Firms grappling with how to take advantage of technological advances are increasingly turning to so-called innovation labs to incubate budding technology and incorporate it into day-to-day business.
Financial services providers and asset managers are launching these labs to give their teams and clients a place to experiment together with the latest developments around issues such as artificial intelligence, robotic processing, cloud computing and blockchain, industry experts told Fund Operations.
“Innovation centers use agile technology protocols,” said Scott David, head of U.S. Investment Services at T. Rowe Price. “Agile protocols put the technology and business people side by side and they iterate in what is called periodic sprints, instead of coming out with one massive build. In this approach, they continuously work together to release technology enhancements.”
Historically, a company’s business side would give its technological developers detailed specifications to build a platform in what’s known as a waterfall approach, according to David. But the method can be inefficient and not cost-effective, he added.
“Technology changes so rapidly, and a big build does not take that into account. The business side comes back and says, ‘Well that’s great, but it’s what we wanted a year ago,’” David said. “The advantage of the agile approach is that you bring technology to market much quicker.” Firms save time and money when tech and business teams work together on the same project at the labs, David said.
T. Rowe price has three innovation centers in Baltimore, London and New York. Its New York center opened in April and is focused on big data and analytics, while the Baltimore location focuses on the client experience.
EY also launched a New York-based innovation lab in June. EY recently allowed FO to take a tour of the center with Roger Park, head of innovation for financial services Americas. Its New York space is one of several labs the firm is launching as part of its initiative to create a network of technology experimental centers, titled EY wavespace.
“These labs are meant to be safe places to test and learn,” Park told FO. Park explained that in the venture capital world there is a fast-failure mentality, which makes financial clients nervous and is the reason many firms don’t get involved with the latest technology startups. However, the innovation lab aims to mitigate that risk.
Park explained that working together with clients at the lab takes advantage of its technology expertise, leverages EY’s client base, and safeguards projects from a cost perspective should they prove unsuccessful.
“We are tracking approximately 15,000 fintech companies in the EY Horizon Scanner,” Park said. “Our clients, which are fund companies and sometimes other financial service providers, want to know, ‘How do we compete with those fintech companies?’ The answer is having the advantage of scale.”
The second most important element is resources. These labs bolster state-of-the-art programs and software to support experimentation.
EY’s lab in Manhattan’s Union Square includes full walls of smart screens and interactive smart boards, along with breakout rooms for client meetings, presentations and workshops. The key concept is collaboration, according to Park. For example, real-time, multi-user technology allows team members to work on a project with a client in one room, while others can work on the same project in another.
(Pictured above: EY’s innovation lab in Union Square, New York, NY)
“When you use this type of [technology] the right way, it almost transforms the customer experience,” said David Horton, managing director of innovation for financial technology provider Synechron. “We are not trying to innovate for innovation’s sake. Innovation has to have a real, concrete impact on the client’s business, and somehow reduce their costs or make them money.”
Synechron launched its ninth innovation lab last month, opening up a new space in New York’s Time Square. The center’s technology offerings include artificial intelligence, blockchain, biometrics and chatbots, according to a July 21 company announcement.
Dividing labs by purpose
Two distinct purposes are emerging among financial services innovation labs: centers geared toward client experience, and those geared toward back-end technology and workflow.
T. Rowe Price’s New York center – focused on data management and automation – supplies the Baltimore office with technology to enhance client experience.
“We’re focused on process automation and robotics, as well as cognitive voice recognition tools,” David said. “In New York, we’re focused on data science disciplines and how the business is run every day. And then in Baltimore, it’s about the end-to-end client journey, with an emphasis on bringing in that automation to their experience and also to the advice we provide.”
The same is true at Northern Trust’s labs, according to Dan Houlihan, North American head of global fund services. Northern Trust has three labs: one focused on fund accounting, another focused on client-partner exchange, and a third that is a joint venture with IT capital investments specialist Pivotal Labs. Northern Trust launched its fund administration lab in March.
“It’s the big banks [and firms like us] that have the access to make these types of [investments], because everything we do as a revenue center, our clients do operationally as a cost center,” Houlihan said. “This innovative process has a lot of value to them in terms of education on what’s possible, telling them about emerging technology, and how they can use it.”
Northern Trust has emphasized improving the investor experience with digital tools, easily understandable data and transparent access. “We’ve invested considerably to be able to integrate custom fund accounting and transfer agency functions and to be able to serve up data in a way where clients can get access to it,” Houlihan said. “We’re focusing on investor transfer agency, web portals and dashboards to improve investor access and the user experience.”
Mapping a client workshop
T. Rowe’s David pointed out that many innovation centers try to bring technology and business together to improve operational efficiency.
EY’s Park called it a marriage of suits and jeans. “Suits are the traditional enterprise roles you need to run an effective organization— compliance, finance, risk-management, HR, tax, etc. Jeans represent emerging technologies – such as digital, 3D printing, blockchain, etc.” Park said. “To truly innovate at scale and speed, your suits and jeans must work together. For example, you need to get your digital team talking to your CFO and COO so that you can [digitize] in a way that reduces your costs and drops benefits to the bottom line.”
EY tackles this challenge with a tool called a client map, which has generated for a variety of themes, such as working with Millennials, robotic process automation (RPA) and blockchain into operations.
Clients pinpoint their progress on a particular theme, which corresponds with where they start on the map. For example, a client just beginning to look at RPA would start at the beginning of the map to define and understand robotics. Others already dedicating resources to RPA implementation might start in the middle of the map with analyzing potential returns on investment.
The EY lab’s multimedia smart boards use a program called Mural to chart a client’s path through the map over time. Along the way, clients come in for collaborative workshops EY tailors according to job function — for example, the C-suite, sales, communications or human resources personnel.
(Pictured above: EY’s Roger Park)
However, Northern Trust’s Houlihan pointed out that one of the biggest hurdles is getting those experiments and projects out of the lab and into everyday use.
“That’s the challenge with these labs — how do you accelerate the business value if it’s a project-based model?” Houlihan asked. “That’s why we are making sure we put these labs at the forefront of decision-making when it comes to IT capital so that we have a governance structure around the principles.”
Northern Trust’s Chicago lab prioritizes rotating people out of the lab to integrate them back into the general enterprise and put the projects into use.
“I think where we have seen the most successful efforts is when firms integrate the efforts form the labs back in with business operations to really have some connectivity and use cases to prove out the technology and the benefits,” said Janet Hanson, managing director in the wealth and investment management operations practice at Deloitte. “The risk is having a lot of resources just focused in the lab that, overtime, can become a bit disconnected to the roots of the organization’s operations. It can create a disconnect between the legacy technology groups and the teams within the labs that get to play with these shiny, new toys.”
As the lab teams work on new technologies, it is critical the operations and IT teams elsewhere work on governance processes to support and manage these new tools. “Over the last year or two, we have seen a lot of organizations….take interest in moving beyond proof of concepts for blockchain, for example,” Hanson said. “The asset managers that have been successful in rolling out blockchain uses cases are those that identify one particular part of the ecosystem or a particular process.”
“Discussing a theme conceptually, like blockchain, or reading a white paper is very different than seeing it and really working on blockchain applications,” Synechron’s Horton concluded. “It is sometimes difficult to look outside of the box and do something differently, but it’s something we can help them do.”
Access to this premium content is sponsored by EY.