The buy versus build conundrum in data management

By Martijn Groot, VP of Product Management, Asset Control

A large number of firms have come to realize that while in theory the in-house development of data management solutions may seem attractive as it provides a 100% match to a firm’s requirements, the reality is very different.

In fact, in-house development can cause a firm to become overly reliant on a small group of IT experts, thereby rendering themselves potentially vulnerable if those employees should leave in the future. Economics and more predictable ROI, time-to-market and avoiding the risks that come with in-house development are just some of the reasons to move to a third-party solution.

Using a third-party product allows a firm to benefit from the industry’s learning curve as products will have been battle tested and will already incorporate requirements from their peers. Apart from that, a third-party product will come with a roadmap and future releases will keep pace with market requirements. Vendors often have a roadmap of changes to their customers’ businesses as well as regulatory changes, and plan upgrades accordingly which they can roll out when necessary with minimal disruption. Conversely, in-house IT teams often work to the regulations and requirements set out for them at the time of development with little thought to the future of the software. Therefore, when the time comes to upgrade, it can be a lengthy and costly process. In many cases, an internally developed solution has to be completely replaced as it has not been architected for risen volumes or new requirements in data lineage.

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The impact of a failed project of data management will be far higher than that of an end-user application: data management integrates horizontally and delivers to a range of different stakeholders downstream.  Many businesses are now realising that internally developing data infrastructure would be an inefficient use of time and resource. Apart from the cost, delivery and time-to-market risks involved, solution providers have also innovated their products over the last years to keep pace with rising volumes and provide flexible deployment options. In addition, because of standardization of data elements and formats in regulatory reporting, there is also very simply more that can be productized.

Not only do third party solutions reduce costs through improved time to market and post-project continuity, the repercussions of errors in internal applications have grown drastically. Whether post-trade, pre-trade or capital adequacy related, the data-intensity of the processes has gone up and the potential cost of inconsistent and erroneous data has risen enormously. With an increased scrutiny on data management, there is a high price to pay for data inconsistencies and errors, in the form of fines, financial losses and falling short of the competition. Fortunately, using software from external providers reduces much of the risk in these areas as the solution is tried and tested and already widely used in the industry.

The move to third-party data management systems goes hand in hand with a new perspective on the function of IT departments. First and foremost, the role of this department should be business enablement, meaning it must have a solid understanding of the business’ requirements and the infrastructure needed for the business to run at its best. Rather than creating solutions to these requirements themselves, this internal team should be pragmatic and make it a priority to source the best solution providers and ensure optimal deployment, integration and change management. Once this understanding is in place, it will be much easier to bring in external providers for these solutions.

In order to ensure the transition from in-house development runs as smoothly as possible, it is vital to have an in-depth understanding of both the business’ and business users’ requirements, not only today but for the future, to inform the choice of provider. While thinking about the future is a wise move, it is impossible to determine what will be needed from the provider in a year’s time, therefore businesses should avoid being tied down to specific data, reporting or deployment standards, for instance. Instead, it is important to determine the software’s future potential for scalability and integration with other software components, as well as if it will be costly to change or add a source into the application, for example. A data management solution should not just meet your current needs but should also be best placed to meet the expected future needs of the business.

In short, the benefits of a fully-tested third-party data management solution greatly outweigh that of an in-house solution. While you may find the idea of a fully bespoke system appealing at first thought, there is more to be lost in this approach than gained. Conversely, in the long-term, third-party products can lower costs and reduce the risk of financial penalties from data inconsistencies. Additionally, there is opportunity to benefit from external expertise and increased capabilities, while allowing your IT department to shift their priorities to business enablement to ensure your organisation is running as efficiently.

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