Anthony Malakian: When the Love is Gone

Like a marriage, sometimes vendor relationships go stale. At that point, you either make a change or separate. Starting in 2012, UBS revamped the way it evaluated the third parties it was dealing with.

At the Waters USA conference in early December, Correy Voo, CTO of platform services and applied innovation at the firm, noted that UBS was quite the polygamist with third-party contracts numbering in the thousands. The situation had become unwieldy, and, according to Voo, “embarrassing.” So, as the firm went about changing its IT organization and landscape, Voo started to look at some of UBS’ major vendor relationships. While he didn’t name the company, one vendor was immediately put in the firing line.

For 15 years, UBS had retained this company’s services. The bank was spending “north of a couple of hundred million dollars,” year on year, Voo explained. For the vendor, it seemed to be guaranteed money because it was so entrenched. The problem was, in recent years “they just didn’t care about us anymore,” Voo said.

“That was not an acceptable situation for one of our prime vendors to be in. So we put them in a red box,” he said. “They’ve since changed their entire account team­—they went out and recruited new sales and relationship guys. Quite frankly, they’re all over us now. They’re getting the message.”

UBS had some very tough conversations with some of the largest IT companies in the world in order to figure out which companies they wanted to keep in their portfolio. However, not all were outright removed. Some were put on a “watch list” and were told to up their game or else they would not be working with UBS in the future. “We have some very large vendors who right now are not very happy with me,” Voo said. “But one aspect of that is that they’re spending a lot more effort than they previously had before to re-learn our business because those vendor relationships had gone stale.”

Vendors don’t have to give everything away on the first date, but sometimes they need to put more skin in the game.

UBS also changed its IT roadmaps across the organization and its 15 different product domains. Previously, they were on a 12-month cycle, whereas now its roadmaps extend to three years with specific target states that are directional, rather than guaranteed deliverables. UBS released these roadmaps to its third parties. This way, the vendors understand what direction they’re going in.

Société Générale CTO Bob Schmeider noted that competition is a valuable fuel in keeping relationships burning strongly. “It’s important to keep the competition among the vendors and not get too close to single-digit vendor relationships,” he said.

It’s important to challenge them and ensure that they know that this is a competition, he said, adding that firms should remember that they don’t have to give everything away on the first date—start small and give a third party just a sliver of business. When they prove themselves, then the relationship can grow. Sometimes, vendors also have to put some skin in the game. Atul Dubey, COO of securities and fund services at Citi, said sometimes the bank requires vendors to co-invest in new technologies like cloud-based platforms.

“They have to anticipate us and navigate alongside us, as complex as that may be,” he said.

Times They Are A-Changin’
Even though Voo, Schmeider and Dubey represent some of the largest sell-side firms in the capital markets, their strategies are equally appropriate for hedge funds and asset managers.

Sometimes it may seem easier to keep a familiar headache, rather than risk taking on a new and potentially larger burden. In today’s environment, being content can prove detrimental to the bottom line. There’s a balancing act that needs to be managed, because you don’t want to change simply for the sake of change; nor do you want to create a tangled web of vendor relationships.

Vendors might want to consider poaching talent from the companies they’re trying to entice, rather than from the hottest technology firms and colleges. One common refrain from these C-level technologists is that they wanted a partner that understood their direction and strategy.

Divorce isn’t always necessary, but staying the course isn’t a long-term solution either.