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Navigating the Build vs. Buy Decision for Your Finance Technology Needs

Today’s Speaker

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Ø  20+ yrs in finance

Ø Expert in revenue recognition and back office automation

Ø Chief Business Officer at goTransverse

Ø  Favorite Food: Doritos! Mike Murphy, CPA

Today’s Take-a-ways

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•  Manual processes (the status quo) are the right answer

•  Upside/downside of growing your own solution

•  Upside/downside of going with a specialized vendor

•  Best practices when performing a build vs. buy ROI analysis for FinTech projects

Taking the lead in IT decisions

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Accenture 2014 High Performance Finance Study, CFOs:

•  40% drive decisions actions impacting tech investment

•  45% play the top role in monitoring ROI

•  23% are in charge of identifying tech to retire/replace

•  2 of 5 anticipate increased investments in cloud and SaaS by at least 26%, with 11% saying increase >50%

Source: CIO Insight coverage of Accenture 2014 High Performance Finance Study; http://www.cioinsight.com/it-management/it-budgets/slideshows/cfos-taking-lead-role-in-it-decisions.html

The Choice Chart for FinTech

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Do  Nothing   Manual  Processes  

3rd  Party  Solu7on  

Homegrown     On-premise or

hosted? On-premise, SaaS

or hybrid?

More Spreadsheets!

When Manual Processes Work

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Ø Start-up/early stage company

Ø New go-to-market strategy

Ø No/few business processes

Ø Opportunity cost to manage manually is less than the benefit of automation

photo  by  Craig  Chew-­‐Moulding  on  flickr  

Benefits of Manual Processes

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Quickly  adjust  to  market  changes  

Tes7ng  of  processes  

Evolving  business  model  

90  Day  Rule  •  Leadership    • Acquisi7ons  • Mergers  • Greenfield  product  offers  

When Manual Processes Fail

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•  Have repeatable processes filled by an ever-increasing accounting or finance (or sales, marketing, etc.) team

•  Can’t hire fast enough to satisfy demand

•  Inability to forecast revenue and/or expenses

Don't put off until tomorrow what you can do today.

-Benjamin Franklin

When Homegrown Works

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Ø  Light automation suffices

Ø Nothing in the market

Ø  Increases valuation

Ø Skillset and experience available in IT / Engineering

photo  by  Nata  Luna  on  flickr  

Benefits of Homegrown

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Highly  customized  to  meet  your  specific  requirements  

Control  over  the  budget,  7melines,  technology,  etc  

Feature/func7onality  addi7ons  tailored  to  business  

Poten7al  use  as  compe77ve  differen7ator  

When Homegrown Fails

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•  Bubble Wrap Bob!

•  Maintaining levels of compliance, service, and security

•  Inability to shift resources to other projects

Just  because  you  have  brilliant  engineers  doesn’t  

mean  you  can  do  it  faster  or  cheaper.    

photo  by  Andy  Smith  on  flickr  

When 3rd Party Software Works

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Ø  It meets core business requirements

Ø  Time-to-market is critical

Ø Current and future functionality useful in next 3-5 years

Ø Skillsets and experience in IT/Engineering not available

Ø Not a competitive differentiator

photo  by  ScoC  Maxwell  on  flickr  

Benefits of 3rd Party Software

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Vendor  responsible  for  support,  defects,  product  updates  

Vendor  incurs  costs  of  PCI,  HIPPA,  SSAE  16,  etc  compliance  and  security  of  solu7on  

Vendor  responsible  for  up7me  

Benefit  from  other  companies  using  the  system    

Focus  internal  resources  on  products  you  sell  

Time  to  value  can  be  much  faster  

When 3rd Party Software Fails

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•  Product only meets 20-30% of your use cases •  Inability to modify functionality in any meaningful way

•  Not compatible (or able to integrate) to other systems

•  Fixes and enhancements on the vendor’s schedule

•  Obsolesce or deprecation of versions or features

   

photo  by  Ed  Yourdon  on  flickr  

Software/Technology may help with business processes but it

can’t define it for you. Garbage in = Garbage out!

Best Practices for Build vs. Buy

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1.  Validate need for technology – no tech just for tech sake –  Legit business need? –  Awed by product hype or success stories? –  Added business value?

2.  Identify core business requirements

–  MUST be supported by the solution –  Ensure all business owners are included –  Business first, technology last

Best Practices for Build vs. Buy

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3.  Identify architectural requirements –  Information security strategy –  System interfaces –  Existing corporate standards

4.  Examine existing solutions –  Include solutions already in-house across all departments –  External solutions to extend in-house or net new

5.  Evaluate in-house technical capabilities –  Do you have the right resources to support a custom solution? –  If not, willing to have OJT?

Build vs. Buy Considerations

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Cost  Type   Build   Buy  –  OnPrem   Buy  –  SaaS/Cloud  

Build  Out  Cost  of  FTE's  required  to  build  out  the  solu7on    

Generally  SoZware  and  Hardware  costs  

No  Upfront,  part  of  the  service  

Implementa7on   Cost  to  implement*   Cost  to  implement*   Cost  to  implement*  

*  Do  not  overlook  the  cost  for  business  users  to  support  implementa7on  and  ongoing  training  

Administra7ve    

Cost  of  service  post  produc7on.    Password  resets,  technical  support,  etc.  

Cost  of  service  post  produc7on.  Password  resets,  technical  support,  etc.  

Most  vendors  include  in  offerings,  but  beware  of  hidden  costs  

Change  Management/  Upgrade/  Maintenance  

Cost  of  FTE's  to  maintain  the  solu7on  

Generally  a  %  of  total  license  fees  paid  

Most  vendors  include  in  offerings,  but  beware  of  hidden  costs  

Compliance  

Maintain  compliance  and  adhere  to  audit  requirements  for  PCI,  SSAE16,  HIPAA,  etc.  if  applicable.    

Maintain  compliance  and  adhere  to  audit  requirements  for  PCI,  SSAE16,  HIPAA,  etc.  if  applicable.    

Vendors  maintain  compliance.  Ask  to  see  cer7fica7ons.    

Cumulative Spend – Build vs Buy

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 -­‐        

 1,000,000    

 2,000,000    

 3,000,000    

 4,000,000    

 5,000,000    

 6,000,000    

 7,000,000    

 8,000,000    

Year  1   Year  2   Year  3   Year  4   Year  5  

Buy  

Build  

In Summary

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•  Build vs. Buy decisions are scenario dependent, even within companies.

•  Technology cannot fix poor business processes – beware of shiny red ball syndrome!

•  Remember to factor in person hours and opportunity cost of resources no matter the choice.

•  If you can’t make money on the IP, seriously consider vendor software. Spend valuable tech resources on your core competencies.

Additional Reading

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•  http://news.dice.com/2013/07/11/build-versus-buy-the-7-most-important-questions-to-ask/

•  http://www.3csoftware.com/to-build-or-to-buy-comparing-custom-and-off-the-shelf-software-applications/

•  http://www.lexicon-systems.com/pubs/white-papers/Lexicon_BuildVsBuyTenLessons.pdf

•  http://www.cincom.com/pdf/CM071218-1.pdf

Ask, Share, Learn – Within the Largest Community of Corporate Finance Professionals

Thank you!