These days, the term “Cloud” has become ubiquitous – even the un-savviest of technology users have a general concept of what the term alludes to. But while “the Cloud’ is really just a metaphor for the Internet, “cloud computing” means so much more – and has become a disruptive force within the “business of IT”. Cloud computing is a form of service provisioning — the delivery of IT resources and services within a cost-effective and scalable framework. Across various industries, cloud computing has now become the norm in the way many companies operate their business.
Within asset management, growth in cloud computing is just as explosive. According to a recent CEB TowerGroup report, more than 71% of firms confirmed their intention to adopt cloud computing or increase its usage by 2017. However, 2015 is the expected year when the majority of applications will be delivered through a cloud computing model. Another key finding from the report suggested that cloud adoption is potentially highest for post-trade activities, such as accounting, reporting and performance measurement.
Historically, asset management firms have been reluctant to outsource IT services to third-party providers, primarily relating to information security and business continuity risks and the ability of third parties to support their requirements for application performance, platform scalability and availability. This has since changed, and these concerns have been quelled through significant improvements in data security, encryption and isolation techniques employed by cloud providers within sophisticated, global tier-4 data centers.
Despite the expected growth in adoption of cloud computing within asset management over the next few years, some firms will still retain the traditional on-premise deployment model. As a result, we can expect to see some polarization over the next five years, with global, super-tier firms continuing with the traditional on-site approach, while others adopt cloud computing models.
Because of this, the industry needs system vendors to provide a continuum of deployment options, rather than a one-size-fits-all approach. The real value, however, will be delivered by vendors who can deliver beyond just managed technology services: it is the ability to provide managed business services as well. By taking on operational processes like data sourcing and validation, third-party providers can enable business teams to focus more effort on core activities.
It is our view that cloud computing will lead to a new type of system vendor within the asset management industry: one that will provide a full spectrum of services, from the traditional method of applications deployed on-premise by in-house teams – through a range of managed IT cloud services – to business processing systems leveraging cloud technology. Vendors apt to do this will be in the best position to meet the demands of a diverse range of asset management firms.
The disruptive force of cloud computing is based not on technology but on the business model under which IT operates within individual firms. The rationale of whether to self-manage or utilize the Cloud through a third-party provider will vary. Due to the complexity and scale or system platforms today, smaller organizations will increasingly lack the resources to manage them, while larger firms will focus their staff on higher value activities in support of their core business.
Most importantly, due to the increasing commoditization of hardware, the emergence of cloud computing underscores the fact that the value of technology is in the software, not hardware. Cloud computing can achieve a utility model with economies of scale far beyond what most companies can achieve with traditional on-premise IT platforms.