When it comes to deciding which approach to take to data management solutions, businesses have historically debated whether it is better to buy them or to build them internally. However, we are seeing that it is now becoming increasingly common for businesses to move away from in-house development and look to third-party vendors to provide data management solutions. There are several reasons for this, with the most significant including economics and more predictable ROI, time-to-market and avoiding the risks that come with in-house development.
Many firms have come to realise that while in-house development may look attractive as it provides a 100 per cent match to a firm’s requirements, it rarely delivers on-time and the running and maintenance costs after the project are typically underestimated. In addition to this, 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.
Despite some arguing that developing software solutions in-house enables them to be uniquely tailored to a firm, there are distinct drawbacks to this approach. In fact, by using a third-party product, businesses are able 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. This is because 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. On the other hand, 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 increasing volumes of data or new requirements in data lineage.
It is also important to think about what would happen in the event of the data management solution failing to work. Certainly, 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.
With these issues in mind, 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 several years to keep pace with rising volumes of data and provide flexible deployment options. In addition, because of the standardisation of data elements and formats in regulatory reporting, there is also very simply more that can be productised.
There are many benefits to be gained from third-party solutions. Not only do they reduce costs through improved time to market and post-project continuity, but they also avoid a great deal of risk as 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.
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.
The role of IT departments
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 find the best-suited solutions and bring in external providers for these solutions.
Firms must understand the implications building solutions in-house can have for their business and the potential vulnerabilities they may encounter. Ultimately, moving from in-house development to a fully-tested third-party data management solution will positively impact your business. Not only will firms benefit from lowered costs, but they will also experience increased capabilities, a reduced risk of financial penalties from data inconsistencies and the potential to profit from external knowledge and expertise. With the pressure to build data management solutions removed, IT departments will be able to shift their focus to creating added-value in terms of business enablement and finding the right infrastructure to ensure the organisation is running as efficiently and successfully as possible.
Martijn Groot, VP of Product Management, Asset Control
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