FIDELITY INVESTMENTS: AT HEART, A TECHNOLOGY COMPANY Fidelity "I am in a traditional financial services business - but we at Fidelity can see that the evolution of technology is setting our industry up for disruption." Abigail Johnson, chairwoman and CEO of FMR, the parent company of Boston-based Fidelity Investments. The Breadth and Complexity of Providing Large-Scale Financial Services As one of the most diversified financial services companies in the world, Fidelity Investments offers a wide range of products and solutions for individual investors, employers, institutions and intermediaries. With $6.2 trillion in assets under administration (as of June 30, 2017) their client base includes 26 million individuals, almost 25 million brokerage accounts, and over 5,000 financial intermediary firms. Revenue in 2016 was $15.9 billion. Fidelity's 45,000-plus employees (over 12,000 of whom work in technology-related positions) are stationed all throughout the world. Even their technology-focused employees are distributed across several major urban areas including Boston (its headquarters city), Raleigh, and Dallas. As a private company, Fidelity, through its over 200 investment research professionals, conducts its research exclusively for the benefit of its investment, institutional, and individual clients Despite radical industry change, Fidelity still adheres to the same beliefs and practices that have allowed it to grow and succeed: a culture of integrity, a commitment to high performance and a dedication to serving clients' long-term financial interests. Through an innovative and technology-driven culture, Fidelity has a rich and recognized history of making financial expertise accessible and effective in helping people "live the lives they want." Fidelity invests over $2.5 billion every year in technology for internal operations and analysis as well as to provide small and large clients with investment-related tools of their own. Technology enablement is part of Fidelity's cultural "DNA," and as a privately held company, they can place a high degree of value in nurturing a work environment that attracts the best talent and reflects their commitment to being both an employer of choice and service provider of choice. From being one of the first investment companies to install a Figure 1 mainframe computer (1965) to their "We are #codeblooded. Are you?" BARRON'S Kiplinger technologists hiring campaign (2017), Fidelity has consistently conveyed an Best Online Broker Best Overall Online Broker 2016, 2017 2016, 2017 eagerness for using information systems to drive innovation. Many external INVESTOR'S BUSINESS DAILY parties have recognized Fidelity Investments' track record of success (a Top Online Brokerage Firm 2015, 2016 & 2017 portion of which can be seen in Figure 1 and in the Exhibits). Revised in support of learning objectives for MISM2301 2020 (PDL) Page 1 of 7di Fidelity Investments case study {continued} Complexity Can Be Challenging to Overcome Of course, even high-performing organizations like Fidelity deliver inconsistent service. Given the complexity of operations and the relative independence of Fidelity*s product lines, there were failures that cost the firm money and diminished its reputation. For example, disclosures to the investment industry association Financial Industry Regulatory Authority [FINRA] include front line and managerial oversight failures. Fidelity associates failed to protect elderly clients from audulent funds transfers [by a later convicted felon) and Fidelity was fined $500,000 (FINRA case #2014041324401]. Another failure resulted from charging errors to the tune of $2.4 million between 2006 and 2013. Beyond making clients whole, the firm was additionally ned $350,000 [FINRA case #2012034916901). Service failures were a disappointing, but not surprising outcome for a rm that was managing over 400 mutual funds (as of 2013], and services individual and institutional strategies in virtually every investment class. The complexity Fidelity faced in doing business also showed up in their IT architecture. In the Asset Management division alone, 250 databases existed 81 of which were just for security reference master data (really firms should only have one such database). Across the enterprise, 12,000 servers (plus Fidelity's mainframes] provide storage and processing power for over 4,000 applications. This architecture must support, among other units, 19-5 Investor Centers [that's just in the U.S.). As a result, Fidelity is able to process 532,000 trades on an average weekday, and has processed 350 terabytes of investing and behavioral data for market trend analysis and for predicting individual customer needs. By 2014 Fidelity was so assured of their IT infrastructure that they guaranteed a one-second transmission time for stock trades [S&P 500 stocks only). Failure here meant waiving their commission. Adding to the excitement: a 2015 acquisition of leading wealth planning software company eMoney Advisor. An Evolution of Technology-Enabloment Fidelity has a long history of internal and extemal-facing innovation (see Exhibits). Two organizational units that reect this ongoing commitment to technology-enabled innovation are Fidelity's Asset Management (AM) division and the Fidelity Labs group. Enabling versus impeding [T l'orAsset Management Fidelity {Jrganimtion}[i'ldr-|_-\\ssetManagement The AM diViSIOTl 15 focused on delivering the best customer experience in the financial services industry. Leveraging its diverse global investment management expertise and insights, it provides client solutions ranging from fixed income instruments, traditional mutual funds and Electronically Traded Funds (ETFs), to hybrid securities, managed accounts, and institutional mandates. Under the leadership of President Charlie Morrison, the AM LIIuIr-qltr. .._...-_ur.-ru line...\"- Revised in support of learning objectives for MISM2301 2020 (PDL) Page 2 of 7 ietr Fidelity Investments case study [continued] division has been a consistent Lipper Awards winner [pun intended] and rates at the four or five star level for dozens of its equity funds. The AM division created the mutual funds that other units distributed to clients. Organizationally, the AM division's Chief Information Officer reported to the division's Chief Operating Officer. This CIO, along with the other Fidelity CIOs (and the corporate-level Chief Technology Officer] were all reverse-mentored by recent college graduates in order to better understand use of technology by millennials. Improving senior leadership (IT or otherwise] was viewed as imperative across the rm. Traditionally, the AM division had been organized around asset classes {e.g. bonds and money markets, high-income products, equity products). Each independent business unit had its own systems and IT staff to support all of its processes. Each also chose its own IT development processes, platforms, and standards. IT teams prioritized rapid response and locally optimal solutions. While they each standardized on a technology, they standardized on a different technology. As a result maintenance and support costs rose continuously. By the time the financial crisis hit in 2008, Fidelity was already attempting to address both a finn- wide mandate to reduce IT costs by $1 billion and the need for greater integration across product lines to meet changing customer demands. Management was particularly concerned about how long it took to deliver on those demands: "We needed to continually improve our time to market. Was it bad compared to others? Probably not, but that shouldn't matter. It needs to get better for us to remain competitive in the marketplace,\" asserts Howard Galligan, AM division Chief Administrative Officer. Business leaders were asking questions like, "Why does it take so long to introduce new capabilities?\" and "Why are maintenance and operations costs overtaking investments in new projects?" Despite these concerns, business unit leaders were still submitting long wish lists oflocally optimized projects. So IT leaders started applying more disciplined IT governance practices to change the conversation and approach to investing in information systems. First, the architecture team would document the existing and the recommended shared IT capabilities. Shared IT capabilities were application software (and the IT infrastructure to support it) that was owned by one business unit, and then utilized by others. Sharing IT capabilities allows rationalization of IT expenses, as well as improving data quality by avoiding both redundant projects and ongoing redundant data entry and processing. The team then specified a sequenced roadmap for implementing the shared IT capabilities and the elimination of any unnecessary systems. Business unit leaders would review and revise the recommended roadmap - including assigning business values to the various implementation efforts in order to build consensus when business objectives appeared to be in conflict with one another. Senior IT leaders and an executive committee would also assess the planned roadmap, revising as called for to ensure only the most strategically-aligned initiatives received large-scale resources. Before executives built consensus they met with the division CIDs as well as the corporate Chief Technology Officer in order to obtain a better awareness of the advantages and disadvantages of relevant IT components and software development approaches. Despite the fact that IT costs represented around 12-15% of AM business unit expenses, overall the division was able to save $30 million annually in development costs, and $6 million in software license fees by standardizing both data management (via a "common data environment\") as well as the tools used for software development (via platfonn-as-a-service capability]. In addition, with Revised in support of learning objectives for MISM2301 2020 (PDL) Page 3 of T di Fidelity Investments case study (continued) shared resources now available to technology teams, they greatly reduced time-consuming and duplicate efforts resulting in faster delivery times for key business efforts. The Future is now at Fidelity Labs Fidelity Labs group (Labs) is the technology research and development arm of the firm and focuses on technologies that need to be widely adopted in the firm in three-to-flve years. The group consists of more than 150 researchers, strategists, creatives, technologists and problem-solvers motivated by the motto \"that's just not good enough" and resourced with a large-scale budget. Labs has dedicated teams that work like startups within the Fidelity organization. Using a combination of \"old-fashioned ingenuity\" and more current innovation methodologies such as Design Thinking and Lean Startup, incubators take a customer-centric approach to problem solving. With a focus on rapid experimentation, teams operate within a culture highly tolerant of wise failure. One example of experimentation involves virtual reality (VR) visualization of financial data. Fidelity hoped that by conveying often complex nancial information in the form of a virtual immersive experience, individuals would \"better understand their investments so they would make better investments,\" said Fidelity Labs senior vice president and director Sean Belka. In 2014, a Labs team built a VR app for investors to keep track of their portfolios. The app showed investors their various performing portfolio stocks in the form of digital buildings, with each tower and its corresponding height representing how well they were performing. [n 2016, they built a VR prototype app to enable human resources managers to keep track of employees and their retirement plans. Extending the digital buildings framework, once users pick their towerfcompany, the get transported to a tan boardroom that looks like a college lecture class. Users stand in front of a small table where they can request to see a visual representation of all of their employees sitting throughout the audience. The employees are divided in seven sections, with each section representing how many years they have worked at the company. The employees are either green or red in color, with green representing that the employee is successfully preparing for retirelnent and has a solid prefonning investment plan, and red indicating an employee with potential retirement hiccups down the road. Belka expects more VR apps from Fidelity down the road. But the rollout of these VR apps will be steady and measured. ICine process improvement example involved a Fidelity customer call center experiencing delays in response times and increasing customer frustration. To reduce both a Labs team initially conducted a data analytics effort that culminated in a predictive algorithm to align the callers expected problem with the appropriate resource. However, the algorithms accuracy was too low to improve response times and satisfaction. So the Labs team taught the call center associates Design Thinking and Lean process improvement methods, put them in a room for six weeks, and challenged them to beat the algorithm. The associates listened to more than 3,000 calls, mapped out decision trees for call types and thus provided the algorithm developers with the feedback to dramatically improve transfer accuracy. When the associates now want to further improve transfer accuracy and customer satisfaction they answer calls, pretend to be the automated system, and \"whisper" the customer's intent to the appropriate representative [which had the additional organizational benefit of provide training opportunities for numerous associates). Revised in support of learning objectives for MISMZBOI 202i} (PDL) Page 4 of 'i' Fidelity Investments case study (continued) Fidelity Clients Satisfaction Achieved Clients seemed pleased with the results of Fidelity's approach to service and innovation excellence. "We can speak to our Fidelity relationship manager on numerous issues because he knows our business inside out," stated Greg Erwin, Cofounder , Sapient Private Wealth Management. Erwin continued, "Several years ago, for example, we were struggling with time management issues, so they sent out someone from their practice management team to help us evaluate our situation and identify potential areas for improvement." California Wealth Transitions president Keith Brandt affirmed, Fidelity [advising] "insights are extremely useful for a neophyte like me." Though Fidelity prized their expert reputation, they also prized transparency. Brandt continued, "They provided useful information and were upfront about what they could and couldn't do." Other Facts about Fidelity Investments' Technology Leadership . Scientists and researchers at Fidelity Labs (the R&D unit of Fidelity Investments) have worked to identify and explore hundreds of emerging technologies over the last 15 years. Fidelity holds over 100 patents worldwide. Fidelity spearheaded many technology leaps in the financial services business, including launching the first mutual fund company homepage on the internet (1995), launching Streetscape for broker-dealers (2000) and WealthCentral for registered investment advisors (RIAs) (2008). "RIA" at Fidelity also stands for Rich Internet Applications (interactive technologies to allow for a more media-rich online client experience). Fidelity Labs researchers enable Fidelity Charitable to accept bitcoin. After a six-month iterative process, including prototyping, user testing and refinement, they launch a pilot. The eventual rollout announcement generated more than 9,000 mentions in bitcoin handles on Twitter. Sources: 1. Pratt, Mary, "Fidelity's top IT exec sees potential in A.I.," Nov 25, 2014; https://www.computerworld.com/article/2847330/fidelitys-top-it-exec-sees-potential-in-ai.html 2. Fidelity Clearing & Custody Solutions(whitepaper, 2017) "A Trusted Custodial Relationship: Independent advisors share their experiences working with Fidelity Investments." https://clearingcustody.fidelity.com/app/literature/view?itemCode=9863615&renditionType=pdf&pos=na 3. Quaadgras, Anne, Ross, Jeanne and Beath, Cynthia, (2014), "Fidelity Investments: Investing in IT for Greater Strategic Impact," CISR, MIT Sloan 4. Ross, Jeanne and Beath, Cynthia, Wixom, Barbara, (2014), "Demand Shaping: Changing the Conversation About IT" CISR, MIT Sloan. 5. Bonaccorsi, David Sr., Marcotte, John, "Brokerage as a Service (BaaS). Transforming Fidelity Brokerage Technology Delivery Systems Using WSO2 Integration Platform and SOA Design Patterns," WSO2Con USA 2017 6. "We are #codeblooded. Are You?", https://stackoverflow.com/jobs/companies/fidelity-investments Key technology events timeline, https://www.fidelitylabs.com/about/ Revised in support of learning objectives for MISM2301 2020 (PDL) Page 5 of 7FIDELITY INVESTMENTS: AT HEART, A TECHNOLOGY COMPANY Fidelity Case Assignment Instructions The Fidelity Investments case study is comprehensive and makes use of most of the concepts that we have covered in MISM 2301. In particular, the capstone case serves as the opportunity for you to apply the MIS Integrative Framework to determine Fidelity's primary value discipline, requirements for information, and unmet or anticipated needs for information systems solutions. Note that illustrated in the MIS Integrative Framework, your answers throughout this assignment must be aligned. In other words, your answers to early questions should influence and be consistent with your answers to subsequent questions. Continue to refer to your responses to ensure that your answers align (i.e., are consistent, congruent) with one another. At the outset, read all questions to get a sense of the problems to be addressed in your analysis. Then, as you tackle each question, make sure you read the whole question and answer it fully and specifically (do not lose points for reading errors). Be prepared to go back and revise previous answers as you answer later questions. Many students develop a clearer and more extensive sense of how to address Fidelity Investments' challenges as they work through the case questions holistically. As always, resist the urge to write mainly in narrative / paragraph form when responding to questions and follow the course authoring guidelines. Limit the length of your answers to each question to a single page, except your response to the final question which can be up to 3 pages. This is an individual assignment. Consistent academic integrity helps keep the market value of your Northeastern University diploma high. Be sure the work you submit reflects your faithful efforts and provide citations for any external sources you use (including websites assigned for course reading). Do not complete this assignment with another student. Do not discuss your answers in real-time with another student. Do not use another student's answers as the basis for your own. If you have questions, then please let me know. This is your final assignment due for this course. You're almost there! [The questions begin on the next page - one question per page. There are 4 questions.]