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  • Jeremy Reynolds

Embracing Digital Transformation in Commodity trade Execution (pt 2)

Updated: Jun 1, 2023

Part 2

In Part 1 of this blog post we covered the concept of digitalisation in commodity trade execution, the challenge of internal alignment and the benefits of embracing digitalisation.

In this - Part 2 – we will explore the challenges faced by commodity trading companies when implementing digital transformation in trade execution and some strategies to overcome these constraints.

Implementing digital transformation in a complex business environment like commodity trading is not easy. Trading organisations often have matrixed organisational structures, with functional managers and leaders having multiple reporting lines. This only adds to the alignment and implementation challenges which project and business managers must address. Key constraints and challenges, which typically require strategies to overcome, include the following.

1. Mitigating Resource Constraints:

Transformation projects require investment, both financial and employee time, to proceed.

Limited budgets lead to internal competition for project funding, which in commodity trading, is often prioritised to trading, risk management, or finance functions ahead of trade execution. To address this competition, a solid business case highlighting the costs of keeping the status quo, the tangible benefits of digitalisation and the pay-back timeline must be built.

The project team will need to be adequately resourced. Companies would typically want to engage their best employees on high impact projects to increase the chance for success. Business continuity risks resulting from employee assignment should be identified and positions backfilled if necessary. These can be great opportunities for team members to step into and learn.

2. Technology Integration:

Integrating new digital platforms into existing legacy systems can be complex, disruptive, and costly. Interfaces between different applications may be more suitable, depending on the technology used. The business case should address integration challenges in the project scope, and if integration is necessary at all.

‘Standalone’ solutions could be considered as a tactical investment, to resolve a high impact but narrow process challenge. For example: demurrage/despatch management. A compelling business case can still be made for standalone solutions if they resolve a critical pain point.

3. Addressing the Skills and Knowledge Gap:

Adopting digital solutions requires the necessary capabilities and skills in the workforce, before and after implementation.

Developing a HR plan to address the skills requirement post implementation is crucial to leverage the investments made.

For any specific capabilities and experience needed in the project team, businesses must decide whether to hire and onboard people with the required experience, or seek short-term consulting support. For small and medium sized enterprises, consulting services may offer a more practical solution. Larger trade houses may seek to hire if there is an ongoing portfolio of projects to be executed.

4. Successful Change Management:

Leading the organisation through change is critical for successful implementation. Managing change requires leadership time and commitment, involving difficult discussions and choices.

Employees must be a key focus of any change management plan. For an enterprise to capture the significant productivity benefits of digital transformation, the outcome generally requires either,

a) doing more work with the same resources (headcount neutral growth), Or

b) the same work with fewer resources.

Difficult choices may need to be made concerning employees future roles. However, the impacts of change can be mitigated by a strong HR plan & re-assigning employees to open opportunities created from general employee turnover (e.g., retirees, leavers)

So, what steps and effective strategies could commodity trading companies consider for overcoming the challenges?

a) Prioritise pain points: Identify the critical pain points in the current trade execution processes and focus on digitalising areas with the highest return on investment. A powerful business case that pays for itself within 6-12 months will help gain decision-makers' support. Depending on the businesses current state of digitalisation it is possible to see productivity improvements of >=25% by embracing digitalisation in commodity trade execution.

b) Collaborate with Experts: Partner with experienced consultants or technology providers who understand the industry and the trade execution processes. Their expertise can accelerate the implementation timeline and positively impact the business case.

c) Leverage Cloud-Based Platforms: Utilise cloud-based solutions to enhance flexibility. Many applications will have existing integrations with systems common to the trading community and will often provide future functionality enhancements at minimal cost, ensuring that traders stay up to date with the latest advancements.

d) Prioritise Workforce Engagement: Make change management a priority from day one. Engage the workforce early, provide regular updates on the digitalisation efforts, and communicate how their work will be positively impacted. Encourage feedback from respected subject matter experts and address negative feedback or resistance to change promptly and effectively.

Foster a positive and supportive environment by involving employees and making them active participants in the transformation.

e) Start Small and Scale Up: Implementing digital trade execution solutions can be overwhelming, especially for businesses with limited resources. Instead of a ‘big bang’ approach start with pilot projects or phased implementations. This approach allows for testing and learning from each phase, with adjustment to your next phase plans and priorities.

f) Foster Internal & External Collaboration: Streamline and standardise operational processes across the organisation. Seek opportunities to digitise and automate process handovers with internal and external stakeholders. Leverage networks and enhance collaboration with all stakeholders to maximise the benefits of digitalisation.

One key pre-requisite for successful change and organisation transformation is Securing Senior Leadership Commitment. Senior leadership sponsorship is essential to secure the necessary resources, create visibility for the change, and to exercise authority, if necessary, in the face of significant internal resistance. Without a strong C-Team sponsor and senior management alignment, significant transformation becomes (nearly) impossible.

In conclusion, the journey towards digital transformation is not devoid of challenges. However, strategies exist which can be utilised to mitigate and overcome the challenges and constraints faced.

Embracing digitalisation is no longer an option but a necessity for every commodity trading company striving to remain competitive in the long term.

For small and medium sized companies digitalisation is a distinct opportunity to level the playing field against larger competitors and position themselves for sustained success.

Crest Trade Services have experience in trade execution transformation and digitalisation. To start a conversation on how Crest can support you in your transformation contact us.

Tel: +41 22 710 21 60

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