By Steve Young, CEO, Citisoft
Recently I had an interesting conversation with a client with regard to where data management belongs within an organisation and whether there is a need for a buy-side firm to appoint a Chief Data Officer (CDO).
The client, a very successful mid-range asset management firm, is organised along fairly clear lines of demarcation and data management is firmly owned by IT. Given the success of this firm, and the relative efficiency of its infrastructure and operations, this model seems to work very well. After the meeting, I considered my own long-held view that for data management to become firmly established as a source of competitive advantage within buy-side firms, more dedicated data managers and executives will need to be appointed.
In my experience of asset management firms, responsibility for data management often sits between the ‘business’ and IT. As a consequence, it rarely has the benefit of a C-level champion and is thus consigned to the level of a tactical discipline. Yet, as with many issues within the operations and technology areas of the investment management world, it is not a case of one solution fits all. While I remain convinced that CDOs will start to appear more regularly in buy-side organisation charts, there will always be some firms where this is not necessary, at least in the medium term.
To a large extent, the need for a CDO will be driven by a combination of a number of factors: the size and breath of a firm; its culture; and the complexity of its technology and organisational structure. Large asset managers with global operations and IT infrastructures have a clear need to create data-specific roles, in order to ensure that clients and data are at the centre of how the firm operates and services its market.
Despite this fact, in many firms this need is often talked about but lacks true ownership nor budget; nor is there any real corporate drive to become ‘data-centric’ in the firm’s approach. I can only see this changing if there is clear, well defined and empowered executive sponsorship of data issues, and this is more often than not a full-time need – hence the CDO.
In smaller, more focused investment management firms, data is often less of an issue, and here responsibility for data is often part of another role. The challenge for these firms occurs during its growth and evolution. As the firm begins to look to new markets and areas of business expansion, data is rarely at the forefront of the firm’s planning and strategic thinking.
Usually at these times firms embrace a ‘best of breed’ approach to technology to service their needs with the most functionally rich systems, which in isolation are often quicker to implement. In the past this approach has led to many of the data management woes that asset managers face today, concerning data consistency, consolidation, accessibility and security.
How many firms will benefit from the lessons learned from the mistakes of projects past? It might therefore be argued that even among small and medium-sized firms during a rapid growth phase, some kind of ‘data czar’ – even if it is not a C-level position – is justifiable.
The culture of a firm also has a bearing on the corporate appetite for a CDO. Where the CEO comes from a firm with a strong data management focus, or where the importance of data is commonly recognised among staff or even forms part of the firm’s brand values, the likelihood of a CDO being appointed increases dramatically.
In such firms the task of data management can have a status equal to that of a CIO and wield real power. The danger, though, is that in a corporate culture where data is not highly regarded, a new CDO may be ‘side-lined’ by Operations or IT, which have far larger teams. As in so many industries, in investment management, without people you often have little power.
The market within which it operates largely drives the complexity of a firm’s technological and organisational structure. For a firm managing equities within only a small number of jurisdictions, the likelihood is that its technological infrastructure will be relatively straightforward. For a global investment manager with institutional, wealth and private client money, operating multiple exotic instruments across many different time zones, the data management task becomes far more complex. In such circumstances, the need for a CDO may be more apparent.
A key factor in the decision surrounding whether or not to appoint a CDO is of course, scarcity of resource. A lack of experienced talent in that role is a challenge that faces most investment management firms with a penchant for a CDO. The alternative is to appoint from within – but this approach is unlikely to succeed when the role itself is a new one and CDO needs the confidence to join and challenge the C-suite’s established ‘big hitters’.
Perhaps the greatest stumbling block for the firm considering the appointment of a CDO is a strategic vision for the data management function. The paradox is that without a vision for data management, how do you know you need a CDO? Yet without a CDO in place, how do you generate the vision?
As our fair Hamlet said, ‘Aye, there’s the rub.’