A Morgan Stanley case study

Matching people with technology to create a global strategy 

Introduction

In recent times, the structure and operation of many major industries has changed greatly through their use of information technologies.

For example:

Online data systems have transformed the potential cost profiles of airlines, opening up the way for operators such as EasyJet databases allow distant customers to discover new products and order them over the Internet, thereby changing the nature of retailing in financial services, customers can access and manage much of their financial business from their own homes.

Two developments are particularly exciting.

New technologies are increasingly able to interact with each other e.g. cameras with computers, telephones with televised images.

Advances in telecommunications mean that output of combined new technologies can be transmitted worldwide almost instantaneously in usable form e.g. interactive transmission from/to an Afghan cave to/from a New York or London office.

Although the convergence of technologies has helped to make organisations more efficient and has reduced their costs, it has also raised customer expectations and created a new scenario for competitive activity. In recent years, the new technologies have become the central driver of many large organisations as they seek to develop competitive advantages in global markets.

The challenge to these organisations has been to use the new technologies to:

• create new ways of working better suited to a global market
• capture new customers.

The most successful ventures have been the outcome of creative imagination; clear, correct thinking. and careful planning. They have relied heavily on 'knowledge' workers: people given the opportunity to connect their ideas with an organisation's resources in order to make them work.

This case study examines:

• the work undertaken by Morgan Stanley to ensure that it is making the best possible use of the opportunities offered by new technology. 
• the benefits to itself and its customers resulting from its conspicuous success.

Morgan Stanley

Morgan Stanley is one of the best-known names in financial services. As a global bank, it provides investment banking advice on mergers and acquisitions, financial restructuring and privatizations. It is a major underwriter of stocks and bonds and provides research, sales and trading services in almost every type of financial instrument. Morgan Stanley also manages private partnerships that invest in venture capital, property and other private equity opportunities. Besides managing a range of financial assets, it provides other related products and financial services, including credit cards.

As global markets become tightly linked by technology, Morgan Stanley has expanded around the world in its drive to meet the expectations of global clients. A substantial part of its business is outside the USA, and Morgan Stanley has now become a market leader in Europe, Asia Pacific and the Americas.

Morgan Stanley's clients have increasingly looked for more than just financial products and services, and their needs are becoming more diverse and demanding. To meet this challenge, Morgan Stanley has over 700 offices in 28 countries and a workforce of 57,000 people who between them represent 120 nationalities and speak 90 different languages. Whatever their business area, these people focus upon creating customer-tailored solutions that help Morgan Stanley's clients to convert new business and financial opportunities into reality.

IT and global strategies

Morgan Stanley believes that intelligent, creative use of new technologies is the key to providing the organisation with its strategic advantages.

This involves:

• developing technologies that span products and services
• providing clients with technological products and services that help them to meet their objectives.

The traditional image of how some new technologies are developed within user organisations is that they 'get worked on' by a select band of 'technical wizards' tucked away in a corner. These personnel tend to belong to the tactical or functional part of an organisation and not necessarily regarded as being central to the organisation's 'business strategy'.

However, Morgan Stanley's approach has been very different. It has placed new technology strategically at the core of its business operations and is using it intelligently and creatively to generate business success. For example, automated machines capable of absorbing and interpreting vast quantities of data and activating decisions on behalf of clients now do work previously undertaken by traders.

In the highly competitive financial services industry, margins are tight and business volume is critical. In its drive to become capable of carrying out more than 1.000,000 trades each working day, Morgan Stanley has turned to new technologies to provide the capacity it needs.

Reaching the target has depended not just on the technological know-how of a select few but on large numbers of employees from diverse backgrounds coming together as teams, becoming fully aware of new possibilities, feeling comfortable and confident with the machines and processes that are integral to the new way of doing business.

In the past, information technology (IT) tended to be regarded as a cost. A change in approach, with IT being viewed as an investment offering superior ways of working and the prospect of a handsome return, has enabled Morgan Stanley to double its market volume within 18 months.

IT has thus become completely integrated into Morgan Stanley's strategy, so that many of the new ideas for products and business developments providea real opportunity to apply technology to growth markets within a global context. For the people involved in technology, this is an exciting time, as the focus of their work is not just on extending the range of tasks such technologies can tackle, but about understanding how Morgan Stanley will improve its performance by using them strategically. The result has been a complete integration of technological and business functions across the organisation.

Risk management

Risk occurs whenever the future outcomes of current actions are uncertain. However, knowledge of both past and current events often means that it is possible to estimate probabilities (e.g. of something going wrong) associated with most future outcomes. Where no such past evidence exists, the level of uncertainty rises. Different types of businesses operate in environments that carry widely different levels and types of risk e.g. oil companies compared with hospitals, banks compared with builders.

Financial services include lines of business that carry high levels of risk, so it is vital that techniques of risk management are applied to all key aspects, including the use of technology.

With technology, there are three main risk elements:

• equipment breakdown or malfunction
• software failure or malfunction
• equipment or programme abuse or misuse.

Risk management includes assessing the:

• likelihood of mishap
• likely cost to the business of mishap
• cost to the business of reducing that risk to a given level, including zero.

Since Morgan Stanley's business depends so heavily on the successful completion of millions of transactions each week, the company feels that it must reduce the operational risk to a point where its systems virtually never go down.

In pursuit of this target, Morgan Stanley has built relationships with development companies such as Microsoft and Cisco with a view to influencing engineering and development decisions so as to ensure that products developed for capital markets have the appropriate focus and use the right technologies. The drive is towards systems that offer 'connectivity without complexity' (close interlinkage worldwide built around trouble-free technology).

Technological developments

Morgan Stanley's drive to combine technological and business developments has led to:

Electronic Trading Laboratories (ETL Traders). Using a strategic programme built into the system, these can trade stocks in very large quantities. Specialist traders now have a different role. They focus upon fluctuations in market trends and then use this knowledge to amend and refine computer programmes that trade the stocks electronically.

The processing system makes buying/selling decisions based upon the rules and parameters provided by the programme. As a result, decisionsare based heavily upon the highly specialised knowledge provided by a smaller number of traders and the variables caused by the tactical 'human' element within a transaction have been reduced.
Passport. This is a Windows web application that allows users to buy and sell stocks on stock exchanges worldwide. Unlike other Web instruments that are geared to simple trading transactions, this takes into account other factors such as time zones across the world and the opening times of stock exchanges. This provides connectivity between professional traders from outside Morgan Stanley who want to transact business directly on stock exchanges rather than have traders undertake it on their behalf.

Both products are less exposed to the random actions of people within the operational processes and rely more on using the strategic knowledge of expert staff as a basis for programming and using higher level technological and business skills.

This produces fewer errors and releases Morgan Stanley's staff to focus upon clearly customer-oriented work e.g. improving and developing customer relationships, so that further product developments, however complex, can be built more closely around their needs.



Such developments help Morgan Stanley to deliver real-time information to employees and clients across the globe, 24 hours a day.

Driving forces underpinning the new approach

Morgan Stanley's move from using technology functionally into using it strategically has been underpinned by 5 main driving forces.
Developing people. Morgan Stanley sees its workforce as a key resource. The new way of working offers Morgan Stanley's employees an opportunity to be innovative, creative and closely involved in problem-solving. It is helping to enrich jobs and enhance job satisfaction.
Risk management. The company knows that any organisation operating at the frontiers of technology and/or developing new ways of doing business must develop a procedure for assessing risk and the costs of reducing the probability of things going badly and expensively wrong.
Efficiency. Intense competition in the financial services industry has given Morgan Stanley a huge incentive to explore every possible avenue for improving its operating efficiency.
Client centricity. The company recognises that the key to ongoing success lies in offering superior consumer-service.
Innovation. The company realized that new technologies offered the prospect of trading 24 hours a day worldwide. The challenge was to be the first to turn potential into reality by finding ways of maximising the opportunities that new technologies offered.

Conclusion

Given our line of business, how can we use this external development (new technology) to our best advantage? Can we afford to ignore it? What's in it for us and our stakeholders if we correctly assess the development's potential and turn that potential into dependable reality? As pioneers, what steps must we take to protect ourselves and our customers along the way?'

This case study is a classic illustration of a firm that asked the right questions, and which has done markedly well at answering them.

How to analyse a case study

Step 1: Get a general impression

• Which organisations and industries/sectors does it relate to?
• Is the organisation doing well or badly and how has it performed in the past? Is it an organisation that has an unbroken record of success or has it fallen on hard times?
• Look at the development of the organisation over time. What strategies has it pursued? Which have succeeded and which have failed? How successful has the organisation been – and on what bases do you know?
• What are your initial impressions of the main issues and choices confronting the organisation? Is it in an expanding industry/sector, or a maturing one? Are customer needs changing? Does the organisation confront a variety of opportunities? Or is there a particular strategic issue which the case is oriented towards?
• What information is there in the case as tables and annexes?

Step 2: Start to analyse seriously

• First, with regard to its environment:
  • Which are the types of environment where it has been able to succeed, and in which types has it had problems?
  • What have been and are likely to be the key drivers in the macro environment that may give rise to changes that could provide opportunities or give rise to threats?
  • What is the nature of the competitive environment?
• Second, get insights about the organisation itself:
  • What kind of strategic resources does the organisation have – and which does it lack?
  • Think about which of these have provided advantage over competitors; or could provide competitive advantage.
  • Draw these analyses together by considering in what ways the organisation has strengths or weaknesses greater than competition.

So you will have built up a picture of the relative strengths, weaknesses, opportunities and threats (SWOT) for the organisation.

• Third, look at issues about the organisation’s stakeholders. What are their expectations? Are they similar or in conflict? Who has more or less power and influence over the organisation’s strategy?
• And consider the organisation’s culture. How has this influenced past strategies and is it likely to influence future strategy or constrain attempts to change strategy?
• Beware of regarding different frameworks of analysis as distinct and separate; they relate to each other. For instance, the results of a value chain analysis could be put in the context of data from a PESTEL and 5-Forces analysis and are likely to provide more insight if they are.
• Pull together your analyses and ask: “What are the major issues that future strategy needs to address?”
• In all of this consider what information is there in all the tables, annexes and appendices? What are they and how do they relate to and inform the questions above?

Step 3: Develop and Evaluate Strategic Options

• Use the results of these analyses as a starting point for developing strategic options. You will have begun to think of what the organisation might do during your analyses. Note these down.
• Evaluate the options by asking the following questions:
  • Which are most suitable in terms of the strategic position of the organisation; i.e. the strengths and weaknesses it has and the opportunities and threats it faces?
  • Would a strategy, if followed, achieve competitive advantage for the organisation and provide bases for the sustainability of such advantage?
  • Which are most likely to be acceptable in terms of the expectations of major stakeholders?
  • Which are feasible in terms of the likelihood of implementation: for example in terms of resourcing the strategy and managing change.

Step 4: Justify your conclusions with reference to the case

• Relate your analysis to the task or questions you have been set. What elements of the strategic analysis do you require to answer the question? And what don’t you need , or are less significant (don’t try to justify your arguments by using all the information you have – select what is most powerful to support your argument)? And is there further information or analysis that you need?
• Ask yourself whether you have really supported your conclusions and recommendations with hard evidence (events and results) from the case study? Have you allowed yourself to be swayed by the opinions of the organisation’s own managers? Do the facts support their claims of success, or their excuses for failure?
• Make sure you clearly state what your recommendations are. There is no point marshalling a list of fifteen possible reasons why the organisation should do this or that without making it clear which one(s) is your preferred option. Unless you clearly state what is your recommendation, you could lose marks.

Step 5: Present a balanced view

• Make sure you have considered the alternatives to your recommendations. There is hardly ever just one single option available to an organisation in a given industry/sector.
• Make sure your have made it clear why the recommendation you have chosen is the best of the available alternatives.
• Make sure you have examined the downside of your options.