Innovation is vital in enabling financial firms to remain competitive and overcome the challenges of an increasingly complex and crowded market. Everything from regulatory change to new assets powered by digital technology such as blockchain bring new obstacles and opportunities.
But innovation in a complex behemoth such as a financial services organisation would be challenging enough during the calmest of market conditions. Market volatility and macroeconomic uncertainty crank up the pressure and the workload. It can seem impossible to look beyond anything other than keeping the lights on.
How do you overcome this? We brought together two experienced leaders from HSBC and Nomura for a panel session on just this. Speaking to moderator Cressida Hamilton, Chryse Coaching founder and a former capital markets leader, were:
- Daniel Wright - Managing Director, Head of Strategy & Change Delivery, Markets and Securities Services Operations, HSBC
- Chris Wells - Managing Director, Nomura
Here are the top takeaways from their conversation.
What’s the main impact of increased volatility?
We know from speaking with hundreds of financial institutions across the globe that operational processes struggle at the best of times. Outdated technology causes more problems than it solves; manual work keeps highly-trained teams locked in an endless cycle of repetitive tasks. Operational leaders struggle with a lack of agility and transparency - and an abundance of cost and risk.
So what happens when you add market volatility and an uncertain macroeconomic climate into the mix?
“Volatility doesn't give you more money,” Wright said. “But it does give you more clarity.”
While volatility doesn’t create new problems, he noted, it highlights the issues you already have. “Typically the ones that you've been carrying for a long time."
"Volatility allows you to shine a spotlight on all the things that you wanted to fix, but you haven't been able to fix historically.”
Knowing where the issues are is important, Wright said, because “volatility normally means higher volume. And it normally means the cost of mistakes goes up.”
Clients have greater expectations in times of uncertainty, he explained. They demand information faster and want to ensure it is timely and accurate. So, while volatility may not bring extra budget, “it means we are now focused on resilience, on data and the accuracy of data, and improving and simplifying our controls and processes.”
Innovation, then, becomes a necessity in times of uncertainty. At the same time, Wells noted there is a heightened sensitivity around innovation.
“What we've seen through the budget cycle is there's even less appetite for multi-year projects,” he said. “It's more around, ‘How can I get outcomes quicker?'”
Scrutiny intensifies for investments in one technology in particular: artificial intelligence. Wells explained that there is a lot more focus on whether AI investments are paying dividends, or what’s needed to unlock the promised value.
“AI investments are expected to get that quicker turnaround, which is what you want for a high volatility scenario.”
What does this mean for the size of the projects they work on, Hamilton asked.
“They're smaller chunks of delivery,” Wells said. “We all agree this is the target state of where we want to get to. And then we'll make small decisions to get there.”
This is different to a multi-year project, he said, where they may spend the first two years documenting what the target state is and how they would reach it before starting to build anything.
How the innovation agenda changes in volatile periods
Wright is the owner of a change and strategy function. Hamilton wanted to know how his innovation agenda changes when markets are particularly volatile.
“Volatility doesn’t kill innovation,” Wright answered, “what it does do, though, is it kills vague innovation."
"Innovation must improve resilience, because if it's not improving your resilience, then innovation is basically decoration.”
Fundamentally, though, as Wright mentioned earlier, volatility doesn’t necessarily change the nature of the problems facing Operations - and therefore, doesn’t drastically alter the innovation agenda. The main goals of simplification, to ensure robust, controlled and scalable processes remain the same. “The business wants to grow, and volatility often leads to incremental volume, so we want to be able to do that.”
As Wells observed earlier, though, volatility does bring with it a renewed focus on those all important outcomes.
“We've got to be really clear and focused internally around how we're spending money, and the outcomes that we're getting from those investments - and over what time period,” Wright said.
“Volatility can actually accelerate innovation, because it allows us to recalibrate what needs to be solved and get rid of the things that are noise.”
This can be difficult, he admits, because it often requires slowing down, which seems counterintuitive in frenzied times. But working out what you need to stop doing is as important as what you should be doing. By slowing down you free up time and energy to focus on what really matters.
Does volatility make it easier to push through change?
Change is very difficult to affect in financial services firms. They are vast, complex organisations, and any transformation will impact multiple teams and stakeholders. As Wright noted, everyone has a full book of work and there are often competing requirements; change is often blocked by a lack of bandwidth, rather than a lack of willingness.
Our panellists had already discussed how volatility shines a spotlight on where Operations needs to innovate. But does it also make it easier for them to overcome the blockers that have prevented them from doing so in the past?
For Wright, volatility certainly makes it easier to ‘sell’ innovation to the business, helping to fund and prioritise changes needed in Ops.
“You normally have the attention of the business, who are very keen to see stability,” he said. “So if you're pitching for investment to allow them to grow the business in terms of the volumes that you can support, and minimise the number of operational incidents that go through, it becomes a slightly easier sell.”
This is helped by the fact that “volatility makes the cost of inaction very visible”.
Wells returned to the ideas expressed earlier around the desired speed of change. In times of volatility firms have shorter time horizons and less of a tolerance for multi-year projects. But achieving rapid innovation requires a more federated approach, particularly when it comes to AI tools.
“What we're seeing more is the adoption of AI and how you get smaller teams to deliver their own quick change through these periods of volatility."
"One of the points we're focusing on is how do you put guardrails in place so that those teams can operate within their capability?”
Adopting this kind of approach to change not only enables faster innovation, but is also motivating for the team. They now have the power to solve their own problems, rather than navigating a slow and monolithic change management process and handing requirements documents over to other teams to build.
Volatility or not, though, the speed of change is hampered by the complexity surrounding legacy processes and architecture, Wright noted. “It's a lot easier being innovative when you've got simple architecture. Every change that we put in has massive upstream and downstream impacts. And therefore, it takes a lot longer and can be a lot more costly as well.”
Innovation priorities: The foundational role of data quality in chaotic times
So, volatility makes innovation more important and often helps crystallise the case for change in the eyes of the business. It also helps to give clarity around what you should be focussing on. And what is that, exactly?
For both Wells and Wright, the answer relied heavily on having a foundation of trusted data.
“One [topic] that came across in quite a lot of discussions is your data strategy,” Wells said.
“If you're building these automated solutions, if you're not trusting your data, then garbage in: garbage out.”
Data quality, he said, also underpins your ability to remediate issues fast.
“Do you have the right escalation model and the data underneath it that enables that? If you've got a problem, it's much more important that the right people know across the front to back stack quickly. It's easy to say; hard to maintain on a day-on-day basis.”
Of course, a robust model to remediate issues relies on finding those issues in the first place. Which is why Wells shared that one of his priorities is on moving a lot of T+1 controls to T0.
Wright agreed that data was critical to enabling progress.
“It's very difficult to have good innovation with bad data,” he said.
“Clean data, when you look at it in times of volatility, should actually be seen as an opportunity and even as a profit centre.”
“If you don't have good data, everything you're trying to build on top really starts to get a bit crumbly as you keep going. It's almost like that foundational level. And, unfortunately, the need for good data is still an enormous challenge at most organisations.”
The good news is that both panellists agreed that the importance of data quality is something that is increasingly recognised now by the wider business, including at leadership level.
“We're seeing more money being invested in it,” Wright said. “And we're seeing more people wanting to talk about it. We're actually seeing people asking us now, ‘What's your data strategy?’”
He credited the accelerating pace of the market with driving this heightened interest in data quality. The rise of initiatives such as the move to T+1 settlement, as well as the growing adoption of new technology such as blockchain and stablecoins, means “the distinction between pre and post-trade starts to disappear.”
“You're seeing data being a core part of the strategy, but also people wanting to go and become data experts now,” Wells added, “because it enables a lot of things.”
Hamilton was heartened to hear this, sharing that she used to run client data earlier in her career, and “it was extraordinarily difficult trying to get people to come and be interested in what we did. So if that's true, then that's a real step forward.”
Parting words of wisdom
To wrap up the conversation, Hamilton asked our panellists what’s the one piece of advice they would give leaders in their position.
“This one isn't my quote, but never let a good crisis go to waste,” Wells said. “We all suffer from trying to get budgets. But ultimately when something blows up, you invariably get some money or you certainly get some prioritisation to get stuff done.”
The key is to be prepared, he said. If you know what you want to do then you can maximise your opportunity and use the money to build things in such a way that “ultimately will enable you to build solutions for other problems”.
Wright returned to the need to focus more on the near-term and deliver innovation quickly.
“Don't look too far ahead. Focus something around the next 90 days, not the next three years. That doesn't mean don't have a vision for where you want to go. It just means break that down into meaningful chunks that can allow you to work with your business partners and your sponsors.”
“I think you can build momentum from that. And you can deliver value early. The more you can do that, the better you are positioned to continue to go on that journey over that three-year period.”
Summary - Key takeaways
Wells and Wright shared a lot of great insights on dealing with the current uncertainty dominating the market, including:
A welcome source of clarity
Volatility doesn’t create new problems - it simply highlights the most severe issues that persist in your Operations. But this is a good thing, as the attention of the business is on you and your ability to maintain stability. It’s therefore much easier to justify innovation to remove technology and process blockers during these periods.
Data quality is essential for innovation
Both our panellists were clear that trusted data plays a foundational role in enabling you to harness new technology to solve your operational challenges. This is especially true when it comes to artificial intelligence, but everything from finding breaks to client reporting feels the impact of poor data. Focus on simplifying and streamlining your processes and moving controls to T0.
Innovation needs a quicker payoff
Appetite for multi-year projects goes out of the window during periods of uncertainty. Our panellists advised working to a much shorter time horizon and chunking up innovation into small deliverables. The idea is not to abandon your long-term goal, but simply to change how you get there. Use incremental innovation that delivers value quickly as a stepping stone towards your ‘North Star’.
Enable faster change
Innovating in times of volatility requires a more streamlined change process than what most firms are used to. Empower your teams to deliver change quicker so that they can solve their own problems. This doesn’t mean change should be ungoverned, but there are other ways of maintaining control and putting guardrails in place while allowing teams to innovate faster.
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