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Chapter 3: From the Trading Floor to the Event-Driven Enterprise
The Event-Driven Warrior
Becoming event-driven unifies a company’s collective awareness so that the whole organization, no matter how global or distributed, reacts as an individual organism that adapts to changes in the environment in line with a shared and unified vision. The original event-driven organism was one individual: the smartest, strongest hunter who saw prey first and was the fastest in the group to pounce on and devour it.
Of all business professionals, the financial trader is the closest to being purely event-driven. The trading floor is one of the most information-intensive environments in the world, and it was for the trader that we first developed real-time infrastructure software. The complex, integrated, value-added market information dancing across the video screen of the trader your broker looks to for instant order execution arrives at the trader’s station via publish/subscribe technology. Your trader learns about every flicker in stock and bond prices as they’re happening, and what those flickers mean. His or her lightning-quick event-driven reaction to change is an excellent example of how instant information drives instant innovation.
In fact, if the event-driven infrastructure can be said to have a single transformational goal for your company, it is to give every single employee the tools to become more trader-like-hyper-aware, entrepreneurial, fully informed about every shift and trend in the competitive environment.
Several times I’ve mentioned "value-added information." In the event-driven infrastructure’s earlier days, in the1980s, we sought to create extra customer value by augmenting the simple reporting of fluctuations in stock prices by feeding those pricechange reports into application programs that used them to create wide-ranging analyses or automated trading decisions. These higher functions in turn created new data, which we instantaneously fed back into the network for other traders to use. The result was an upward-spiraling, endless-feedback loop of constantly, incrementally enriched, refined, and integrated information, a variant of the keizan teian never-ending upgrade process. The strategic application of this loop in executing and improving any number of business processes is a prime competitive advantage of the event-driven company. That advantage will grow as the world becomes universally networked and more and more processes-in and out of the financial sectorbecome completely automated. The richer, faster, and more on point the information driving these automated functions, the more value companies will derive.
When I witnessed how the keizan teian feedback loop and other event-driven capabilities drove successes on the financial trading floor, I realized that integrated, real-time information would create ever-richer customer value in all businesses, not just the financial markets. After all, the world we all work in is becoming as wired for communications and as speed obsessed as a stock exchange. Thanks to the growth of the Internet and of corporate networks-the infrastructure that undergirds the event-driven infrastructure-many businesses in fields other than finance have become event-driven and are now creating superior customer value in spheres as diverse as manufacturing, construction, consumer electronics, petrochemicals, high technology, and the Internet itself.
Different industries use the event-driven architecture to realize different benefits. Construction giant Bechtel, as we’ve seen, uses a global event-driven infrastructure to reduce costly delays that previously allowed competitors to underbid jobs. The majority of the world’s largest microchip manufacturers use event-driven technology to monitor and manage their complex chip fabrication processes. Database companies such as Oracle, Sybase, and Informix have added event-driven features to their databases to create active catalogs whose information can be combined with other data, analyzed, and pushed to the workers who need it. Networking leaders Cisco and 3Com are using the event-driven infrastructure to provide more reliable, cost-effective, and bandwidth-friendly data through private networks and the public Internet. Motorola’s pager division delivers customized pagers, which can be shipped from around the globe in record time. Oil and energy companies utilize publish/ subscribe to track the buying, selling, and transport of raw materials on a global scale. I’m sure you can imagine many ways your company could apply the benefits of becoming event-driven.
And it all began on the trading floor ...
Trading: The Oldest Human Profession
Despite the old adage, trading may, in fact, be the oldest human profession. People have been trading for thousands of years, and it is deeply ingrained in our species’ awareness. In more modem terms, trading is one of the purest value-creating, rustresistant industries. Although the clerical act of buying and selling securities is a commodity, trading at the highest level is 100 percent knowledge-based and cannot, at least for the moment, be commoditized. Automation has yet to surpass, much less equal, the trading skills of an intelligent human armed with the right information. In addition to skill, of course, the successful trader relies on speed to capture his or her prey. This requisite mixture of complex thinking and speedy execution made it clear to me from the very beginning that in trading, as practiced in the world’s financial markets, I would find fertile and receptive ground for developing and creating the event-driven company.
"Complexity and speed do not mix," argues Christopher Meyer [30] in Fast Cycle Time: How to Align Purpose, Strategy, and Structure for Speed, but I disagreed-as I also disagree, incidentally, with the start/stop concept of cycles themselves; we’re all doing business on one endless cycle now-and was convinced that the right mixture of complexity and speed would be the main ingredient of success on a trading floor.
Experience over the past 15 years has confirmed my early theoretical belief that finance-because of its reliance on information, information systems, the logic of information flow, and split-second execution-is an excellent predictive microcosm of economic trends that flower five or ten years later in the general economy. Before the words "Internet," "intranet," or "client/server" entered much of the world’s awareness, stock exchanges and brokerages were heavily wired with information technology networks and the problems inherent in such passive, request/reply systems.
The Tower of Information Babel (or more appropriately Babble) I encountered on the investment bank trading floor precisely predicted one of the greatest problems now afflicting the Internet: multiple content sources combining with many content consumers to create overwhelming confusion, a situation that cries out for a fast, high-efficiency system to manage the content pouring in from all those sources to all those users. I’m not exaggerating when I say that some traders in the mid-1980s and for years afterward were forced to ply their trade from 25 different, technologically incompatible sources of news and analysis delivered to as many as 18 separate monitors (with three or more keyboards) stacked on and around their desks.
Just as finance itself is predictive on the macro level, on an individual level the financial trader is also a bellwether. By nature the market trader should be event-driven to the bone: hungry, cunning, intelligent, strong, and quick enough to pounce on prey before his or her fellows. Yet, when I first encountered the financial trader of the middle 1980s at the world’s leading investment banks (IBs), it was hard to find that sleek, speedy, competitive warrior beneath layers of complacency from 40 years of uninterrupted prosperity, national insularity, and protective government regulation. Alarmingly for the investment bankers, all the rules of the game were changing at once at the time we met. Reassuringly, when I met Goldman Sachs they were wise enough to realize they needed to change to capitalize on the new, emerging financial services industry.
Until the early 1980s, the trading departments of IBs realized most of their profits by charging investors commissions for finding matches, or "crosses," between those who wanted to sell investment instruments and those who wanted to buy. The padded commissions were set by federal regulation at astronomical levels, as much as 75 cents per share. The American investing community represented a small, placid slice of the populationlarge institutions and affluent individuals-who put their money into American stocks and tended to keep them there. Market automation was stuck at the 20-year-old, five-million-share-a-day levels, making the mere execution of the simplest transactions slow and expensively labor-intensive.
Then, suddenly, everything was different. Commission-protecting government regulations ended. Discount brokers appeared. Profitable opportunities beckoned to investors from overseas. Investors, for their part, started demanding highervalue, custom-tailored products, such as options.
As corporate pension systems disappeared in the reengineering of the period and the public lost faith in the ability of Social Security to cushion retirement, popular mutual funds arose that drew the average person into the markets, a trend that has yet to peak. Americans have a greater share of their money in the stock market now than at any time in the past 50 years, according to a February 1998 New York Times [31] analysis of Federal Reserve statistics. For the first time ever, the Times reported, Americans have more money invested in stocks than in their homes.
Though infrastructured for 1960s-era, five-million-share days, the New York Stock Exchange by the mid-1980s was routinely experiencing 100-million-share days. The old administration and reporting machinery was groaning under the load. (On October 28, 1997, 1.2 billion shares of stock changed hands on the NYSE without melting down the financial system.) The leisurely days were gone forever. Speed was now king and killer.
Here was a textbook case of instant commoditization. The IBs’ trading margins didn't so much shrink as evaporate. Finding "crosses" was no longer enough, and Robert Rubin knew it. In 1985, Rubin, later to become secretary of the treasury, headed Goldman Sachs’s equities trading department. Anticipating the future before his competitors, Rubin realized that the financial services ecosystem in general and Goldman Sachs in particular. were obliged to reinvent themselves or perish in a ruststorm of commoditization. He knew it was time to reawaken the warrior in his traders.
85 Broad Street
The Goldman Sachs Warrior of today, Currency Trader model, rises before dawn: 5:14 A.M., to be exact, awakened by the twin murmurs of all-news radio WINS and CNBC-TV The business news is all Asia. The Financial Times says today will be about numbers: payroll, unemployment, GDP. And it’s triple-witching day. The Warrior checks his pager, grins to see that overnight currency rates have moved in his favor. He senses profit. Subway to 85 Broad Street in the neighborhood known as Wall Street, elevator to 26, Goldman’s New York trading floor, mutual battleground for 450 fellow members of the tribe. At 6:45 A.M. the elevator delivers the Warrior into a large, airy room with a suspended, golden-wood ceiling, and thick, men’s club navy-carpet underfoot. Many of the Warriors who work in this room earn in the seven figures, yet their desks are cramped closer together than secretaries’ desks in an old-fashioned typing pool. There’s a low hum of controlled but excited voices in the room, and the recording-studio aroma of solid-state electronics.
On each desk sit two 25-inch computer monitors, powered by a Sun SPARC workstation. One of the monitors, displaying a complex data reporting and analysis package called MarketSheet, is a tightly packed, constantly changing grid of various colored charts, graphs, lists, and moving "crawls" of breaking news (Figure 3. 1). The effect suggests a British railroad timetable redesigned by an MTV producer with a Ph.D. in quantum physics: every piece of text and illustration in constant blinking, undulating motion. Various sections of the screen blip different colors every few seconds as they shape-shift to reflect real-time updates. The Warrior’s second desktop monitor displays internal Goldman Sachs applications, trading analyses, e-mail, and an Internet browser. There’s a digital turret phone with 100 lines on every desk, lights flashing constantly as other traders and customers seek to reach the Warrior. His biggest decision at any given moment is which line to answer. Which line promises to deliver the most profit? . .
