{"id":25867,"date":"2017-11-15T21:21:17","date_gmt":"2017-11-16T02:21:17","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/between-a-rock-and-a-hard-place-how-blackrock-is-winning-the-war-on-technology\/"},"modified":"2017-11-15T21:21:17","modified_gmt":"2017-11-16T02:21:17","slug":"between-a-rock-and-a-hard-place-how-blackrock-is-winning-the-war-on-technology","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/between-a-rock-and-a-hard-place-how-blackrock-is-winning-the-war-on-technology\/","title":{"rendered":"Between a Rock and a Hard Place: How BlackRock is Winning the War on Technology"},"content":{"rendered":"<p>This a problem BlackRock, the world\u2019s largest asset manager, faces every day.\u00a0 With $5.7 trillion dollars of assets under management, BlackRock must be on the forefront of both investing and technology in order to continually add value to the institutions and individuals it serves.\u00a0 While many see BlackRock as simply a financial institution, its supply chain is similar to a manufacturing company.\u00a0 BlackRock produces widgets (financial products in this case), leverages a supply chain for distribution, and ultimately seeks to gain insight from a consumer to better meet demand and create products tailored to the consumer\u2019s needs.<\/p>\n<p><strong><u>The Importance of Digitalization and Technology for BlackRock<\/u><\/strong><\/p>\n<p>In the past few years digitalization and technology have quickly changed asset management and fund distribution, making this trend a top priority for BlackRock\u2019s management team.\u00a0 Retail investors are increasingly focused on managing their own finances in a digital way.\u00a0 This trend is driven by demographics, the advent of online trading, and technology enabled investing such as robo-advisors and automated investing advice platforms [1]. Investors are demanding more advanced tools, better information and improved technology to manage their financial futures [2].\u00a0 In conjunction, BlackRock is also facing the challenge of investor demand for more passive investment products versus active ones.\u00a0 Passive funds represent investment products that are low cost and simply track an index, while active investing uses managers to actively manage a portfolio and make investment decisions, albeit at higher fees [3].\u00a0 With the development of Exchange Traded Funds (ETFs), a tradable investment product that replicates an index, all types of investors now have access to cheap and easily accessible investment products.\u00a0 Ultimately these two trends, increased technology demand from consumers and ETFs, are shaping the distribution and product development of the asset management industry.<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-challenge-1-1.png\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-25819 aligncenter\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-challenge-1-1.png\" alt=\"\" width=\"448\" height=\"116\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-challenge-1-1.png 2208w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-challenge-1-1-300x78.png 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-challenge-1-1-768x199.png 768w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-challenge-1-1-1024x266.png 1024w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-challenge-1-1-600x156.png 600w\" sizes=\"auto, (max-width: 448px) 100vw, 448px\" \/><\/a><\/p>\n<p style=\"text-align: center\"><em>ETFs Explained [4]<\/em><\/p>\n<p><strong><u>BlackRock\u2019s Strategy for Disrupting Distribution and Product Development<\/u><\/strong><\/p>\n<p>As we think about these industry challenges it is important to understand how BlackRock is leveraging digital technology to enhance its supply chain by innovating on product development, improving its distribution capabilities and better understanding consumers\u2019 demands.<\/p>\n<p>First, BlackRock is investing in its own digital future and focusing on technology for the long term. Larry Fink, CEO of BlackRock, has committed to a goal of having \u201c$5 billion in technology revenue\u2026representing 30% of the business.\u201d [5] Today technology revenue represents only 7% of total revenue [6]. Most recently, BlackRock has put its money where its digital mouth is by acquiring FutureAdvisor.\u00a0 FutureAdvisor is a digital investment manager that leverages automatic portfolio management.\u00a0 This automated investment platform will be marketed to financial advisors who will then sell to consumers (a B2B2C strategy).\u00a0 This essentially makes the FutureAdvisor platform a distribution channel to grow BlackRock\u2019s iShares ETF business [7].<\/p>\n<p>By having a stronger digital channel by which to connect with consumers and sell products, BlackRock also gains more insight into what consumers and their advisors are demanding.\u00a0 This all leads to a supply chain that allows for faster \u201cmanufacturing\u201d of new products (i.e. ETFs), wider distribution of products and faster information flow on consumer behavior.\u00a0 More recently, BlackRock has acquired Scalable Capital, a European robo-advisor, and iCapital, a technology enabled alternative investment platform.\u00a0 These acquisitions represent both a long and short-term focus on staying ahead of the curve and drive technology revenue [8].<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-Challenge-2-1.png\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-25807 aligncenter\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-Challenge-2-1.png\" alt=\"\" width=\"325\" height=\"222\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-Challenge-2-1.png 930w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-Challenge-2-1-300x205.png 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-Challenge-2-1-768x524.png 768w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2017\/11\/Tom-Challenge-2-1-600x410.png 600w\" sizes=\"auto, (max-width: 325px) 100vw, 325px\" \/><\/a><\/p>\n<p style=\"text-align: center\"><em>Future Advisor Sample Investment Template [9]<\/em><\/p>\n<p><strong><u>Staying Ahead of the Curve<\/u><\/strong><\/p>\n<p>There are multiple areas where BlackRock can continue to innovate across its product development and distribution channels. In the short term, BlackRock can continue to identify key customers and digital distribution platforms to create stronger touchpoints with consumers and their financial advisors. In the longer term, artificial intelligence will be a tool that can be leveraged across BlackRock in areas including investing, operations, and client management. Specifically in investing, machine learning and data analytics will be able to create lower risk and higher return financial products faster and cheaper, enabling BlackRock to more effectively compete in ETFs and leverage the distribution platforms it has been building\/acquiring [10]. BlackRock knows it must continue to innovate and is already leveraging artificial intelligence in parts of its investment platform through its Scientific Active Equity business.\u00a0 The company is even using AI to make better investments in Impact and Sustainable Investing[11].<\/p>\n<p><strong><u>Open Questions<\/u><\/strong><\/p>\n<p>While BlackRock has been on the forefront of innovation in asset management there are still several questions and risks that must be addressed. Will BlackRock be able to convince individual investors to rely on financial advice from a digital platform?\u00a0 Further, as BlackRock plans to grow its digital business how will it manage the constant competition for technology talent?<\/p>\n<p>(Word Count 762)<\/p>\n<p>[1] &#8220;Technology Changing Face Of ETF Biz | ETF.Com&#8221;. 2017. Etf.Com. http:\/\/www.etf.com\/sections\/features-and-news\/technology-changing-face-etf-biz?nopaging=1.<\/p>\n<p>[2] Fairbairn, Rob. 2017. &#8220;The Future Of Fund Distribution&#8221;. Fnlondon.Com. https:\/\/www.fnlondon.com\/articles\/fn-future-of-finance-fund-distribution-rob-fairbairn-blackrock-20161003.<\/p>\n<p>[3] &#8220;The End Of Active Investing?&#8221;. 2017. Ft.Com. https:\/\/www.ft.com\/content\/6b2d5490-d9bb-11e6-944b-e7eb37a6aa8e.<\/p>\n<p>[4] 2017. Image. https:\/\/i.investopedia.com\/inv\/articles\/features\/what_is_an_etf_fullsize.png.<\/p>\n<p>[5] &#8220;Blackrock\u2019s Gary S. Shedlin To Present At The 2017 Morgan Stanley Financials Conference&#8221;. New York, New York, 2017.<\/p>\n<p>[6] BlackRock, Inc. &#8220;Blackrock 2017 3rd Quarter 10Q.&#8221; October 11, 2017.<\/p>\n<p>[7] &#8220;Disruptor And Disrupted Strategy In The Digital Vortex&#8221;. Global Center for Digital Business Transformation. 2017.<\/p>\n<p>[8] BlackRock, Inc. &#8220;Blackrock 2017 3rd Quarter Earnings Conference Call.&#8221; October 11, 2017.<\/p>\n<p>[9] Xu, Jon. 2017. &#8220;Improving Your Portfolio Just Got Easier | Futureadvisor Blog&#8221;. Futureadvisor Blog. http:\/\/blog.futureadvisor.com\/improving-your-portfolio-just-got-easier\/.<\/p>\n<p>[10] PwC. \u201cLive digital or die &#8211; The digital challenges that ETF sponsors and service providers must confront.\u201d 2018. https:\/\/www.pwc.com\/us\/en\/asset-management\/investment-management\/publications\/etf-digital-challenges.html<\/p>\n<p>[11] BlackRock, Inc. &#8220;Blackrock 2017 3rd Quarter 10Q.&#8221; October 11, 2017.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>How do you stay ahead of your competitors when you manage more money than the GDP of China, Japan or the United Kingdom?<\/p>\n","protected":false},"author":9549,"featured_media":25907,"comment_status":"open","ping_status":"closed","template":"","categories":[2244,4038,2358,2685,2029,4040,4039,2242],"class_list":["post-25867","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-asset-management","category-blackrock","category-digital-distribution","category-digital-finance","category-digitization","category-etfs","category-futureadvisor","category-robo-advisors","hck-taxonomy-organization-blackrock","hck-taxonomy-industry-financial-services","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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