Chris Perretta and a project team at State Street are putting in place an "infinitely scalable software mainframe."
In today's jargon, they're installing a private cloud of computing power at the $9 billion a year asset management, asset servicing, investment research and trading firm.
"There's hype in it,'' Perretta says of 'cloud computing,' "But there's substance as well."
In State Street's private cloud, customers do not interact with it over the public Internet on computers run and maintained by someone else. State Street runs and maintains its systems -- and is directly responsible for making sure its cloud of services is safe and secure for doing business. And delivering the savings that the use of thousands of commodity servers and special purpose storage units can deliver, if constantly apportioned to tasks as needed.
"The fact of the matter is we're big enough to get the economies even to ourselves." Perretta told Money Management Executive, rather than relying on data centers operated by someone else that is combining and overseeing the computing activities of a large number of technology customers.
Meeting the 'Cloud' Standard
The State Street private cloud -- to be launched later this year -- will run on the Linux operating system and low-cost servers using Intel chips that feature multiple "core" processors on each. It is what Perretta calls the "Lintel" standard, in cloud computing.
"The definition of cloud is, I'm using a large collection of hardware that is easily extendable, that I can provision in real time, that I can (use to) requisition hardware with minimal management expertise, that it's scaleable, that it's metered," he said. "Internal clouds do meet all the standard definitions of clouds."
The only key difference: "We control the cloud,'' he said.
The effort got started in late 2009 and early 2010, in the wake of the global financial crisis. State Street typically spends somewhere between 20 and 25 percent of all its operating budget on information technology.
And when credit markets seized and business activity slumped, the costs of conducting computing the conventional way -- where a half-dozen servers might have to be devoted to a single application and that application only -- drove the search for a new way to operate.
State Street's operating revenue had peaked in 2008 at $10.5 billion and fell to $8.1 billion the following year. Its earnings, on a per-share basis, plunged from $5.61 to $3.32.
And overall computing costs were climbing.
Information technology costs were "growing faster than revenue, growing faster than the business was growing, growing faster than productivity improvements,'' he said. "So you kind of get the sense that the model is broken.''
If State Street were to continue to operate in the traditional way -- with asset utilization running at about 10 percent to 20 percent of capacity -- there was only one way to save money. Cut discretionary spending. Cut spending on new product development. In effect, cut one's own throat.
"When you press on that model and you say, oh, gee, you have to limit spending, well, you go after the discretionary spend which is your product development lifetime,'' Perretta said. "And there was consensus, even at the board level, that that's not a long-term proposition."
'Stack and Cloud' Initiative
Thus was launched, as 2010 arrived, the 'Stack and Cloud' initiative at State Street. The cloud would be its effort to put limitless compute power at its technologists fingertips -- but be able to raise the utlization of that capacity past 50 percent of the computing power under its roofs at any time.
The "stack" would be a rationalization of its technology stack, the conglomeration of methods, tools and software to build apps.
The apps would be build in a standard way, outside the cloud. Then, injected in an automated fashion into the cloud, without any alteration on the way in or after placed on a bank of servers.
"The point was, let's build common frameworks that everyone can use that allow everyone to exploit the cloud,'' said Perretta.
"What we are really after is to change the mix in the IT organization from what I spend in running my systems into what I spend in building new stuff,'' said Perretta. ' "We want to spend more of our new efforts in building new stuff.''
The "Stack and Cloud" effort got started in early 2010 with the testing of a couple internal applications related to technology operations on a "small cloud" that used 100 processors.
In June, a second test began, on a "large cloud" that used 500 processors. This test simulated the creation and operation of two ''virtual" data centers. The idea was to see if a cloud could be operated in "an industrial-strength way."
A couple of the key objectives in the test: Find out if you could introduce a new application into operation in the cloud, without touching it; and, figure out how to allocate capacity to an application, as needed.
In the end, though, 120 different "use cases," or functions that would show up in everyday operation of the new technology platform, were tested.
A large number of consulting firms also tromped in -- including one that reviews security for the Department of Defense and the Department of Homeland Security -- to see if there were any holes in the initiative.
Gold in The Cloud
But the efficiencies were clear.
""When i have a very heterogeneous environment, and it's got different software stacks for each of my applications, I have to keep track of all the releases, I have got to patch them along the way. Each one is different, '' said Perretta.
"In the cloud environment, it's all the same,'' he said. " When a server goes down, you pull it out, you throw it away, You put another one in. You don't even have to make sure all the patch levels are the same. ''
The system just replicates the applications and data, automatically. The replacement part is then ready to go.
"It remains to be seen what kind of utilization we can get, but we know there is gold in them thar hills," he said.
And, in any case, the company will see increased efficiency throughout its technology operations.
A big part of the overhaul is to standardize how information is viewed by executives in any part of the organization and used by any application in the organization.
That means creating a standard identification for a trade, for instance, that will last throughout its entire life.
This will happen independent of any effort by the Office of Financial Research in the United States or any regulator elsewhere in the world to create a common code for identifying a security, a fund or the entity involved.
But it is emblematic of how a new class of applications that rely on precise data -- and real-time data -- are emerging that must be harnessed. To that end, the State Street private cloud will rely on "smart storage" as supplied by vendors such as Teradata, Oracle and IBM that can return only relevant rows and coluns of data to a server, so less information is sent out over netowrk connections or send frequently requested data to be stored in fast caches of "flash" memory or compress data by ten times in warehouses of online informaiton.
The point: Make it possible to analyze anything that is happening in asset management, asset servicing or trading. And make the results immediately available to customers, who are operating on what they can find out, in real time.
The first 30 traditional applications in State Street's portfolio of day-to-day programs are being "refactored" now into applications that can run in its private cloud. By the summer, the applications will go into testing and, by fall, should be in operation.
The first applications will be supporting State Street's custodial business, where the holding and transfer of assets is handled. After that, the cloud most likely will come to its investment research and trading business. Then, its asset management business, known as State Street Global Advisors, which serves institutional investors.
The cloud formation itself will feature just three clouds: One each in the United States, Europe and Asia.
The first cloud will be its home base of Massachusetts, where it has a "highly consolidated" data center, already. Asia is likely second. But the tale will be told in the computing capacity that State Street can bring to bear on tasks that matter, the savings that can be generated by having fewer people oversee greater amounts of computing capacity, the lower capital costs involved, the lower carrying costs involved -- and whether those savings turn into results for customers, from more time being spent on new products that matter.
"It's a gamechanger in the sense I can deploy an almost limitless amount of computing power to a problem,'' said Perretta, of State Street's private clouds to come. "And so the question you're really going to ask yourself is, what are you going to use it for?''
At A Glance
MAIN BUSINESSES: Investment research and trading, asset management and asset servicing.
* $2 trillion in assets under management
* $21.5 trillion in assets under custody and administration
* $2.3 trillion in lendable assets
* $14 trillion of trading volume a year
* 28,600 employees
* 100 markets served
* 'Operating basis' revenue: $8.7 billion in 2010. Peak: $10.5 billion in 2008.
* 'Operating basis' earnings per share: $3.40 in 2010. Peak: $5.61 in 2008.
* Reported revenue: $9.0 billion, 2010.
* Reported net income: $1.6 billion, 2010.
SOURCE: State Street
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