A New Operating Model for Superannuation Funds Part One – Technology as a Service

Posted July 14, 2017 by Luke Nardella

The unfortunate irony of technology is that it’s simplified the way members manage their superannuation, but made life far more complex for funds. Thankfully, there’s a technology model that might just change that.

The operating capabilities of today’s superannuation funds – their ability to meet customer needs, compete, grow and even survive – have become almost wholly dependent on technology. Despite, this, many funds are struggling to keep up with the pace of technological change and, as a result, face an uncertain future.

In their fight for sustainable growth and a competitive edge, super funds are facing three challenging conflicts:

  • They need to be more agile and innovative when they are hampered by slow, siloed operating models.
  • They need to deliver an outstanding, clearly differentiated customer experience while cutting costs.
  • The need to simplify everything they do despite the fact that they’re working in an increasingly complex operating environment.

Despite the promise of technology, these issues and conflicts are exacerbated by the cumbersome systems driving many super funds today. Many funds are operating with out-of-date, fragmented systems that are difficult to evolve: systems that tend to embed complexity rather than reduce it. But, as much as they would like to, funds are limited in their ability to update these systems due to the high cost, risk and disruption involved.

In the past, many funds have turned to third-party administration (TPA) providers to overcome the challenge of insourced systems. Today, an estimated 42% of superannuation funds outsource their back-office administration to a third-party provider, with just two providers collectively servicing 40% of the outsourced market.

In many ways, TPA was a smart option to the challenges of insourced IT. It removed many of the challenges related to managing complex IT infrastructures and provided a workable end-to-end approach to superannuation delivery.

However, TPA models create their own issues as well:

  • They’re templated solutions, which lead to ‘vanilla’ super funds. Every fund is the same and there is minimal ability to differentiate.
  • They remove the fund’s ability to control their customer experience. As a result, funds are responsible for what they deliver to their members, but have minimal control over it.
  • It can be difficult to obtain the data funds need to manage performance, meet customer needs and develop strategies. This further complicates the task of managing and evolving the business.

Now there’s a third way to build technological capability – Technology as a Service, or TaaS. TaaS creates a new opportunity for super funds to take control of their operations, customer experience and future.

TaaS is an IT supply model that allows super funds to access their core technological capabilities on-demand via the cloud, rather than as installed systems. By way of example, DST can work in partnership with super funds to help them understand the benefits and practicalities of end-to-end super capability as a service. This includes, as needed, cloud access to:

  • Registry solutions.
  • Operational excellence, including processes and case management, performance management, modelling, and process design
  • Customer experience.
  • Plug-and-play solutions for different super products and processes, such as retirement products.

There are four things that set TaaS apart from other, more traditional, IT vendor models:

  • TaaS operates on a consumption-based model. Funds consume their IT capability rather than build it. As such, the capital outlay and associated risk is dramatically reduced.
  • TaaS solutions conform to the client’s needs… not the other way around. TaaS provides the base platforms, which are then configured to the individual fund’s needs and specifications. This frees funds to differentiate and evolve as their market demands.
  • The core platforms are maintained and evolved by the vendor. The fund is using up to date systems and can readily access leading-edge technological capability. At the same time, the cost, focus, and resources required to manage in-house systems can be dramatically reduced.
  • TaaS solutions can be integrated with existing systems. This frees funds to evolve their underlying systems and processes gradually, rather than having to manage the complexity of ‘big-bang’ digital transformations. This allows funds to be far more agile and innovative.

Technology as a Service creates an exciting new opportunity for superannuation funds. On the one hand, it gives them the ability to stay ahead of the game without the traditional risks, complexity and cost of traditional insourced IT models. On the other, it gives them the flexibility to be agile, innovative and differentiated, unlike the third-party administrator model.

TaaS also paves the way for far more ‘future-fit’ funds: funds that can leverage new ways of doing business as and when they arise. The second part of this series will explore these opportunities, including a new hybrid super fund operating model and the opportunities created by open APIs.

Luke Nardella photograph
Luke Nardella
Relationship Manager, Superannuation
DST Systems

The views expressed in this publication are solely those of the author and do not necessarily reflect the position or policy of DST Systems, Inc. or its affiliates, subsidiaries, joint ventures, officers, directors, or management.

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