What is an Operating Model anyway?
The Fuse Co-Founders discuss our latest report, The Evolving Mandate of Technology in Investment Management
Happy Fall everyone!
For this edition of Fusings, I sat down with my Co-Founder Hussain Bokhari to discuss our latest publication, The Evolving Mandate of Technology in Investment Management. In addition to his client work, Hussain leads the development of research and intellectual property at Fuse and is building a digital advice platform as a side hustle – he cares a lot about tech! He’s also my absolute favourite person to talk to, and I hope you’ll enjoy listening in.
[Joy’s question] Before we even get to Technology, let’s address the consulting-speak in the room: what is an Operating Model and why does it matter?
[Hussain’s answer] Yeah, that’s fair. An Operating Model is a pretty generic sounding term for a set of choices and capabilities that define how teams work together. When you’re thinking about an Operating Model for a particular function, you have to choose your users, channels, products and services, governance and how you’re going to organize, and you need capabilities across people, process, technology and data to deliver on those choices.
[Joy’s question] Very structured! Thank you, but how do I bring that to life?
[Hussain’s answer] Use cases, which is a fancy term for imagining every scenario you can think of and testing it against the choices and capabilities. How do you describe it to clients? You need a snakes-and-ladders path through the choices for each situation, and a Lite Brite combination of capabilities. Not every capability will be required for every scenario, but it’s important to be comprehensive in your definitions.
It’s hard work to define and test it all, especially in complex organizations. But the more complex you are, the more important it is to be deliberate about your Operating Model design. It’s how to drive efficient collaboration.
[Joy’s question] So, why did we choose to focus on the Operating Model in Technology?
[Hussain’s answer] Technology is top of mind for pensions and investment managers, and it’s a really fascinating function right now because the lines of expertise and access are blurring between the traditional Technology Department and the rest of an organization.
Business applications are becoming more easily configurable, why should Technology play this role when the business user could? Anyone can get some cloud on their credit card, what kind of controls need to be in place? For investment managers, for example, quantitative trading is more of a technology job than not.
The role that the capital-T technology team should play to deliver value in lowercase-t technology outcomes is top of mind for functional leaders.
[Joy’s question] And what is our view on how they can answer that burning question?
[Hussain’s answer] Well, in our view Joy, a clearly defined Operating Model is the way to go, if you’re looking to empower the efficient and effective use of technology at an investment manager. And when you’re developing one, we’ve seen a few very critical things through our experience that leaders should prioritize: first, business user feedback. There may be some hesitation to “bug” the customer and we might not always love the things they have to say, but really understanding the pain points from the rest of the enterprise is key to developing an interaction model that works.
[Joy interrupts] In fact, I think we’d say the more that the customer can be involved in designing the Operating Model, the merrier, right?
[Hussain continues] Yes, procedural justice is important and it can make sense to have the customer included. But there definitely are elements of technology that just have to be the way they are, like infrastructure and cyber security. The Technology function needs to have decision-rights in these areas, and provide clear and pragmatic governance and standards to their organization that can ensure compliance while also enabling the desired degree of technology democratization.
[Joy pokes fun] That’s a good word!
[Hussain drives on] Thanks. These standards are also underpinned by an incredibly important asset, a products and services catalogue, that should ideally itemize the lowercase-t technology things happening in an organization, who does them, and what standards they are subject to. Clarifying technology offerings in this way helps Technology teams set and deliver to expectations, as well as keep track of the proliferation of technology across the firm.
[Joy nods] I see what you did there. What surprises you most about the insights you share in the paper?
[Hussain continues] I don’t know if it’s a surprise, but it’s always delightful to have the channels part of the conversation. I find it challenges the orthodoxies of the traditional way of looking at Technology to really consider what products and services your users will want to access in different ways.
Typically, we’re seeing unassisted, assisted, and dedicated channels as the three main avenues and some really innovative thinking about what might be able to be done differently.
It’s also a place where the customer feedback becomes really important, because you can’t always economically or practically provide the dedicated capacity or capabilities that your users might want, so really understanding the need, asking “why?” informs difficult trade-offs.
[Joy asks] So, is the trick to Operating Models to be balancing all these interrelationships?
[Hussain answers] Sadly there’s no trick, and it can be as we say in technology ‘a non-trivial exercise’ to pursue Operating Model design. But it has to be worth it, because there can be so much heat loss in terms of capacity and suboptimal delivery and dissatisfaction among business customers and Technology employees when the Operating Model isn’t clear.
When a Technology team doesn’t provide clarity and consistency to its organization, quite frankly, it loses the right to contribute in more strategic ways – and that’s our goal, right? To have Technology acting as a trusted advisor in the organization, and technology as a strategic advantage considered in enterprise strategy and even investment decisions.
[Joy agrees] Absolutely, I would love to see empowered and expert CTOs at every executive table in the Canadian pension industry. To wrap, what technology should the industry be thinking about?
[Hussain muses, or fuses?] Well, Generative AI has definitely been the most talked about trend over the past 12 months; we’re already seeing a wide range of interest and adoption levels across the pension industry. It’s easy to get excited about the potential impact here – but like anything else, there’s a lot of human process and culture that needs to be brought along to realize the potential of any new technology. And, we’re in the business of choices, not answers. The important thing is for Technology teams to pick their spots, define their roles, monitor their assumptions, and have a clear Operating Model for how they are going to engage.
I hope the paper we’ve written will give Technology leaders support in this important work, or at least some food for thought as they navigate these issues.
[Joy concludes] Amazing. Thank you for taking the time to chat about it!
[Hussain asks] We don’t have to start writing down all our conversations, do we?
[Joy laughs.]