‘Silo Effect’: An Investment Manager’s Nightmare

Guest Blogger: David Kubersky, Managing Director of SimCorp North America

Silos, in the farming industry, refer to large structures designed to hold a specific grain. In technology, silos refer to the division between groups within a single enterprise and ‘silo effect’ refers to a lack of communication and common goals between multiple business units implementing changes simultaneously without strategic coordination. Just as in farming, silos are only steady when completely contained – however, if you open up the bottom of a silo, the grain within will quickly drain and set every single grain into motion. Similarly, siloed systems can create instability and negative impacts across an enterprise.

As firms grow more and more complex given today’s market, investment managers must become streamlined with their business units to implement changes and updates in-line with business evolution. At today’s rapid speeds, data and information within an investment firm can change in an instant – thus causing executions or actions to be out-of-date in seconds if they are not coordinated. Companies stuck in this ‘silo effect’ have no clear way to communicate real-time statuses, preventing them from efficiently responding to changing demands and opportunities.

For investment management firms today, operating on a highly fragmented IT infrastructure can pose numerous risks and inefficiencies. A robust financial infrastructure that ensures efficient, secure and timely settlement and minimizes exposure to systemic risk has moved from a ‘would if I could’ afterthought to a regulatory must.

In order to create a more robust financial infrastructure and create a cohesive IT architecture, investment firms should do the following:
•    Architecture management: break large information systems down into domains, providing more manageability
•    Integrate architecture: define the appropriate coupling and decoupling of a system’s components to ensure stability and logic
•    Align business and IT through a “managed evolution” – in other words, steer the development of your firm’s architecture to further increase operational efficiency in the system
•    Develop a holistic IT strategy through formal coordination; this requires strategic management and department cooperation in business-IT alignment

As ‘Bull Run’ followers, you are well-aware that the asset management industry today is facing an increasingly regulated environment and a political will to move beyond ‘business as usual’. A ‘siloed’ consequence can lead to uncoordinated silos, with massive redundancy, exposure risk and divergence in functionality, interfaces and data. Information system evolution should be guided by a suitable IT strategy, which must cope with the business strategy and a number of influencing factors.

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