In the investment management world, few institutions have been as quick to embrace cloud computing as Boston-based State Street. Leading the charge is CIO Christopher Perretta, a former aerospace engineer who says the way IT works needs to change.
"I'm about to be eaten or I have an opportunity to eat something,” says Christopher Perretta, as the sun splashes in through the windows of one of State Street’s sprawling conference rooms on this crystal-clear Boston morning.
“It’s the most elemental aspect of intelligence that even an amoeba knows. That is where cloud computing is heading. The cloud can tell you that something has changed in your environment and you need to respond to it.”
Perretta admits that State Street is littered with people who have forgotten more about investment management than he’ll ever know. He has an engineering background and is an IT specialist through-and-through. But as CIO of one of the most respected money managers in the US, what jolts him out of bed in the morning is the ability to use technology to change the way State Street conducts its business.
When he was plucked from General Electric back in 2008, State Street was just starting to feel the effects of the credit crisis that would ensnarl all of Wall Street for the following few years. He was charged with consolidating the Boston-based firm’s architecture and creating a new, integrated strategy of getting IT projects off the ground, and coming up with a single-application approach to building systems.
Cloud is a different beast, though; it’s a complete paradigm change, as many thought-leaders have described it. C-level suits and board members are not used to dealing with cloud. But in the wake of the credit crisis even non-tech-savvy executives are coming around to the value of the cloud.
There was no “Eureka!” moment for Perretta and his team. But on this summer morning Perretta, who is clearly reluctant to talk about himself, lights up.
“At most organizations, it can take months to configure a server,” he says. “With cloud technology, we can build one in six minutes: from bare metal to an application running on a baby cloud. For a developer, that’s like nirvana.”
The week prior, Perretta continues, his team had built a “baby cloud” that was able to run two active, theoretical datacenters simultaneously.
“You can extrapolate what that means for productivity. How many people do patching now? For us, it may be hundreds. But now that can be done much more easily. Now you can build it out the way Google does it: machine by machine by machine.”
If senior executives weren’t on board with cloud before, they are now after the financial system collapse of the past two years. What the industry is starting to learn is how in an age where even the most celebrated institutions can fail literally overnight, the ability to quickly access data and communicate instructions across all platforms, all assets, instantly, is what separates those who have the opportunity to eat and those who will be eaten.
“As we saw during the crisis, when things go down, they go down pretty fast. You don’t want to have to pull out a yellow legal pad and say: ‘How exposed am I?’ You want that number in real time,” Perretta says. “This is where the cloud gets interesting and it’s kind of ‘Star Wars-y.’ You don’t have to tell the computer what to look for—the computer is telling you what you need to look at. It is showing you the anomalies.”
That is where Perretta intends to lead State Street even if cloud isn’t always an easy sell. Yet, in an age of cutbacks and consolidation, this new technology is quickly expanding.
Attention to Detail
Perretta is a former engineer. Prior to being named CIO of General Electric Commercial Finance in 1996, he made his bones at Arthur Anderson Consulting, now Accenture. It was at Anderson that he learned to really take pride in building sound structures—in this case, a mainframe back in the early 1980s—so that junior people could use these technologies in a hurry. He learned that implementing a model that allows people to come up to speed quickly, by building intellectual property into the architecture, gave Anderson’s employees the ability to be more flexible with the jobs they worked on.
“We spend a lot of time focusing on how we build products,” he says. “My calling card is: How we build products directly impacts the rest of the business. In my opinion, the paradigm of not only the technology that IT uses, but the way IT runs needs to change. This is not only a State Street issue, but an industry-wide issue. That’s probably the biggest concern I have on my mind going forward.”
Cloud is not something that you can sit back on and wait and see what other institutions do with it. Adam Honoré, a former engineer himself and currently a research director at consultancy Aite Group, says that one of the largest roadblocks facing financial services firms is the fact that many legacy applications are not cloud-friendly.
“A lot of the greatest challenges are around the way that applications are architected,” Honoré says. “You have a lot of legacy architecture out there and it is not suitable for cloud implementation. Think about all your back-office applications; these are still mainframes.”
Honoré adds that many firms aren’t learning lessons from past upgrades.
“Creating new platforms is counter to ego, let’s put it that way,” he says. “What we don’t teach engineers today is how to build their applications so they can be phased out. In the long run, it is fairly obvious that you are shortening your infrastructure support times, but sometimes that can be tough to sell to the business units that are funding these things.”
Most financial services CIOs—Perretta included—will tell you that pitching the virtues of cloud to budgeting committees has, however, become easier in light of the credit crisis. Perretta says it has become clear that cloud allows for certain business processes to run more efficiently, which frees up resources—namely money and personnel—to do more development work.
“If we build things the right way, we may not feel it right away, but we will be better off for it in the long run,” Perretta says. “Our products will be faster and of higher quality. So much of what we do is about cycle time, accelerating client value. If I can accelerate delivery, great things can happen. Quality goes up, costs go down and the client is happier.”
The Great Food Fight
Creating cost-savings to put into other areas of development is why boards have come around to cloud. Yet, as Kevin McPartland, a senior analyst at consultancy Tabb Group, notes, it is not the technology that institutions fear—it is how that technology fits into the business scheme.
“Cloud technology has been around for a long time, but for financial services, people still want to really vet not the technology, but the approach and process to see if it really works and for what types of applications and what types of business functions,” McPartland says.
While latency-sensitive trading applications are still—and will be for some time to come—off the table when it comes to cloud, the efficiency gains and cost-savings simply can’t be ignored for other business units. For instance, McPartland says that firms looking to trade globally can use the cloud to maximize server usage. As the trading day opens in Asia, servers based in New York can be accessed to support applications for updating a reference data platform from Tokyo to the US.
State Street has been unveiling some of its new development toys in the past few months. In June it made enhancements to its over-the-counter (OTC) derivatives platform that included new Government Accounting Standards Board (GASB) reporting tools. In August it added new risk analytics to its dashboard for institutional investors and added stress-testing functionality to its risk dashboard.
To further emphasize its focus on risk, the firm, which has $19 trillion under custody and administration, and $1.9 trillion under management, installed Andrew Kuritzkes in its newly created role of chief risk officer in July.
The growing importance of risk management hasn’t been lost on the technology side of the business, either. “When you go to a new technology like cloud, which is very sophisticated, you need to factor risk management into the operating model,” Perretta says. “Our approach is to pilot new technology where we introduce increasing levels of complexity and scale to ensure it can work for our clients. We have to work it through very carefully not only from the technology but also the operational standpoint.”
And as Perretta puts it, deciding which programs get the go-ahead for advancement can get messy. “It’s an ongoing food fight, sometimes with frozen food, to decide which investment projects will get the green-light,” he says. “But the simple understanding is this: If you don’t differentiate yourself with your client, you’re making yourself expendable.”
Moving business processes to a cloud structure, however, is not without its pitfalls. As previously noted, latency is still a sticking point. And security concerns still remain, even if internal clouds are relatively secure.
“I have enough scale at State Street that a cloud is economical,” Perretta says. “That doesn’t mean for development and testing environments that I won’t use something else, but for my production environments, they are going to be within State Street’s four walls for the foreseeable future.”
Another issue to be considered is the isolation and fragmentation of the workforce that the cloud can create. While it is cost effective to allow your employees to do their jobs remotely, it can create a decentralized workforce. Also, projects have become more global than ever before. This has led State Street to examine social-networking solutions to help bring the group together, even if that means it is done in a virtual capacity.
As more and more people work remotely on globally connected teams it is important to provide tools for collaboration.
“You have to reinvent the coffee room in the virtual world,” he says. “I haven’t really seen any big, corporate entity understand what it can do with the collaboration tools that are out there, outside of email. This is an area that we are looking at.”
And as is true with anything having to do with the financial services industry, the regulatory environment has cast a shadow over the use of cloud computing. For example, if there are regulatory walls set up between certain divisions within an institution, regulators might be concerned if those divisions are running on the same cloud. But as Tabb’s McPartland adds, any technologist will tell you that it really wouldn’t matter because an application wouldn’t be able to access any other.
Benefits Outweigh the Negatives
According to McPartland, the industry’s regulators need to sooner or later acknowledge and understand the cost-benefit of cloud computing. “If latency concerns are addressed, and the regulators are okay with it, it’s hard to see the downside of cloud,” McPartland says.
For Perretta—after what turned out to be an arduous slog through the financial crisis that had such long-lasting implications for Wall Street, just as he was getting settled into his new role as CIO in 2008—efficiency is the key.
“It’s like any change program: Is the new way of doing things less painful than the status quo? My argument is that cloud is less painful,” Perretta says. “Yet, in this environment you have to allay some fears. So the change-management part of what I do is probably one of the most important parts of my job—to be an advocate for new technology.”
While he’s an engineer at heart—an engineer that has worked in the medical and aerospace fields—the technologist in Chris Perretta is right at home at Boston’s most-valued investment firm.
Perretta spent much of this morning talking of the benefits of conservation and efficiencies, and the opportunities that the cloud creates. But it’s not about saving the world for future generations. As we sit in a conference room overlooking the Charles River Basin, it’s easy to see that Perretta is excited to be on the ground floor of the cloud computing revolution.
“For a lot of my career I worked with technology architecture,” he says. “It was always a struggle to connect the business benefit with the IT efforts. But now you see, geez, we can really make a difference to the business in a material way. For years you couldn’t prove that IT can generate cost savings and potentially revenues for the business, but you can now. And that’s exciting. That’s why IT at State Street is so important; it’s not just back office—it is part of the front office. That’s what makes it kind of fun.”
Or, to put it more simply: “It’s a very cool time to be in technology.”
CHRIS PERRETTA: FUNDAMENTAL DATA
A Day in the Life: Perretta starts his day by checking for problems, but is happy to report that of late, there haven’t been any late-night, early-morning issues to deal with. His work day is made up of one-on-ones with staff and, ideally, at least one vendor meeting. He sits in on committee meetings and gets updates on the largest projects at the firm. He also tries—the keyword being “tries”—to work on his agenda and what that next big thing will be for next year.
On Innovation: Perretta says that only a few people exist on his team whose job it is to “innovate.” There are about 15 people driving those new ideas across the institution, doing proof-of-concepts, before it goes into the “operationalizing” of those projects.
The Next Phase of Cloud: The next wave of “green” in North America, Perretta says, will be in allowing people to be more flexible with where they can do their work and make it so they can do anything from anywhere in the world. Essentially, it will virtualize everything so you can do anything from your desktop from anywhere. This way, you won’t need as many sprawling conference rooms and offices, and more money can be shoveled into development.
From the Scrap Heap: As he has said, getting a project green-lit can look a lot like a food fight with frozen food. He says that instead of having one “big blob” for an IT budget, the firm has gotten more granular as to how it spends its budget. And those projects that get shot down aren’t just forgotten about. There is an appeals process, so that it is not just curbed and forgotten about.
Biggest Nightmare: At a place that shall remain nameless—not, obviously, State Street—there was a “big [infrastructure] disaster.” Perretta was new at the job. He said to management that it was time to invoke the disaster recovery plan. An executive looked at him with a blank face and simply asked: “What disaster recovery plan would that be?”
Adam Sussman joins Anthony Malakian to talk about Liquidnet's acquisition of OTAS, machine learning and AI, and what the buy side wants from analytics platforms.Subscribe to Weekly Wrap emails
- CFTC Sets Up Lab to Connect with Fintech Firms
- Waters Rankings 2017 ─ Voting Now Open
- UPDATE: Liquidnet Acquires OTAS Technologies
- Euronext Continues Diversification Drive into Foreign Exchange with FastMatch Acquisition
- Waters Wavelength Podcast Episode 70: A Look at Liquidnet's Acquisition of OTAS