Jon Saxe, CIO at Morgan Stanley, tells Dan Barnes that he regards system reliability as a crucial strand of operations and that hardware should not be allowed to dictate the speed of innovation.

Just keeping the lights on does not seem much of an ambition for the chief information officer of a bulge bracket bank. But Jon Saxe of Morgan Stanley declares that system reliability is critical in maintaining customer loyalty and that achieving it is far from straightforward.

“In this business, technology infrastructure is not a function that can be wholesale outsourced,” says Mr Saxe. “We have stringent 24/7 uptime requirements. I do not believe that is a commoditised thing. Infrastructure has become complex at all firms. Scale, volume and performance are differentiators – some people do it better than others. If your trading system is down, your client will just go and use somebody else’s. Some people may have thought that infrastructure and plant were commodities and moved them out - we never believed that. This is an area for continued innovation and radical simplification.”

Three levels of IT

There are three levels of IT at Morgan Stanley, according to Mr Saxe: the commoditised parts, the innovative parts and the middle area – ‘keeping the lights on’.

“Some areas are truly commoditised and can be done offshore,” says Mr Saxe. “Other areas make sense to partner with a third party that has specific expertise. For example, we have a partner who runs our helpdesks for us and has done a great job. A good offshore strategy lets your precious in-house IT people stay focused on the core business.”

The other area is purely about innovation, traditionally the revenue generating area, he says. Increasingly this involves removing barriers to flexibility. “There’s an area of innovation around virtualisation. Decoupling the physical parts of your technology infrastructure from the rest of the enterprise so that you leverage the vendors that are innovating in areas like processors, storage, hardware and operating systems.”

The impact of globalisation is also requiring change. Collaborative projects are hugely important to ensure efficiency and a simple teleconference will not suffice.“People want to be meeting through video, they want to be able to share documents and information. They want to have their calls and e-mail follow them around when they’re on the road. That’s an area of investment for us; that’s an area where we want to partner with some of the leading vendors. We think it’s a differentiator,” says Mr Saxe.

Productivity

Information communication technology (ICT) is making the difference, says Mr Saxe. “It’s about how productive your mobile workforce can be. We’re a global franchise. Few groups are lucky enough to be in the same building anymore. That’s not just us; our clients wrestle with the same challenge.”

Failure to keep the balance between the commoditised, support and innovative areas can be a fatal mistake, he says. “The businesses always have a long list of technology priorities for creating revenue opportunities and improving productivity. They don’t want IT working on commoditised functions or production support. So we offload these functions to our offshore partners. This also allows us to get out of the cycle where our support workload precludes any meaningful re-engineering or our core systems and data.”

Balancing act

Morgan Stanley does not have an easy solution to this balancing act. Each area is assigned the same amount of time and it looks as though that will not change for the moment. The development area has an equally difficult equation that Mr Saxe discusses, when looking at short-term advantage versus long-term advantage. “It comes down to specialisation versus reducing redundancy and overlap in your environment. We certainly wrestle with this problem. It’s time-to-market versus optimising the number of systems you have,” he says.

“You get a degree of specialisation that users may feel is very important but when you take a step back you ask: ‘could we aggregate some of these functions into one system?’ That’s always a challenge because these things take time and, if systems are working, the investment and trade-offs may not feel optimal.”

The IT group can save time and money through consultation with the user. This is particularly important for the purchasing process, as history has shown. The purchase of large systems a few years ago burnt the fingers of many – hype prevailed over common sense. If the company recognises that customer relationship management (CRM) or knowledge management are already in place and just require facilitation, solutions can be found that save both on cost and labour.

“In general people are in information overload and don’t want more systems for functions like customer relationship management,” says Mr Saxe. “I think we have found that we can build some fairly simple tools to let people share client information. Simpler tools integrated directly into the company intranet and corporate calendar are an easier way to go. What people want is fairly straightforward – not a complex monolithic system.”

Regulatory impact

For anyone in the industry, measuring risk is hard enough without the added burden of regulation. Mr Saxe is frank about the degree to which regulations are affecting the technology function, both positively and negatively. He says: “For us, client confidentiality has always been a huge priority. The regulatory climate has put additional focus on many things that we were already doing. Logging, entitlements, change management, turnover management; all these things are good hygiene. These things were already in place and [regulation] is a motivator to continue focusing.”

The weight of regulation has attracted unprecedented criticism from the banking sector – in the UK, Barclays’ chairman Matt Barrett referred to “regulatory creep” when describing the continuous volume of regulations that were being applied to the industry – but some IT functions have derived a certain amount of value from addressing the measurement of risk. While deadlines have changed and there is a lack of deterministic clarity for certain standards (see page 50 for update on IAS 39), the self-assessment factor has led to enhanced rigour in core data infrastructures.

Mr Saxe notes that value has been gained within his area from such work. “The spirit of the regulations is to reduce risk which, if you think about it, is our most important job. In many cases, we already had initiatives under way. Basel II and CP142 are giving us frameworks that will channel our focus. I think that it is actually very healthy,” he says.

When looking at change for the long-term good, regulatory pressure assists certain discussions, he says. “The regulatory climate drives some very healthy thinking. We say: we really need to decommission this system here, it represents an operating risk. [Regulation] is weighting our priorities a little bit more toward taking complexity out of the environment and, potentially, doing more integrated platform work.”

So regulation is not all bad? Quite the reverse, says Mr Saxe. “I sincerely meant what I said before: there is stuff that comes to the surface when you do these things that is healthy.”

To take this case to the business could be a problem. This is where dialogue proves itself in making a difference. Discussion of crossing the IT and business divide is industry wide. Making it happen can prove more difficult. However, at Morgan Stanley, this has been achieved, says Mr Saxe. “It’s definitely true. There’s been a lot of continuity between global management on the business side and the IT side for over 10 years. That sustained working relationship has generated a very high degree of alignment between business and IT. I would say much higher than in most other companies.”

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter