating from Jeff Bezos’s very own garage in Seattle—and grew into a multi-billion dollar super giant.
Since its launch in 1994, Amazon hasn’t stopped growing—in virtually all directions and in all industries—becoming a tech giant as much as a retail empire. But, if Bezos had simply carried on doing what he had been doing since the late 1990s, Amazon would just be another eBay.
Instead, he bet on the most disruptive technology there was, the cloud.
When Amazon Web Services (AWS) launched, Amazon, the retailer, was its only customer. As an online retail giant that relies immensely on client data, Amazon needed a robust cloud infrastructure to support its ability to effectively use the vast amounts of data it collects, and that included everything from computing power to data storage. Now, its customer base is giant, including Adobe, Airbnb, Nasdaq OMX, the UK government and NASA.
These days, the best technology solutions are available online as a service and most major technology providers are increasingly cloud-first, or even cloud-only. Building on its sister company’s experience as an online retailer, AWS understood that each of a clients’ organisations needed to collaborate on business processes across the globe, reduce the complexity of on-premise infrastructure, and gain true cost-effective elasticity. And the only place for that is in the cloud.
It’s the same in the asset management world, where change is constant and internal development is complicated and expensive.
Internal-build projects and their associated support costs rarely ever decrease, or even stay the same, over the usable life of a solution. Significant upfront investment in data centres, networks, servers, storage and operating systems are required when running even the most trivial of enterprise software, and those costs don’t evaporate when migrating to new on-premise solutions.
Every fund organisation has a slew of regulatory requirements to deal with, and just as challenging as complying with initial filings is keeping pace with the constant changes put forward by the regulators. The ongoing frequency of change requires upgrades, security patches and enhancements to their regulatory technology, and for firms with on-premise or internally-developed solutions, it is even more difficult. It requires budget, effort, strategy, and significant preparation.
Keeping pace with constant regulatory change isn’t just a headache; it’s a design requirement. What the regulator deems a minor change may in practice require months of costly development, data routine changes, new user interfaces, and testing. All this needs to be done concurrently with current reporting obligations, while the upgrade and transition needs to be seamless on the go-live date.
Because of these heavy requirements, we see a lot of out-of-date technology that has become a real burden for fund companies and their administrators. They are either too expensive or too difficult to sustain, so it becomes easier to maintain the business process offline. But, in the meantime, the technology is still being paid for and no one is using it. It is this problem that most public cloud services address through a constant stream of updates.
Here at Confluence, we deploy seamless releases each month with new features, fixes, and improvements. We maintain the regulatory disclosures for minor changes imposed by a regulatory agency, and we handle the platform and technology update processes. Because the offering is software-as-a-service, this is included in the subscription cost. This means firms’ internal IT departments are not responsible for supporting those changes, Confluence is.
For most changes, our clients don’t need to create project teams with incremental phases to hire external consultants, purchase hardware, plan roll-backs, update internal systems, migrate data, or manage any of the other classic challenges necessary to get the benefits of the latest upgrade. Continuous improvement is delivered without continuous effort or additional spend.
Working in the cloud allows companies to focus on their core businesses and spend less time and money buying, using, maintaining and improving software, which is invaluable as regulatory pressure continues to build. With cloud acceptance at an all-time high, it is no longer a question of whether organisations are moving to the cloud, but rather of how quickly the procurement process is maturing to support cloud-based business, technology, and operational demands.
For years, it has seemed like for every step forward for the cloud in financial services there was at least one step back, but the residual worry over the technology finally seems to be easing. A key reason for this acceptance is that the cloud offers huge competitive advantages that cannot be achieved in a cost-efficient way using existing on-premise infrastructure.
While opening up to the cloud may not turn a firm into the next Amazon, it will allow them to free up time, resources, and money, so they can start looking for the next positive disruption to take their business to the next level.
