Strategy Exercise 10/18
Pick a company and share your thoughts on what the levers might be if the leader(s) of that business wanted to significantly change their speed to market
Raymond James Wealth Management — Innovation through digital technology
The lever that I believe that the C-suite executives of Raymond James should focus on to deliver a significant effect on the company’s speed to market concerns innovation through the use of digital technology, specifically through the implementation and use of blockchain technology.
A blockchain is a public or private digital record of all transactions and related information for a particular entity. In this sense, a blockchain can be thought of as a ledger or database which can be accessed by any person with the applicable encryption key. The blockchain record is composed of individual ‘blocks’ which represent a set of transactions between two or more parties. Each subsequent transaction block is added to the existing chain, where is it then synchronized and agreed upon by each participating node. This unanimous synchronization of blocks highlights the largest benefit of blockchain over other digital databases; namely, that a block representing transaction data can only be changed through the verification of every participant node, which occurs on a continual basis. Blockchain has several practical uses in a wealth management environment through which the technology can be used to deliver value.
Enhancing transaction speed
· The elimination of a financial institution acting as a middle-man will result in greater transaction speed between involved parties. Institutional investors are often subject to several day wait periods before the settlement of funds after participating in a financial transaction. In practice, a blockchain system could reduce the transaction duration from days to hours, due to the continuous verification system inherent in the digital ledger system. Greater transaction speed can be utilized foremost in two ways for Raymond James:
i. Offer the service as a premium and charge a fee to clients that desire quicker settlement of funds between transactions
ii. Utilize the blockchain system for all transactions, whilst lowering costs to induce more volume
Veracity of transaction records
· Due to the immutability inherent in a blockchain (once a block is added and confirmed it would take all participating nodes acting in unanimity to change it), records or data kept on a blockchain are ensured to be outside the realm of individual edit. This assurance of unaltered data offers increased transparency to clients, independent auditors, and regulatory bodies.
The use of smart contracts
· A feature of particular use to wealth management firms utilizing blockchain technology involves what is known as a “smart contract”. A smart contract is a piece of conditional logic embedded in a blockchain system that carries out tasks or functions when a specific scenario is met. For example, a smart contract could automatically trigger the transfer of an asset between two parties after a pre-determined payment is processed. Smart contracts provide a way for involved parties to execute a trusted transaction without the use of an external intermediary.
Challenges of implementing a blockchain system, such as the one described above, would arise for three predominant reasons:
1. Unfamiliarity with the technology
a. Most wealth management firms, by their very nature, operate with a long-term view at the forefront of their business models. While pertinent to preserving client assets and securing risk-adjusted returns, it nonetheless leaves many leaders in such organizations with traditional lines of thought regarding how business should be run. Blockchain is an extremely novel technology, leaving many C-suite executives unfamiliar with its potential benefits. Ensuring a client’s understanding of the technology will be paramount to a successful rollout.
2. High cost in replacing legacy systems
a. The replacement of existing legacy systems, along with training employee personnel to use a blockchain system will require a significant capital investment.
3. Regulatory challenges
a. It is initially unclear how blockchain will impact the legal and regulatory requirements of an asset and wealth management firm in the financial services industry. This requires consultation with legal experts to properly forecast and map the regulatory climate going forward.
All three of the potential challenges listed above are things an organization must devote a significant amount of time to think over, either internally or in conjunction with the help of outside consultants. However, the benefits of blockchain technology implemented in an asset and wealth management environment vastly outweigh these challenges. Greater transaction speed, increased transparency, and the ability to utilize smart contracts are among the potential many uses of blockchain to alter a company’s speed to market. For these reasons, I would recommend the implementation of a blockchain ledger system to Raymond James’ Wealth Management practice.