Tuesday, May 29, 2012

But it is not our competitive advantage!

The financial industry (Capital Markets specifically) is a fiercely competitive arena of high risk, high return and space age technology. The competition between banks, hedge funds and exchanges leads to a very closed-source style of application development. IT secrets are closely guarded. Non-compete clauses are common place and Non Disclosure Agreements are taken very seriously. Like in other industries, time-to-market and rich feature sets increase the likely hood of an application or platform making profit.

To get the best product delivered in the fastest time, the best of breed developers and consultants are wheeled in and money is generally thrown at the problem. All the same old stuff is built from ground up hidden away from prying eyes to protect any market secret getting out. Features start getting built; Security (Authentication/Authorization/Auditing), Low latency Messaging, Blotters/Grids controls, Concurrency frameworks, Modular UIs, Blotters, Order books, Matching algorithms, Blotters, Pricing engines, Discounting curves, JSON/Fix/ProtoBuf Serializers, Risk Visualizers, Blotters, Search tools, Research tickers and of course we should build a blotter!

It is most certainly the case that all of these things are being done by the direct competitor, by a group of similar people, with similar skill sets, falling into the same problems and building the same bugs. All behind closed doors. All at consultant rates.

Managers and business owners feel the need to carefully guard their babies (the project source code) because it is the sum of the effort and more importantly the money invested in the project. To let it out in to the public would be (in their minds) the same as leaving a chest of gold open in a public park or their password to the company bank account on a post-it note. But this is not the case.

Let's enumerate the silly realities of the scenario:

  1. For the consultant to get the job they must exhibit the requisite experience delivering said technology. This means the consultant may be just reproducing their effort. Surely you are hiring the consultant to succeed on their last project right? So to get ahead of the competition you have hired the guy that has finished building their competing product.
  2. Once the consultant has built their part of the product, they either have to document it at huge cost, train the team in how it works, or just leave the project keeping all the knowledge of how it works. They move on to the next project, build another blotter, rinse and repeat.
  3. Consider the need to apply any modifications (improvements or bug fixes) to the code base.  The consultant could be applying their new features to their new version of the feature at competitor X. Your current team of developers could be applying it to your product. Either way, the same general concept is being refined either at twice the necessary cost, or features are being added to one leaving the other behind.

For a concrete example, consider the feature we are talking about is a grid control (commonly called a blotter in finance). Many will argue that the cost of a blotter is just not even enough to warrant even considering. Not true. I have been on 4 projects now where the Blotter or central grid has been the number one development cost. You can argue that we can just buy a control, but those 3rd party controls are lousy. My position is not a case of Not Invented Here mentality; I do advocate 3rd party tools like Rx, Moq, Prism, charting tools, Messaging layers etc...but only when they pay for themselves. Adopting large 3rd party libraries for a single feature or needing competing libraries installed because neither quite fits the requirements needs to be a thing of the past. I have worked with amazing developers that get pulled off otherwise critical work to help work on the blotter. With all that money that is poured into the blotter, we had better keep that blotter source code a trade secret! or should we.....?

But it is not our competitive advantage!

None of the four projects I worked on wanted to be defined by their blotter; they wanted to be defined by

  • Speed of user input
  • Quality of context sensitive research
  • Timeliness of data
  • User experience
  • Competitive prices
  • Depth of research data
  • Breadth of data across assets
  • Liquidity

So now considering that a blotter is not your competitive advantage and you as a manager were brave, and smart enough, to split your code base into code that is not sensitive and code that contains actual trade secrets. Now when that super expensive consultant builds that blotter for you, it may already be half built because it was open source in the first place. Consider when the consultant leaves and re implements that at the competitor, they may find bugs and fix them. Great! You just got that hugely expensive consultant to upgrade your product for free! Sure the competitor got the fix too, but you have tighter spreads, right? Lower latency, right? Better customer service, right? Why pour money into another blotter, another concurrent collection library, another export to Excel feature, another login system, another drag-n-drop feature? Spend your money on your competitive advantage.

Leaders in the field are coming together now to banish this kind of wasteful behaviour. The Lodestone Foundation is looking to open source much of what is burning a hole in capital market IT budgets around the world. They have a sort of rough road map of features and areas that they want to address. This is not a silver bullet but it is a huge step in the right direction. With people like Martin Thompson involved, it is likely to get traction at least with lowly developers. Martin has already proved that you can open-source key parts of the system while still keeping trade secrets and remaining competitive.

Microsoft, lead by Herb Sutter, is pushing for the same kind of collaboration in the C++ space. Projects like Casablanca are aiming to reduce the same wasteful practices in the C++ world by providing portable libraries for general consumption.

From what I understand (via rumours mainly), the thinking is; if we as an industry can spend less money and time reinventing the same wheel for each project, real effort can be put into valuable technical advancement. The beauty with this is the huge IT budgets the capital market projects have can now effectively fund R&D for the greater good. If all the code produced is Open-Source, well maintained and has a thriving community, all will benefit regardless of industry. Imagine advances in risk analysis simulations being used to help design safer cars, order matching algorithms used to help DNA research, financial time-series predication techniques used in speech recognition software.

I personally have been working on my own (much smaller scale) project that fits in with these ideals. Time will tell if they end up being complementary (I hope they do). Until then, go sew the seed with your manager that if your data-access layer, unit testing framework and logging framework are all open source, why can't your blotter* be too?

*blotter is my bugbear. Use whatever industry agnostic thing your project is building that really is just the same as the competitions as your focal point.

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Lee Campbell said...

More thoughts here at the eTrading blog.

Lee Campbell said...

and Trisha from LMAX provides some good video content on why LMAX think this is a good idea

Daniel Fernandes said...

I think it's going to a tough one especially if they propose something that includes both system and product/business aspects.
I wish them good luck nonetheless.