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November 11, 2014

TABB Group and Thomson Reuters Reveal Technology Costs and Opportunities for Capital Markets Firms

Study finds that potential for savings on technology spend is hampered by lack of effective measurement

London - A new report from TABB Group, commissioned by Thomson Reuters, has found that capital markets firms can be spending up to $460,000 per front office employee on technology related costs every year. Even when averaged out across a firm’s departments, this figure can be as much as $122,000. The report highlights the difficulty faced by the industry in measuring and controlling its costs at a time of increased pressure on resources, and for the first time provides a comprehensive framework for understanding the total cost of firms’ technology ownership.

Despite the central place that technology has in capital markets operations, and the crucial part that its efficient use consequently plays in preserving and growing profitability, firms have typically found it challenging to measure how much they are spending overall on their IT systems. At a time when the industry is under constant pressure to cut costs as well as find new growth opportunities, calculating and actively managing technology costs is crucial to ensuring business success.

At the same time, a separate analysis by Thomson Reuters has found that a typical investment bank could save around 20% on the total cost of its technology ownership by moving certain elements into its Elektron Managed Services environment. As managed services becomes more accepted within the financial industry and cloud adoption becomes more mainstream, this figure is likely to increase still further. Smaller organizations in particular will potentially be able to realise significantly higher savings.

Additionally, managed services will drive change in the business models of capital markets firms by moving from a capex to an opex funding model, and so offering them the ability more easily to scale up or down their requirements. This will help them be faster to market and provide the greater business flexibility needed in today’s challenging operating environment,

“There is a huge lack of understanding of what total cost of ownership really means, even amongst the biggest banks,” said Paul Rowady, principal and director of data and analytics research, TABB Group. “Capital markets firms cannot effectively evaluate new solutions versus existing without improving the measurement – and benchmarking – of their total technology spend. This means they risk not being able to allocate resources to the tools and services that will ensure their growth and profitability.”

“The capital markets industry is under pressure to cut costs whilst finding new business opportunities,” said Mike Powell, managing director, enterprise capabilities at Thomson Reuters. “Firms are increasingly exploring managed services as a way of addressing this cost challenge and to improve their ability to adapt to a dynamically changing market environment. As the cost savings and efficiency gains become more demonstrable, we will see banks’ business models evolving dramatically.”

Thomson Reuters commissioned TABB Group for its independent, unbiased research methodology. The full TABB Group research report is available for download here.

Thomson Reuters
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