Advisors should use their due diligence skills when it comes to technology
Selecting technology is a lot like selecting a new investment for your client. You wouldn’t ask what investments some of your buddies are in, get a couple of corporate pitches and then select the cheapest stock. Sadly this is how many advisors and family offices go about selecting technology. They ask their peers, get some demos and go with the best demo and\or cheapest price.
Technology may not be a core competency of many advisors and family offices but it is similar to investment selection process firms use when making a new investments. For example, the investment selection process doesn’t start by evaluating specific managers. There is lots of thought and analysis that goes into the appropriate asset allocation and investment characteristics you want before evaluating individual investment opportunities. Also, it is a defined and repeatable process that has multiple stages and check points. The same holds true for selecting a new technology vendor.
Before making your next technology decision, spend time upfront developing a plan and understanding what problems you have to solve. You have the skills, so stop treating technology differently. It will pay off to put the same rigor into these critical decisions for your firm.
Here are three key tasks you should perform before starting a vendor search:
1. Define the Problem – The first step is the most important, but is often skipped over. Defining what problems you want to solve and what it takes to solve those problems. It may sound obvious, but having a clearly defined problem statement(s) will inform your technology plan and act as a north star during the selection process.
When you start looking at potential solutions things can get convoluted fast. Vendors will present an array of impressive features and functions, but not all their functionality will help you solve your problem(s). Having a clearly defined problem statement and a set of requirements will help you filter out the cool from what is must have.
Remember one vendor will not be able to solve all your problems. This will require you to prioritize. The hard part is not figuring out what to do, but what not to do when. This is where having a plan is critical.
2. Create a Plan – Creating a technology roadmap is the equivalent of creating a financial plan for your client. When you create a financial plan you would want to understand their current situation as well as their future goals before making specific recommendations. Technology is no different. You need to make an assessment of your current situation and contemplate the future direction of your firm before you can determine what specific technology investments you should make. Bring in outside technology consultants can really help in this process and see things that you might otherwise miss.
Your roadmap should reflect your firm’s priorities. Prioritization should be given to projects that will have the biggest impact on your business goals and should not be based on what is easiest or cheapest. A realistic plan should factor in resource availability and any systems inter-dependencies. For example, you may need to upgrade your servers before implementing a new phone system or you may want to consider implementing a new CRM before embarking on document management capabilities.
Your roadmap should be a living document. Don’t let the development of the perfect plan prevent you from making decisions. You may not understand all the system inter-dependencies or what the ramification of new legislation will be, but this should not avert you from taking action. Sometimes the greater risk is not taking risks. Your roadmap is about setting a strategic direction and helping to define priorities vs. being a step by step guide. You can and should make changes to the plan as more information becomes available.
Taking this time upfront will pay dividends down the road by enabling you to make smarter decisions and better use your limited resources.
3. Define Success – A good advisor will have conversations with their clients about what success looks like and how can it be measured. Without this definition how do you know if you are on track or off-track?
Before embarking on a major technology investment spend time up front to define what success looks like and how success (or lack thereof) will be measured. Measuring success can be difficult. It has to be defined beforehand and it requires quantifying things that you may only have an intuitive grasp of. You know that the reporting cycle takes too long, but do you know how many hours of labor it takes to complete? Having a good grasp of your current total cost of ownership(TCO) will be an important benchmark when comparing potential solutions. Without this information how do you know if a outsource solution provider is too expensive? How would you know if this upgrade will generate an ROI?
The objective of any system search should not be to find the cheapest solution, but that provides the greatest return on investment. Returns can be measured by economic value (i.e. saved $25,000 per year) and intrinsic value (i.e allowed staff to focus on higher value tasks). Set realistic goals for your project that can be quantified and hold your people (and yourself) accountable.
You wouldn’t place a client in an investment without having an understanding of their goals and tolerances. Why should it be any different when it comes time for investing in technology for your firm? Applying the same planning skills you use with your clients to your next technology decision. It will help you can achieve a greater return of your investment and reduce the chances for failure.