Digital transformation, while an occasionally overused phrase, refers to adopting digital technologies to increase value and add operational efficiency through innovation, thereby enhancing the customer experience. Across industries, executive leadership is investing in tools such as artificial intelligence (AI), data acquisition, and data analytics to find ways to optimize processes and get ahead of the competition.
With insights from the IASE, World Bank, SEC, and Walacor, among others, the Deloitte 2023 investment management outlook study examined how firms optimize their talent models and what investments create advantages. According to this year’s survey, two key indicators of future success are the consistency of opinion between organizational units on the health of firm culture and the agreement on priorities for the allocation of resources over the coming 12-18 months.
Concerns and challenges that arose during the pandemic, including the shift to remote work and the need for new or increased technology capabilities, are now coupled with concerns that both inflation and the geopolitical landscape could negatively impact their firms over the coming year. Bear markets, like the one the United States entered in the second half of 2022, also squeeze revenues, leading to a necessary focus on prioritizing key projects and lowering spending wherever possible. Unfortunately, higher technology and data costs continue to make margin expansion challenging. And this is where digital transformation can play a crucial role.
Digital transformation leads to operational efficiency, improving the organizational culture. In the survey, Deloitte focused on technologies like cloud computing and storage, robotic process automation (RPA), and blockchain for operational efficiency. Technology-driven change may not only improve a firm’s culture but can also help reduce costs. A key finding in this year’s study was that firms far along in their digital transformation journey are more likely to have a more robust culture. Survey results show that achieving a solid corporate purpose correlates to efficiency, revenue opportunity, and reduced employee turnover.
At the beginning of the pandemic, focusing on the rapidly changing work environment was the top priority for businesses. As things have returned more or less to a “normal” state, whether teams remain remote or on-premise, more investment management firms have turned their attention to responsible digital transformation, particularly in the United States. However, governance and reporting mechanisms at many firms have not yet caught up with the pace of digital transformation.
As described in the Deloitte study, this heightened focus on updating governance and reporting mechanisms is due in part to increasing attention on the matter by the SEC. In the first half of 2022, the SEC proposed new rules or changes to existing regulations that have implications for public and private fund managers. Among these changes were new reporting requirements for private funds, new compliance review documentation requirements for private fund advisers, and new rules to adopt written cybersecurity protocols.
The constant evolution of technology deployed on both sides of the cybersecurity battle – with blockchain technology becoming the latest tool – is a primary reason cybersecurity remains a growing focus for investment management firms as they focus on operational efficiency. In response, advancing the data encryption process under the US Cybersecurity and Infrastructure Security Agency’s Zero Trust guidelines is likely to become a priority. As noted in the study by Walacor co-founders Walter Hancock and Kevin Kirkbride, “the ability to encrypt (and back up) data using blockchain approaches at the individual record level instead of the database level could commercialize in 2023.” This development could redefine a reportable data breach, as access to encrypted data may not be considered a breach.
Looking toward the coming year, firms that invest in improving operational efficiencies are better able to create positive impacts on client experience while enabling employees to produce results that advance the firm’s vision. As the industry continues to undergo rapid changes, this first step becomes more crucial than ever for leaders in 2023.
Curious about the rest of the findings? Click here to read the full Deloitte report. Want to put your team on the cutting edge of blockchain technology and the cybersecurity battle? Schedule your call with Walacor today.