The Buy vs. Build Dilemma

There is no question that technology investment is increasingly a strategic rather than an operational decision. The question is not whether to use technology, but rather which one to use.

The financial service industry has changed significantly over the last decade. This rapidly changing environment requires significant investments in technology. Financial service firms are expected to spend over US$390 billion on information technology by 2012. Technology can be expensive, but if executed well, can become a key competitive advantage. A firm’s technology must be capable of tackling today’s complex challenges while remaining flexible and scalable enough to keep up with future market innovation.

Is it better to attempt to build a proprietary application, which allows for complete ownership of development, support and operational infrastructure? Or alternatively, is a vendor system the more viable and sensible option, as firms benefit from vendor insight and expertise? It is the classic ‘buy vs. build’ dilemma. This debate is now more important than ever as we enter a new era for financial services where IT investments are large, the required systems complex, and the margin for error small.

Ten years ago, ‘outsourcing’ had a negative connotation, as it implied vendor risk as well as loss of operational control and security, all of which were compounded by concerns about inadequate vendor response time. Today, it is considered to be an alternative strategy for firms who prefer not to allocate internal resources to years of development, testing and maintenance, with the added risk of the technology becoming obsolete by the time of launch. It is also a strategy that is growing in prevalence: according to a 2009 Deloitte Consulting poll of over 800 financial services executives, 74% of respondents reported that their firms have begun to outsource functionality.

The decision to outsource, however, should not be taken lightly and requires an appropriate level of evaluation to ascertain whether a vendor system is more suitable than an internally developed system. All firms should carefully evaluate the resource and time commitments before choosing to build or buy a system. If a vendor solution is the best choice, selecting the right vendor with a strong track record is essential. Finding a vendor, who can act as a partner and provide a sophisticated, robust and scalable solution that remains relevant, will ultimately allow firms to focus on the core of their business.

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