In the world where asset management technology and data quality management departments intersect, a perennial question is raised vis-a-vis implementing technology frameworks that support the data quality management process, build and manage various master data systems (e.g. security master or product master) – should we partner with a technology vendor with a best of breed solution, or should we just build it ourselves?
Like many such perennials there is no right or wrong answer. As a technology vendor, I often argue that something like data quality management is not actually the core competency of an asset manager and rather than figuring out how to manage their data, they should focus on their investment product strategies, growing their customers etc. I do sometimes wonder though if some of the asset managers out there are financial technology companies with an asset management firm bolted on or just plain vanilla asset managers. There are some managers that have actually spun off technology companies themselves based on internal developments.
My own experience is that there really are just three camps:
1. Build it ourselves unless there is an ultra compelling reason not to;
2. Apply a balanced decision-making process to weigh up the pros/cons of doing an internal build versus finding a vendor to work with;
3. Use a vendor unless there is an ultra compelling reason not to.
Are any of the camps more correct than the other? Not really – they have their reasons for the strategies they employ. There are ultra successful examples of all 3 company types – so adopting one or the other strategy does not seem to have held anyone back, but that all being said – you would have to perceive that those in camp #2 have a more pragmatic view on life.
Camp #1 companies tend to be IT-led organizations, where technology is a key driver in all aspects of what the company does and so is at the forefront of all strategic decisions – hence the need to retain internal (and full) control of all technology in use. They would normally be fundamentally opposed to outsourcing any aspect of their business.
Camp #3 companies tend to be “IT-deniers” – they are obviously the complete polar opposite of camp #1 companies and tend to be 100% led by business. The IT department is there to support and maintain systems and does not form part of the strategic fabric of the organization. One of the goals will be to maintain a low IT footprint and outsource wherever possible.
Camp #2 is the hybrid – they recognize that technology is important, but are not beholden to their own IT department. They are of the view that if there is a specialist vendor out there that has specific domain expertise and has built the same solution/product over and over again for many of their competitors, then this company will deliver a best in class solution – they retain their own IT resources for delivery of standard solutions for which an external vendor adds no specific value, or for areas where they believe they have unique USP.
In my opinion, Camp #1 is made up of about 30% of the market, Camp #2 would account for 50% and Camp #3 would account for 20%.
The pragmatists amongst us recognize that camp #2 are probably the most balanced of organizations, but these companies really do struggle with the challenge of identifying what they should and should not outsource… it may depend on the size of the potential project or the expertise required.. or the business may influence a final decision.
Of course once a decision is made to use an external vendor, next choice is “local-install or cloud”?