The debate over insourcing versus outsourcing in investment management has been ongoing for decades. The trend fluctuates as market cycles, asset allocations and skills requirements change.

Within firms, a similar ebb and flow often occurs as they navigate various phases of growth, acquisitions, and new product launches and ventures. Given the nature of this change – is it time to challenge the more “binary” approach to outsourcing and adopt a new approach altogether?

There is no one-size-fits-all solution to the insourcing versus outsourcing debate, not even for a single firm or a particular component in the investment lifecycle. However, a “smartsourced” approach is one that scales and adapts to both evolving circumstances and the lifecycle of your business.
 

How is smartsourcing different?

The traditional approach to outsourcing typically involves delegating an entire department or division to a third party, surrendering control of processes and technology. In addition to fragmenting the business and removing control, this approach is inflexible, requiring significant reorganization if the business model changes and processes need to be brought back in-house.

Smartsourcing involves building a core common platform and technology stack that can be customized to your operating model, and is flexible enough to adapt to changing priorities.

As the investment sector undergoes a rapid transformation, the need for a robust yet flexible approach becomes even more pressing. For example, the growth in private assets and the continuing evolution of regulatory requirements have pressured internal resources. Globalization brings further challenges of adapting to changing availability of skills that differ across markets and jurisdictions, and are subject to regulatory requirements.

Finally, the extraordinary amount of data and analysis involved in today's investment strategies requires increasingly sophisticated systems and processes for risk management, real-time valuation and response to regulatory requirements.

Each of these factors complicates the insourcing versus outsourcing debate, demanding a smarter solution that can adapt to changing needs. From an asset servicing perspective, it encompasses four key elements of an operating model:

The four Ps

There are four elements to the investment lifecycle, which we call the “four Ps.”

1. Process: What is being done?
2. People: Who is doing it?
3. Platform: What infrastructure are they using?
4. Place: Where is this happening?

The essence of smartsourcing is to establish a core platform with consistent processes, while allowing flexibility in people and place.

This approach allows an organization to source smartly and adjust to changing skills and needs, including demographic change and variation in global markets. Having a single platform provides transparency, as all processes and stages in the investment cycle are visible in one place, supported by a single technology stack, regardless of whether functions are insourced or outsourced.

For a business, this provides two vital capabilities: scalability and the ability to evolve.

A smartsourced model can expand to match a firm’s growth and adjust to changes in the style of sourcing required at each phase. Importantly, it allows your business to explore new markets and asset classes in the same system, while offering flexibility in deciding which aspects of these expansions are handled internally or externally.
 

Smartsourcing with State Street

Firms can leverage our smartsourcing solution as a software, as a service, or as a combination of the two.

Data as a Service (DaaS) allows investment firms to view front office, custody, risk, compliance and performance data on a single desktop. Firms can decide whether they prefer to be actively involved in the data flows versus oversight and governance, for example.

Alternatively, the solution can be provided as software, enabling a firm to operate the platform, manage the system, select their preferred external data or service providers, and decide which processes to retain internally.

At the heart of our ecosystem is our Alpha Data Platform. We connect a firm’s investment data to third-party data providers and applications without the complications of linking disparate IT systems. New data providers can be added with ease using our Snowflake Data Marketplace so your teams can access your firm’s preferred source for reference, benchmark, index and pricing data.

Is smartsourcing the right fit for you?

Decisions about outsourcing should always begin with an evaluation of the operating model, both as it currently exists and with a view toward how firms expect to grow and evolve over time. Each firm will have unique requirements and a distinct growth trajectory that may require rebalancing between insourcing and outsourcing at different stages.

Traditional outsourcing can lead to fragmented processes, creating data silos and inflexible operational models that are not sustainable, which could hamper future expansion opportunities. Smartsourcing, on the other hand, allows a firm to leverage outsourcing when it offers the best solution for a particular process, while still retaining full control and transparent oversight.
 

Getting started with smartsourcing

At State Street, our smartsourcing approach balances control, customization and partnership, allowing you to focus on your core competencies while we manage the operational complexities.