Has buy-side data management outsourcing finally come of age?

Andrew Barnett, global head of product management, RIMES

Over the past ten years, cloud computing has played an increasingly important role in helping enterprises outsource non-core business processes and infrastructure to drive efficiencies, optimise their operations and lower costs.

However, despite the manifold benefits of cloud-based outsourcing, some sectors have proved largely immune to its charms. One such is the investment management sector, where the majority of firms have long eschewed outsourcing their data management requirements.

Perhaps looking to maintain control of their data, these firms instead find themselves burdened with complex and costly ‘defensive’ data tasks, such as data quality assurance, standardisation, and validation. By and large, the approach taken by such firms is to invest in ETL tools, data warehouses, and enterprise data management systems – an approach that hampers agility and leads to rapid cost inflation.

Outsourcing momentum gathers pace

Finally, however, things are beginning to change. Every year, RIMES runs a survey of buy-side firms, with the aim of uncovering some of the trends driving data management in the space. This year, our survey found that three times as many firms are planning to outsource data management compared to last year. These findings are supported by other surveys, such as one by Northern Trust, which found that nearly half of global asset management firms are considering data management outsourcing.

From the conversations I’ve had with clients, one of the reasons data management outsourcing is increasingly in vogue is because firms are looking to do much more with their data. In the past, it was easy to relegate data management to the back-office, because it only really served back-office functions. Conversely today, firms are looking at how they can use data to enable and optimise middle, second line and front-office functions.

Such offensive data strategies seek to turn data into a competitive differentiator, but they only become possible when a good defensive data strategy is already in place. The danger is that as companies invest in offensive capabilities, they overlook the necessary operational data foundation. If this happens, firms may find that their investments fail to deliver as expected across scope, timelines, and cost.

A strong data foundation

This is where outsourcing comes into its own. By outsourcing the complex and non-core data sourcing, mastering, and governance processes that lie at the heart of defensive data strategies, firms can focus on the value-adding offensive capabilities that are core to their businesses and which help them generate alpha. Viewed this way, outsourcing data management becomes a foundation for the successful commercial exploitation of that data.

Within this overarching driver, there are a several other benefits that are coming together to make a compelling case for data outsourcing. These include:

Bridging the data skills gap – Data expertise is in short supply and is becoming more expensive to acquire as data management shifts from being a processing-centric task to one focused on business enablement. Managed data services provide on-demand access to the expertise and resources firms now need to thrive.

Lower cost of ownership – Outsourcers can leverage economies of scale to help reduce the cost of data management. By helping create a single unified data operation they can also ensure against the duplication of data licenses (our survey revealed that managing data license costs is still one of the most important priorities of firms). When underpinned by stringent SLAs these cost benefits become even more compelling for firms.

Greater commercial control and visibility – Finally, managed data services can help firms bring order to data management practices that can be unwieldly. Often, business users will use data in siloes, which can create governance issues and drive up costs. By taking data management as a service, firms can overcome this complexity and ensure one single, well-governed data framework is in place. What’s more, as outsourced services can be bought and paid for on consumption-based modelling, firms can easily scale their data according to need.

Cloud-based outsourcing has already transformed the way businesses operate in a large number of industries. The investment management sector is now undergoing its own transformation. Over the medium-term, the sector will become increasingly data-driven, and firms will secure or lose market share based on their data strategies and the operational insights and business models that their data enables.

As a first step, firms need to get their data management in order and secure a complete, accurate and timely source of data for all their operational needs. Clearly, taking this data as a managed service is making more and more sense.