Mark Corns, Partner and Head of FS Cloud Transformation at KPMG writes that, like other sectors, wealth and asset managers are investing more and more in cloud technologies to help transform service delivery and personalisation, through faster and better decision-making and customer responses.
But for a long time, wealth and asset managers have not realised the financial returns expected from their cloud migrations, with several reports estimating that 35 per cent of cloud spending is wasted on inefficient activities. With the plethora of operational and strategic benefits this technology presents, cloud spending across the sector is only going to accelerate this year. The danger is that as cloud investment rises, so will the amount being spent on technological inefficiencies.
Reasons for cloud wastage
There are several reasons why cloud wastage can occur. First, the complexity of legacy IT – particularly mainframes for hosting core systems – with labour-intensive legacy infrastructure patterns can contribute to high costs. In addition, wealth and asset management has been sluggish in their want to understand the necessity for a different cyber posture and new processes on cloud, instead, trying to take a traditional approach that is inappropriate and leads to wastefulness.
Furthermore, regulatory risk that is common across the entire financial services sector, can take priority over innovation. Where risk management is considered king, it can serve as a distraction from taking full advantage of cloud opportunities that could reduce overall spend.
Intensifying these reasons is that organisations are concentrating their cloud migrations on delivery timescales and budget, instead of business outcomes, which often results in poor quality transformation. IT teams for wealth and asset management have typically concentrated on spinning up new cloud environments and proving capabilities. However, many have failed to factor in the implementation of controls once these environments have been established. Retrospectively having to implement controls is much trickier to do and can even result in cloud environments needing to be rebuilt or abandoned altogether.
How to make considerable savings on cloud technology
So far, this wasted spend hasn’t been large enough to warrant concern, but as organisations increase their use and dependency on cloud, there is an apprehension that it will get out of control and be subject to the scrutiny of regulators and the Board. The good news is that wealth and asset managers have the opportunity to save millions simply by adjusting their cloud strategy and usage – savings that can then be directed to accelerate other digital transformation initiatives, which CIOs and their teams are under pressure to deliver.
To close this value gap whilst keeping stakeholders happy, organisations should take the following approach:
Determine the organisation’s strategic purpose in using cloud
Wealth and asset managers can use cloud for a variety of functions. Some may use all of them, while others only use two or three. The key is to identify exactly what is trying to be achieved by using the cloud and aligning that purpose with the most suitable function. For basic data storage and compute power, a commodity infrastructure is all that is required. At the other end of the scale, truly innovative organisations will use cloud for data analytics and advanced technologies including AI and machine learning, which necessitate a different type of infrastructure.
Create a ‘cloud value map’
Once the strategic purpose of using the cloud is identified, IT teams must map their current usage against it. This can be achieved by creating a ‘cloud value map’ that breaks down the separate cloud functions – business services that impact customers, enabler capabilities, and foundational operational metrics – so that each group’s operational usage can be analysed.
Remember the Risk and Engineering functions
To keep the Board and Regulators informed, it is important to put a cloud controls framework in place to offer them peace of mind that any cloud migrations and updates can be done quickly, accurately and with minimum risk. The framework integrates the operational, security and resilience risks that emerge from cloud migrations and ongoing operations. It can also be used to understand, mitigate and manage any risks, as well as comply with current regulation.
Set up a system for regulatory notifications and insights
With the regulatory landscape continuously evolving, having a system in place to provide regulatory notifications and insights will help capture the key areas of regulatory focus. Doing so will make it easier to accelerate regulatory submissions and reduce risk and regulatory challenges going forward.
Embed a culture of collaboration
When business and technology functions are not properly aligned, the ability to identify business opportunities during cloud implementation is vastly reduced. By bringing IT and business teams together to review cloud usage, blockages and ways of kick-starting more rapid progress, cloud wastage can be cut.
There is no doubt that cloud technologies will unlock an assortment of opportunities for wealth and asset managers, and it will be a significant differentiator for those organisations who implement it effectively. Yet without proper implementation and management, cloud spending and waste will soon become an issue and a significant handicap for IT teams who are eager for additional investment to support digital transformation plans. If the balance between maximising value and minimising cloud waste can be struck, enduring competitive advantages is within their reach.
