Wall Street’s view of collaboration

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The BDI Collaboration in Financial Services conference in New York went extremely well, so much so that we intend to run it in London in late spring next year as well as in New York again exactly one year later on September 29, 2005. The conference review describes what happened on the day. Taking a few quick top-of-mind reflections from the event…

The success of the event shows that collaboration and collaboration technologies are recognized as critical issues across financial services. In an industry driven by information flows and deep expertise, allowing professionals in financial institutions and their clients to integrate their work and thinking is clearly the way things are heading. We began to touch on some of the implications for bank strategy and value-creation in the industry in the event; this theme will play a bigger role in our future conferences. However a dominant issue on the day was the regulatory compliance framework as blocking collaboration efforts. For many reasons this is the context within which financial institutions are currently working. In addition to regulators ensuring they are not blocking innovation in financial markets, banks must not allow the regime to put them off implementing approaches that will differentiate them in the eyes of their clients.

I was delighted that we had Steve Wallman as our lunch keynote speaker. I have long admired Steve’s work since when he was SEC Commissioner in 1994-97. This article in Forbes magazine from 1997 shows some of his deeply insightful thinking on intellectual capital, which is still integral to my perspectives on the future of intellectual capital reporting. At lunch the day before the conference someone told me Steve was the best speaker he’d ever seen. I used that anecdote when I introduced him, setting high expectations from the audience, but ones that he definitely met. See the conference review for a few more details on what he covered.

Collaboration in Financial Services conference in NYC

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Collaboration – technological and otherwise – is central to the future of the financial services. In order to address these issues, in conjunction with Business Development Institute and Michael Ross Associates, I am designing and co-organizing a one-day conference in New York on September 29 on Collaboration in Financial Services. Full details are at https://www.bdionline.com/cfs.

We have got a tremendous response to the event. The current key sponsors are Intralinks, I-Deal, Microsoft, Interactive Data Corp, Vignette, Broadvision, and FaceTime, together covering the key technologies that support collaboration in institutional financial services, including real-time collaboration such as IM in a trading environment, document collaboration in deal-making including M&A and syndication, and internal collaboration systems. Many of the leading investment banks, including Goldman Sachs, Merrill Lynch, Deutsche Bank, CSFB, Bank of America etc. etc. are involved. Banks now see collaboration as a key driver both internally, and externally with clients. While there are significant compliance and security issues in the short-term especially, the core issues are first technological, and then process, organizational, cultural, and strategic. Banks are recognizing these will be major shifts, and there is lots to do in gearing themselves up to address these issues.

The reality is that we are far from achieving the potential of collaboration technologies in the financial services industry. Much of the reason is standards battles have at times dramatically slowed progress. A classic example is instant messaging, which is already at the core of communication in many of the financial markets such as bond trading, but the reluctance of AOL, Yahoo, and MSN to enable interoperability between their instant messaging systems has placed severe constraints on how banks can implement these technologies. Many similar issues remain in other domains, including establishing collaborative workspaces for M&A and other complex deal-making.

Part of my vision for the conference is to contribute to the industry – comprising both banks and vendors – acknowledging and beginning to address some of these standards issues. The last high-level panel session of the day will focus specifically on creating an industry roadmap to enable greater benefit from collaborative technologies in the near future. This conference will be run annually, and we may also establish some kind of working committees to help further these agendas on an ongoing basis.

Hope to see you there!

Investment banks lead the charge on Instant Messaging

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I opened Living Networks with the examples of Macromedia using blogging to get messages out to its developer community, and the institutional bond market on Wall Street using instant messaging to enhance information flows. Stowe Boyd has written a very interesting piece on financial markets instant messaging (IM) in his publication Message, looking at some of the drivers of adoption, and incorporating an interview with the co-chair of the Financial Services Instant Messaging Association (FIMA).

There are a whole suite of interesting issues here. One is simply how the investment banks have become enormously more collaborative over the last five years, largely as a result of technology drivers. When I speak about how very high levels of collaboration are becoming mainstream in business today—even in intensely competitive industries—one of the most convincing examples to many is how the notoriously aggressive investment banking community is now working closely together on a whole variety of issues.

A key interest for me in the adoption of instant messaging is how it changes buy-side – sell-side (client-supplier) relationships. The commoditization of information and research means that increasingly the value to fund managers of interacting with financial market salespeople is in “knowledge-based” interactions, in which they gain highly relevant knoweldge and perspectives that integrate into their portfolio decision-making, rather than generic information. A good example of this is CSFB’s Locus product, that enables salespeople and fund managers to look at the same analytics screen on possible trades, and to jointly play with assumptions to make them relevant to the client’s portfolios, and provide a basis for useful discussion of risk and return parameters. Thomson Financial—having bought WorldStreet just in time for me to update the coverage in my book—has integrated it into its Connect product, which provides a peer-to-peer XML-based platform for customization and filtering of content delivery. All of these new tools shift the client-supplier relationship, and force the development of new skills, processes, and strategies for the investment banks.

Another interesting angle is that while SMS has played a major role in changing interpersonal communication in Europe and Asia, IM has played a similar role in the US. IM still has low adoption outside the US, just as SMS is only picking up in America now. Different levels of familiarity with these emerging communication technologies affect how they are being integrated into business applications. However all around the world, it’s good to see that investment bankers are leading the charge in taking instant messaging out from teenage girls’ bedrooms into the world of business.

Creating the transparent corporation

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Aaargh! Being on the road means I’m getting stimulated by lots of very interesting stuff, but it’s hard to find a moment free to blog it. I’ll try to get a few things down… Last week I got dragged in at the last moment as a pinch-hitter to speak at the KMWorld (Knowledge Management) conference, the largest in the field in the US, in San Jose. It was in the “ROI and Measuring Value” stream, which is not what I spent most of my time on, so I decided to title my talk “A Financial Markets Perspective on Intellectual Capital”. The KM crowd don’t tend to get exposed to finanial markets thinking much, so it’s worth giving some insight into how investors view non-financial or intangible indicators. The story in a nutshell is that it has become increasingly obvious that non-financial indicators are vital in getting an accurate picture of the value of a company. Employee turnover and changes in customer loyalty are just two examples of a myriad of things that investors would very likely want to know, but don’t get told.

Over the last 10 years many have attempted to build models that take into account these intangible indicators. After spending a lot of time several years ago looking closely at these issues, and talking with the top people in the field, I came to the conclusion that there was no simple answer. The heart of the issue is that investors use different valuation models—that is they assess the value of intangibles differently. That’s what makes a market. Steven Wallman, who was then SEC commissioner and now runs the very interesting customized mutual fund service foliofn, stated it clearly. Currently financial reports aggregate all of the vast amount of information inside a company. What is required is a shift to disaggregation of that information, so it is all available to everyone, who can then choose to aggregate it into the financial models of their choice. We have yet to see whether companies, large investors, or regulators will drive this shift, but 10 years is the sort of timeframe we have to expect for it to happen. What could help accelerate this dramatically is XBRL (eXtensible Business Reporting Language), which is an XML-based standard for financial reporting that I discuss in Living Networks. This makes it very easy for analysts to take financial information into their own models. A recent study showed that analysts accounted for stock options in reports more accurately if they were presented in XBRL format rather than in a PDF. The beauty of XBRL is that it is extensible, so it can easily be used to report on non-financial indicators as well as financial ones. XBRL offers the promise of disaggregating information flows in company reporting. Investors will be far better informed, and be able to make decisions based on what is actually happening in the company. Earlier this week I met the executives at the American Institute of CPAs who are driving XBRL. They believe it will be far harder for the Enrons of this world to get away with what they did in an XBRL world. Companies will be far more transparent. And a little further down the track, we will shift to real-time reporting, when you can see what is happening in a company as it happens rather than two months after the end of the quarter. It’s hard to exaggerate the potential impact on how business is done. I will post my slides from my KMWorld presentation in the next couple of weeks, with a link from this article.