‘Just when I thought I was out, they pull me back in ‘– Godfather III
I’ve seen, worked on, built, dismantled, and rebuilt more Operating Models than I ever thought I would in my career. It’s not a path I initially aimed for, but through my journey in Commodity Trading, I’ve come to respect the immense value of having a model that truly works.
You only really appreciate its worth when you see it evolving seamlessly through frequency, growth, and volume—without the need for panic hiring to keep up.
The Importance of a Robust Operating Model
Creating a robust Operating Model isn’t a natural phenomenon. It requires patience, solid experience across all departments, a master Business Analyst to articulate the story, a development team to bring it to life, and a ‘mindset’ that understands this journey is not a straight path to utopia. It’s about moving from “Process Operations” to an “Exception Processing Operation” environment.
However, if you rely solely on technology to solve your issues without first addressing the underlying processes, you’ll end up calling in consultants who will lead you in circles, only to land back where you started.
Don’t get me wrong; I value the expertise and experience consultants bring to trading houses. However, as an experienced senior executive, I know that consultants often fill gaps in the current C-suite’s capabilities. This isn’t a critique, more of an observation. It might indicate that perhaps the department heads aren’t coming together to solve problems collectively.
Often, they might struggle to agree on a collective approach, but they frequently find common ground in one thing: “Everything is IT’s fault.”
That last comment always makes me smile because, in my career, those with the most significant opinions on IT and its projects are usually the ones who know the least about them.
The Role of the COO
So, who is responsible for this well-oiled Operating Model within a trading house?
Ultimately, the COO is responsible. However, they rely heavily on their team to drive these improvements. Unfortunately, it often doesn’t work out that way because the mindset of “it’s been working this way for years, and it’s fine” prevails.
But as a former COO of a large trading company, I know the heavy burden on our shoulders. While we look to our colleagues in Risk, Credit, Finance, etc., to help ensure we are robust and tight and able to absorb growth without escalating costs, I know that the Operating Model reflects on me.
The Heart of the System: ERP/ETRM
The ERP/ETRM system is the heart of all our operational flows. But any ‘bad data’ or blockage causes us to patch and stitch our way to eventual unmanageable solutions, weakening our applications over time. I mean, think about it: How many plasters do you need to place on a wound before you need stitches, if you follow my drift?
However, like any organization, upgrading and improving the operating model is not the responsibility of a single individual. It requires a team effort. Understanding how everything collectively operates and how to assemble the teams within Operating Committees and Executive Committees requires an experienced and logical mindset that is supported, endorsed, empowered, and most importantly, trusted by the CEO, The board, and, of course, those around them.
What is an Operating Committee?
So what is an Operating Committee, what is its purpose, and why is not having one a risk in itself?
Within any trading organization, there has to be a platform or forum where the personas of each role in a deal’s lifecycle can explain how their function works and the issues they face on a daily, monthly, or quarterly basis.
This forum should allow them to discuss how their corresponding departments could adjust or improve their duties to better accommodate each other. This articulation, and in most cases education, on how Risk, Ops, Credit, and Finance maneuver is vital for each party to understand what processes need changing and what requires technical enhancement to the application from which the data is derived or extracted.
The Role of the Operating Committee
An Operating Committee usually meets monthly and is governed by the COO or, in larger companies, by a Business Change Manager. This individual ensures that representatives from each business unit and the developers responsible for trading applications attend each meeting.
This approach allows the developers to absorb as much useful content as possible. This isn’t just to avoid the blame falling on IT; it facilitates the quick identification of how the application can address day-to-day issues and provides a comprehensive understanding of the lifecycle of a deal once executed.
From the trader’s perspective, booking a transaction is their primary concern. However, what comes after—the confirmation and contract—really determines the quality of the trade throughout its lifecycle.
Note that I’m not saying the trader’s piece is easy; I’m just saying what comes after is where it could all fall apart if not managed.
If the committee is run correctly, with the disciplined need to extract the narrative from each community, it will accelerate the identification of problems while also creating a plan of action for the business and IT to work on.
Participation is vital, and emotions have no place in these meetings, especially since emotions cloud judgment.
Without such a structure, you’ll run aground when you realize how many people it takes to run your trading business. As a side note, while not directly related to trading, Elon Musk cut 70% of the staff at Twitter, yet the platform continues to operate. Just saying
The Executive Committee
I can’t leave this article without mentioning the importance of the Executive Committee in any trading house. While the Operating Committee focuses on enhancing internal upgrades and supporting growth by minimizing loss, the Executive Committee steers the company externally.
One cannot exist without the other. The decisions made within the Executive Committee come from their comfort and confidence in their internal operating model, allowing them to make the commercial decisions needed to grow in their industry.
The Dons Last Act…
This journey, reminds me of the famous quote from Godfather 3, “Just when I thought I was out, they pull me back in,” which reflects my career.
Despite attempts to move away, I always find myself drawn back into discussions with big traders and eventually being hired back, not as a consultant, but as an addition to an already strong team. I love it.
The operating model’s evolution is a testament to the balance between technology, process, and the invaluable human element that drives actual growth and resilience in the trading industry.
Mic Dropped.
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