Quality Money Management : Process Engineering and Best Practices for Systematic Trading and Investment

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1.4.1. Assembling Product Teams

The complexities of trading and investment today are too much for one person; no one person

can know all the math, all the technology, and all the strategies. So, managers hire talented

financial engineers, traders, and programmers, often those in the top percentiles academically.

Smart people do not necessarily work well together, though. Poor communication, egotism,

politics, and out-of-control design processes can (and often do) still lead to failed development

projects. Often, too, managers push “ fast-track ” projects, setting unrealistic time lines, despite

the weight of research that schedule pressure can lead to up to four times the normal number

of defects. The blame-game usually starts at the first sign of trouble—traders blame the finan-

cial engineers, the financial engineers blame the programmers, and the programmers blame

the financial engineers and the traders, who in return blame the programmers.

Somehow, no one ever seems to blame themselves. Certainly, management never blames

itself for not having clearly defined and documented plans for development. The real prob-

lem is a lack of proper team building and project management. Better managers help traders,

financial engineers, and IT professionals improve the process of their work through coaching

and mentoring. In the end managers, who only manage the numbers, never gain the confi-

dence of their employees. Poor management results in high turnover when employees feel no

loyalty to the firm; they behave like free agents, always seeking out the highest bidder.

Successful technology and engineering firms have found that product teams, com-

posed of individuals from each of the three functional areas along with, potentially, a mar-

keting or salesperson, work better. In a team setting, individuals are better motivated to

contribute long-term innovations, and accomplish vital improvements in product, service,

and quality, but only when they can work without fear: fear of taking a risk, having their

ideas stolen, or of being fired for missing short-term goals. (If an employee is fearful of

telling others what ’ s wrong, or of suggesting a better way, how will things ever improve?)

1.4. TRADING/INVESTMENT SYSTEM DEVELOPMENT

A firm hired a Ph.D. financial engineer who found an incorrect formula in a valuation equation and

pointed it out to the president of the firm. A book even explained the correct formula with code. The engi-

neer was fired soon after for proving the president wrong. This type of closed-mindedness is continually

being driven out at world-class firms before it leads to catastrophic failure.

This management style can be compared to 3 M, a recognized leader at discovering

and launching new products.

3 M sought to encourage innovation through a variety of means including awards

for innovation as well as in-house grants for innovative projects. The company

also allowed staff to spend 15% of their time to explore new ideas outside of

assigned responsibilities.^8

New trading/investment firms often gain traction by stealing employees and intellec-

tual property from existing firms. Overstressed people, tired of short-term deadlines and

patches instead of fixes, prefer to work for new firms, where they hope they can do things

right. New firms with even slightly better processes can win talent and clients because

older firms are not investing in long-term quality and process improvement.

At SAS, a world leader in business analytics software, their business model is

simple: “ satisfied employees create satisfied customers. ” SAS reaps the rewards

of having loyal employees and attracts the brightest minds in the business. Oprah

featured SAS in a segment called “ The Best Place to Work. ”^9