Digital is a topic that resonates with executives across industries and functions, trading included. Numerous trading organisations have concluded their pilots, and have set off on their digital journeys. But how can they increase their chances of success and see the expected results and benefits such as new revenue streams and digitally enabled business models that make existing processes more efficient? Why is digitising trading different?
Understandably, there are no reliable figures on how much ‘digital’ investment is being made in the global trading sector, but - without doubt - this is in the hundreds of millions if not billions of dollars annually. What is this money being spent on and, most importantly, why is it being spent? What quickly emerges when discussing digital investments with trading professionals is that it means different things to different people for different reasons:
The digitisation agenda within trading businesses is well-established and has seen significant investment (and success) in removing manual, paper-based, OPEX-intensive processes. Markets and companies have become quicker and more efficient. This work continues today, most notably in bulk commodity sectors, but it no longer dominates the agenda of trading chief operating and chief technology officers. Nor should it… especially if they have a chief data officer with whom they can share these challenges.
Digitalisation in the sector – the use of emerging digital technologies to change a business model, provide new revenues and/or create value-producing opportunities – is now at the forefront of trading chief executives’ agendas. However, they are typically wrestling with the same question, “In a low margin environment, how do we better leverage our data and new technologies – and people – to increase profitability?”
The Why: Align your digital strategy to commercial value
When helping our clients to define a digital trading strategy, we start with a direct question, “How are you going to win?”
Businesses that can answer this question coherently, i.e. those that consistently link – and repeatedly re-sync – their digital vision with their commercial model, are the ones that succeed in digital transformation. Their answers to the question “How” can take many forms, but they broadly fall into three ‘win’ themes:
We win through unique data insights, outperforming markets and our counterparties
We win through digital-first products and offerings, seeking to make our competition obsolete by redefining markets or creating new markets, and
We win through being the lowest cost intermediary, enabled by standardisation, intelligent automation and enterprise risk management.
The critical point is a clear and documented strategy that has the delivery of commercial value at its core. The “Why”. It is the anchor from which every digital investment, use-case and sprint needs to be understood and qualified.
The How: Align your organisation to digital, enable a platform
Successful trading organisations are very clear on their “Why”. They have also defined a clear path on how to deliver digitalisation in their businesses. While they still have merit, more and more trading organisations move away from traditional waterfall delivery programmes towards agile delivery methods – and agile mind-sets.
Trading businesses are deliberately structured into silos – organisational lines of defence to manage risk across front, middle and back offices. This structure serves a critical role and is not going away any time soon, but the design has a tendency to put people in boxes, and creates delineation between business teams and technology teams. As we set out in our Twelve Shifts of Digital series, liberating data and leveraging new technologies requires different delivery models, different roles, different skillsets and a different culture to be truly effective.
Successful digital delivery teams are multi-disciplinary, not office nor BAU role-bound. Combining complementary skillsets, they think big, but deliver incrementally. More rapid delivery of demonstrable business value – linked to commercial goals – creates momentum and builds confidence in challenging and cost-sensitive trading environments. And with this pace, leadership is more able and confident to encourage a fail-safe, blame-free environment. If things don’t work, empowered delivery teams are able to recognize this quickly, re-focus and define a new path.
In this series, we will explore what digital investments trading firms are focussing on to outperform their competitors, and how they are successfully delivering against their commercial strategies through digital transformation.
Our objective is to help you to determine if your organisation has a coherent digital strategy aligned to commercial objectives, and if there is an alignment between organisation and people to empower them to successfully deliver this strategy.
We’d welcome your comments. If you would like to discuss any of the topics raised – or have different perspectives to share – please do reach out.
About the authors:
Paul is a Director in Baringa’s Generation & Trading practice, and Sham is a Director in Baringa’s Data, Analytics and AI practice. They’ve worked together on digital projects in the energy trading space, and are both based in London.