Artificial intelligence, blockchain, robotic process automation, quantum computing — some of the 2019 technology buzzwords. Application of innovative technology is critical to the evolution of any industry or business. The U.S. municipal marketplace is no different and, while it has been arguably slower to adopt new technologies than other asset classes, our market has seen the introduction of innovative technologies that have delivered evolution toward … the 20th century. Yes, we’re still a tad behind other markets.
Innovation and evolution are critical to the municipal market, be it to solve for new or newly enforced regulations or the need to operate better, smarter and faster. We are also undergoing a generational transformation and, absent investment in technology, attracting and retaining talent will be a significant challenge.
Professionals in the municipal market strive to deliver what is best for the market, the firms they work for, their colleagues and clients. Over the almost 10 years of delivering technological and data solutions to the municipal bond market we have, however, observed two common challenges: inability to gain support for critical technology needs and the decision to “build vs. buy.”
As spreads contract and regulation continues to drain resources, many in the industry struggle with the competing demands of the cost of day-to-day operations and the need to invest for the future. Investment is about moving from spreadsheets and paper files to an integrated database and user interface that allows one to leverage data and information. It’s about embracing the opportunity to efficiently leverage what is available (data, tools and people), adopt a consistent set of best practices across your firm and, ultimately, generate greater ROI on all of your resource investments (people and technology). Investing in the future benefits the organization and individuals who are now able to focus on more value-added assignments.
The needs, opportunities and appetite for the application of new technologies requires municipal market participants to come to terms with the reality that innovation has a cost and there are key questions to consider: Do you invest? If so, build your own? Spend on third-party technology? What is the required level of integration with other technologies? Do you simply get by with what you have? While this may sound a bit self-serving, the reality is that it makes economic sense to leverage best-in-class tools and services, take advantage of economy of scales that come from vendor solutions and improve your ROI.
To spend or not to spend on technology. At a time when many are tightening the reigns on spending (technology and people) and focusing new spend on businesses that are more profitable, investment in the municipal bond market is hard to come by. This counter-intuitive thinking needs to be corrected. The municipal bond market is needed by virtually every municipality and is a major part of the financial markets. To move forward, the municipal market needs to embrace technology as a tool that can drive efficiency and effectiveness while allowing professionals to focus on aspects of their work that cannot be “outsourced” — interacting with clients. This requires, for many organizations, a paradigm shift in thinking and resource management.
The shift in thinking is from one of “we have it covered” or “if it ain’t broke don’t fix it” to one where it is recognized that by deploying technology resources you better serve clients, create opportunities for employees and increase profitability. These people can now focus on activities technology cannot solve and allow your team to grow in their role and within your organization. The outcome is increased ROI.
So, let’s assume the decision has been made to invest in your firm’s future. To build or not to build?
Many contemplate this question and, while some are successful, we all have heard about costly endeavors into uncharted waters. Three realities to consider before taking the plunge:
· Dedicated product management (the folks that bridge the gap between business users and engineers developing the technology), development, infrastructure, quality assurance and maintenance teams are a necessity
· Competing organizational priorities often delay, interrupt or quash a project (“good idea but resources are going to equities where we make more money”)
· Third-party developers hired to build your solution know development but not the municipal market.
Absent thoughtful consideration of these realities, you end up with predictable results — twice as much time and money (at least) for 75% of what you wanted (at best). Lack of resources and/or expertise can derail or jeopardize the best ideas. It is often the case that the business users that need the technology do not have time to perform their day job and devote to the project. The result is time and cost overruns and the opportunity cost of business resources — excessive hours on the internal project instead of focusing on business development and engaging with clients. Thus, the need for committed, dedicated resources.
Another aspect of the “build” scenario that must be considered is maintenance and ongoing development. Rest assured, in addition to day-to-day monitoring and maintenance, there will be required enhancements. If you are fortunate enough to have planned for the above, there is also the reality of “build cyclicality” — the decision to build being made by the former management team that is questioned or abandoned when the new management team decides to focus on the core business. Advice — tread carefully and thoughtfully.
A critical evaluation of technology spending (build or any third-party resource) is key: Does it allow your firm to operate better, smarter, faster and more cost-effectively? Better serve your clients? Improve opportunities for your employees? Grow your business? Does it provide your revenue generating team resources to make them better and more profitable? Can the solution be implemented with relatively minimal operational risk?
These and other questions need to be addressed objectively. If yes, the short-term adjustments will pay dividends in the near- and longer-term. In addition to increased efficiency and improved ROI, you will likely improve morale and retention of key employees who desire to work with state of the art technology.
