Operating Globally Through Technology A Morgan Stanley case study

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Introduction

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This case study focuses on how information technology enables Morgan Stanley Dean Witter to operate within the global financial market place and maintain a competitive advantage. Morgan Stanley Dean Witter is a global financial services company that seeks to maintain a leading market position in each of its business areas:

  • securities
  • asset management
  • credit and transaction services.

It combines global strengths in investment banking, institutional sales and trading with investment and global asset management services. It also provides consumer credit products to its customers. Morgan Stanley Dean Witter is a global organisation, operating from four major trading centres: London, New York, Hong Kong and Tokyo.

Information technology is fundamental to all of its business areas. This study is concerned with the business of securities. Securities are financial assets which can be bought and sold by investors in organised markets. The stock exchange is the market for securities.

The Shrinking World

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The most significant developments in the business environment over recent years have been the internationalisation and globalisation of businesses. Internationalisation refers to the process of increasing involvement in international operations. Globalisation is an approach that actively seeks conformity in products, markets, promotion and branding, based on the belief that differences in markets around the world are disappearing. Both trends are reflected in rapid growth in world trade, investment and in joint ventures between companies in different countries. These allow companies in different countries to gain competitive and technological advantages and to increase market share.

Information technology has been fundamental, enabling financial services companies to trade globally and reducing the number of people needed to deal with increasing volumes of trade. It has also standardised and increased products and services across the world, allowing organisations to build economies of scale and increase efficiency. However, Morgan Stanley Dean Witter is aware that subtle differences between regions and cultures must be considered. The standardisation of systems that increase volume, transcend time differences and international borders must not compromise the uniqueness of the global services it offers.

The Changing Environment

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One of Morgan Stanley Dean Witter's most fundamental responses to the developing global financial market, has been the application of new technology to address the challenges it faces. Rapid developments in information technology mean that systems soon become outdated. International financial markets change rapidly and organisations must develop information technology systems that can support businesses effectively and enable them to maintain a competitive advantage.

Competitive advantage refers to an organisation's unique competencies that are in demand in its market and which its competitors are unable to provide at that moment. Morgan Stanley Dean Witter aims to develop an information infrastructure which will meet its long term strategic plans and enable it to be more proactive. Traditionally, the investment banking sector has been strategically driven by its product lines. Changes in customer expectations mean the industry has had to become customer focused, providing up to the minute information and a more transparent, seamless service.

THe Financial Market Place

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Advances in information technology have made the world a smaller place and enabled organisations to operate globally. In the financial sector, information technology allowed investment, ie. capital, to enter foreign markets freely and investors to gain the best returns regardless of national borders. It has also made it possible for capital to exit a country just as easily. This was demonstrated in 1998 by the virtual collapse of the Asian economies, which, with links between economies world wide, created volatility and general uncertainty. The forces of globalisation have increased the complexity of the financial marketplace. They have also created wider opportunities. The ability to trade across national boarders can bring higher returns, diverse products and a wider variety of sources of finance. The sheer number of products and financial strategies has added further complexities to markets.

Information technology has brought its own set of complexities, by increasing the speed of transactions and creating a broader flow of information. The merger of Morgan Stanley and Dean Witter consolidated both organisations' strengths, increased their collective product range and scope of distribution. Morgan Stanley Dean Witter is dependent on information systems in order to compete globally in financial services. It has a combination of software applications that allows it to trade on the world's stock markets, giving it access to market news and data from around the world. Telecommunications in the form of the Internet, e-mail and the telephone allows exchanges of information between clients and colleagues. With such a dependence on information systems, support and back up services must exist to maintain those systems.

Information Technology

Information technology includes the use of three electronic technologies:

  • computing hardware
  • telecommunications and networks
  • applications

and the way they gather, store, process and distribute information.

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Computers handle and process data. The data which is provided requires a context and therefore it is only when data is processed in a particular way, for example added together or viewed as percentages, that it becomes information. Such information is used by organisations as a basis for decision making. Operationally which means in the short term, or strategically meaning in the long term. Information should be:

  • up to date
  • accurate
  • readily available
  • appropriate
  • user friendly.

The information technology infrastructure at Morgan Stanley Dean Witter has been developed over the last 15 years. Most of its information technology solutions have been implemented strategically, to meet the perceived needs of the organisation's five year strategic plans. Additionally, because of the complexities of global financial markets, some of the solutions have been developed re-actively to meet operational needs.

Responding To Change

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Morgan Stanley Dean Witter must continue to seek more accurate predictions of trends and respond to changes in order to maintain a competitive advantage. The information on which it bases its strategic decisions needs to be as up to date, accu-rate and as transparent as possible to meet its clients' needs because customers now want advice, products and liquidity across all geographic markets.

A number of software applications capture information during trading hours in each of the four major world financial centres. While many of the trading applications process data in real time, core transactions such as processing and bookkeeping are processed overnight on the mainframe computer.

This system, known as a batch system, processes 300,000 transactions every evening. A batch system collects and processes data at the end of the trading day in London, New York, Hong Kong and Tokyo. This means that when a transaction is completed, the data is not processed, turning it into useable information, until the following day. Although this system has been very efficient it now faces a number of challenges to which it must respond.

  1. Increased trading hours: Electronic Crossing Networks are systems that allow trading to continue after a stock exchange has closed. For example, the New York stock exchange may be able to continue to trade for a number of hours after the market has closed. Therefore, the batch of data processed from that particular market may begin to overlap with the data being processed from another which is just opening.
  2. Reduced cycle times: If a trader buys a stock on the New York stock exchange he/she currently has three days to settle the account. The New York stock exchange will soon be introducing a new system which allows one day to complete a transaction. This does not allow time for making or rectifying any mistakes. Operating on a batch system means that by the time the data has been processed, the information on which decisions are based is not available until it is time to settle the account.
  3. Volume: There has been a significant increase in the volume of the transactions per day. Currently, Morgan Stanley Dean Witter makes 300,000 transactions per day. Trends suggest that within five years it could be completing one million transactions per day.
  4. Product focus to client focus: There has been a shift towards focusing on the customers who now require a much more transparent, seamless, service. This gives them appropriately presented information which they can interpret and act upon quickly, rather than data which may mean little to them until it has been processed.

These challenges represent the need to develop systems that will process data in real time, rather than relying on an overnight system which provides access to information too late.

The Goals Of Straight Through Proccess

Morgan Stanley Dean Witter is currently implementing a concept called Straight Through Processing. This will be put into place over a multi year period, with the aim of producing a seamless customer service. This represents a shift not only in the information technology infrastructure, but also in organisational structure as it moves from procedure to event driven. The aims of Straight Through Processing are to:

  • Meet changing time restrictions - the new system should be able to respond to the compression of settlement time within the New York market and the extension of trading hours brought about by Electronic Crossing Networks by working on-line in real time. It will also prepare for global electronic brokerage, communication networks and exchanges.
  • Manage enterprise-wide risk - straight Through Processing will provide an enterprise-wide view of key exposures credit, market and operational risk. It will reduce the time to provide global risk exposure for some types of complex risks from weeks to days. It will also reduce operating errors and improve the quality of reference data, such as accounts and product literature.
  • Meet growth and expansion -the volume of business is growing rapidly and the new system is currently designed to handle one million transactions per day.
  • Decrease time to market -the business requires a system which can respond to new business opportunities more quickly, as well as integrate local suppliers's packages rapidly and at low cost.
  • Improve cost/productivity -the system aims to improve operational productivity for standard products and increase the number of markets and products that can be processed straight through, without the need for manual intervention.

Straight Through Proccess should enable Morgan Stanley Dean to:

  1. provide single customer view
  2. improve and extend client connectivity
  3. meet customer demands, e.g. confirming trade within a set number of minutes and the ability to service any global business from any location at any time of day.

Conclusion

Information technology is the key to Morgan Stanley Dean Witter's ability to operate globally. The global financial services industry is an exciting, fast moving environment which requires dynamic, innovative responses both from its people and its systems. Straight Through Processing aims to meet the challenges faced by the global financial services industry. It also enables Morgan Stanley Dean Witter to maintain its competitive advantage and increase its market share within a complex business environment.

Morgan Stanley | Operating Globally Through Technology