September 1, 2011
Today IBM announced plans to acquire the Fitch Group’s Algorithmics, a heavy-hitter in financial risk management software and services market, for $387 million.
Here are my initial thoughts about today’s announcement:
- IBM is making a (relatively safe) bet that operational and financial risk functions will continue to comes together. Regulatory pressures from Basel III, Dodd-Frank, and Solvency II, as well as the competitive realities of the global market, are pushing for banks and insurance companies to have more comprehensive oversight of exposure across all domains of risk. In fact, analytics should be a top priority of any compliance program. It will be some time before IBM (or any other vendor) can deliver a single platform to manage operational, credit, market, liquidity, etc. in one place; however, the addition of Algo’s subject matter expertise and even basic integration of data for a single source of reporting offers customers attractive benefits.
- IBM still faces heavy competition in financial services for both operational risk with its OpenPages product and financial risk with its new Algo offerings… however. there are very few significant competitors that have strength in both. IBM’s announcement today was a strong move against these other few, most notably Oracle and SAS.
- This is of interest only for financial services companies… for now. Early messaging around this announcement indicates that IBM will most closely align Algo technology and content with its OpenPages assets, and the two have a substantial number of overlapping customers among large financial services firms. Eventually, Algo’s risk modeling capabilities could be a great benefit for companies looking to model risks related to commodity trading, industrial operation losses, or even large-scale capital projects, but the focus for now is unquestionably large banks and insurance firms.
- This reflects an interesting twist in the evolution of the GRC market. Historically, GRC practitioners and the software vendors that served them shied away from the complex quantification and modeling of financial risk programs and kept to the workflow and documentation of operational risk programs. As GRC technologies continue to spread into other areas of the business (vendor risk, audit, info security, etc.) moving into financial risk is going to be a big leap that a lot of other traditional GRC platform vendors will not be able to make.
We will continue to watch the progress of these companies and weigh in… and as always, I’d welcome any of your comments or questions.