Information Analytics in Investment Banks: The Key to Survival (and differentiation)

Diminishing  (if not disappearing) customers, cost scale-backs both inside the firm and outside, a severely choked supply chain of raw material (money) and an equally choked pipeline – pretty much a representative sliver of the current day investment banking business. Even-yesterday’s true-blue business in the capital markets is struggling to just make its ends meet today. So besides eating a bit of the humble pie, what can these banks do, at strategic, tactical and operational levels, to not just weather this storm but emerge stronger once it has weathered off?

Strategic: Explore new business models: The traditional business of highly geared balance sheets used to create opaque assets is over. Not explicitly, but the Glass-Steagall Act has made a quiet comeback as investment banks mimic commercial banks. All this however does not mean that the business of investment banking is dead – companies will still need money and deal-making will still need to happen. That said, the focus is definitely going to move to favor the boutiques and niche firms that bring about a focused capability model – at least in the short to medium term. The surviving bulge-bracket firms too will move to create sector specializations within their generic asset-class driven organizational structures to counter the boutique model. Doing this analytically will be the key, as the management goes about understanding volume and transaction momentum multi-dimensionally across sectors and asset classes and overlay the internal data with macro-economic prognoses.

Tactical: Explore new revenue opportunities: Decisions at the tactical level will have to be much more analytical for the simple reason that resources will be scarce and competition for them very high. During sunshine days, investment banks splurged on information systems, both internal information and external market data. Smart banks will seize this opportunity to bring the information from these two types of systems together to create a much richer intelligence infrastructure for the decision makers. Additionally, strategy department of banks must now look around the industry more than ever before and tools that allow them analyze market share and wallet share will significantly enhance the bank’s ability to both position its products and services as well as accurately target sectors (could not help a bit of unabashed self promotion – check this really neat thing from Thomson Reuters). Significant amount of internal information in a bank resides in memos and e-mails. Besides being amorphous, such information has been traditionally neglected by information managers who failed to create actionable insights from such unstructured content. This is the right time to correct that huge wrong. Internationally diversified investment banks will realize the benefits of disproportional liquidity and possible decoupling of either economies or sectors. However timely dissemination of geo-dispersed information and creating a global, collaborative information system will still remain a challenge for the banks

Operational: Do more with less: Some amount of downsizing is inevitable but it is worthwhile to remember that now is the time to excel in service quality and deepen client relationships. Operational decision makers in investment banks – mostly relationship managers and Associates – will demand that information intelligence is delivered quicker and in a much more actionable and interactive manner than ever before. Analytics like understanding common attributes between most profitable customers and then creating such clusters across other decision making dimensions will result in more efficient targeting. Pricing pressure is inevitable in such troubled times so banks would want to proactively investigate existing fee structures conjointly with other dimensions like sectors, geography and asset classes to possibly detect under-pricing and over-pricing situations and react before the competition – or worse – the client does. Collaboration will become a huge advantage for banks that are well diversified – across sectors, asset classes and geographies. Information system architects must take cognizance and build systems that allows the banks to reap benefits of collaboration synergies.

2008 has been the annus horribilus for investment banks and 2009 does not promise to redeem any of that pain. On the other hand the banks who had the going just about as stressful as an afternoon at the Hamptons would witness Darwinian pressures to evolve into better information processing and assimilating machine than what the easier times forced them to be. And when the tide turns, these banks will be the ones leading the pack.