Think of business in a new way. If one runner speeds up to get ahead of the pack, what tends to happen is everyone else speeds up to match his pace. With everyone running above their optimal level just to keep up, no one gets ahead and everyone loses efficiency… the market becomes less efficient. What if someone from the pack starts to run in a particular direction? The pack will follow and match the “leader.” Just like the Keystone Cops, the pack becomes a slapstick routine where everyone expends energy and resources to end up in another huddle, just at another location.
Getting an edge in the modern business environment has become a temporary advantage, as eventually everyone catches up. Technology that once put you ahead of the pack becomes mainstream; you have to look for another direction to run just to differentiate. In Capital Markets specifically, when it comes to trading, split microseconds provide a real revenue-driving edge. I’ve been told on numerous occasions that financial firms move hardware physically closer to the exchange to get any latency edge they can. The NYSE has even built a server room on their premise with every corporation having the exact same length of cable to the mainframe to discourage what had been a disastrous real estate land grab around their physical building. [Read more...]