Three pillars of excellence So what do we mean by operational excellence? It comes down to three distinct, but overlapping, dimensions: efficiency, quality and service capability. A system built for operational excellence will deliver on all three. In the funds processing world, one of the key measures of efficiency is the ratio of fund accountants to funds. Labour represents between 70 and 80 per cent of a typical firm’s cost base and so the number of people you need is a good proxy of whether you are efficient or not. Manufacturers talk of unit costs and the amount of labour needed to get a unit of product out of the door; the same thinking applies to fund managers. The investment industry is starting to look at the cost of labour and how it can be made cheaper. One option, which is widely deployed, is to outsource or offshore particular operations. The technological alternative is to adopt innovative solutions to do more with less, and eliminate wasteful and inefficient processes from fund accounting and associated business functions. Quality is a measure of how extensively errors can be removed from the fund accounting process. Operational errors are the worst kind: if you lose a dollar in new business and you have a cost:income ratio of 50 per cent, you have lost 50 cents of profit. But if you lose a dollar through operational error, you may lose another $10 from unexpected exposure to market movements, or an improperly processed corporate action or tax accruals calculation that has not been factored into the net asset value price. And if investors are making decisions about portfolios that are based on incorrect data, there will be direct economic and reputational costs.

Errors often occur because competition for inflows and the drive to offer better and more interesting investment products has introduced huge complexities to systems and structures – especially around interfunded hierarchies, their associated accounting and pricing models, tax treatments and fee calculations. The industry is now, more than ever, geared towards the daily production of valuations, calculations and reporting, which adds to the pressure and increases the likelihood of errors being made. Although automation will improve the situation, if inputs are staged across multiple platforms, the improvement can be minimal in this high-pressure environment. Finally, there is service, which is a broad area. The key number that matters to an investor is the value of their investment, so calculating and reporting this with consistent accuracy is paramount. But service is also about the timeliness of information given to the end investor, and to other stakeholders in the value chain. It typically involves measures like flexibility and whether the firm can deal with a client requirement, product structure or process that is not vanilla. It’s about ensuring that people are not waiting for data, reports, or the results of a price investigation if there is a query. Because many products have delays in the time between decision and action, execution and benefit, anything that can be done to shorten that delay will improve service quality from the end investor’s point of view.