6 CHAPTER ◆ 1 Introduction
If systematic innovation and quality techniques are to succeed, management must cre-
ate a culture:● Where all employees feel free to voice their ideas or to suggest that a certain proc-
ess is a problem and in need of improvement.
● That supports the continuous improvement concept.
● With open, omnidirectional channels of communication.
● Where management is actively involved and honestly promotes quality in all aspects
of the organization and its financial products.
● Where employees feel loyalty to the other team members (and hopefully their
managers).In the broader business world, firms have found great success employing process
management techniques, providing product teams with systematic processes for moving
new products through the various steps from idea to launch. Firms like 3 M and SAS have
invested in this concept for decades and benefited by continual growth.1.4.2. Managing Documentation
Managing processes means documentation, but money management organizations
are (and should be) concerned about getting hung up on documentation instead of the
pursuit of a working trading/investment system. Documents can be cumbersome in a
highly dynamic, research-oriented area like trading/investment system development.
Nevertheless, the best firms recognize the importance of verbal and written communi-
cation. (After all, engineers often spend 50 to 70% of their time communicating.) “ The
rewards are high for those who can communicate effectively. ”^10 But, effective communi-
cation does not come by chance.
As Joseph Cascio says, “ word of mouth information rarely is communicated consis-
tently. Only written information—clearly written—is constant, ”^11 while documents, on the
other hand, can ’ t and don ’ t contain all of the information the reader needs to know. There
is a simple rule to follow, Martin ’ s first law of documentation: “ produce no document
unless its need is immediate and significant. ”^12 Or, we might add, as required by law.
Increasingly, investors as well as regulators are requiring more transparency, more
disclosure, and more documentation regarding trading and investment strategies, and
back and middle office processes. Good or bad, this trend is likely to continue and proper
documentation, process-driven generation of disclosures, and regulatory filings will con-
tinue to increase.1.4.3. Overseeing and Prioritizing the Portfolio of Trading/
Investment Systems
Management must also answer the question, how should we most effectively invest our
research and development resources? Which new trading/investment system development
projects, from the many ideas the firm has, will it fund? And, which ones will be given
priority. This is exactly what “ portfolio management ” in this context means— allocation
of scarce resources and prioritization of competing projects, viewed as a portfolio of
real options. Portfolio management is the balancing between financial risk versus return,