EDM-as-a-Service: Buy versus Build – An Age-Old Dilemma

By Justin Brickwood, Chief Product Officer

‍

The ancient Greek philosopher Heraclitus famously said, “Πάντα ῥεῖ” (Panta rhei), meaning “everything flows” or “everything changes,” capturing the fundamental essence of the universe. These wise words still resonate, especially in the rapidly evolving enterprise data management (EDM) landscape, where investment and asset management firms grapple with constant change.

In an industry beset by cost control issues, skills shortages, emerging competition, and growing regulatory pressures, surviving and prospering in an uncertain market economy requires bold action. While everyone agrees that modern technology is the cornerstone of sustainable success, the biggest conundrum for many firms is whether to partner with an off-the-shelf EDM-as-a-Service provider or build a fully customized enterprise data management (EDM) system in-house. This decision is far from straightforward and demands careful consideration.

Industry perspective:

According to the recent Evolution of Enterprise Data Management in Finance Insights report published by Worldwide Business Research (WBR), some 97% of surveyed financial services leaders currently rely on enterprise data management services to clarify their investment life cycle. However, 77% stated they were only somewhat satisfied with their current systems, while 17% were not very satisfied and 1% were not satisfied. These are somewhat revealing responses from an industry whose lifeblood depends on access to validated data to drive business growth.

The importance of validated data

Before diving into the buy versus build debate, it is essential to underscore the critical value of validated data. Inaccurate or unverified data leads to poor decision-making and regulatory breaches, which could result in hefty fines and irreparable damage to a firm’s reputation. The importance of validated data, as cited in the recent WBR report, states that firms can only run confidently, knowing their decisions are based on correct, reliable, and compliant information, which provides the backbone of effective risk management, regulatory compliance, and strategic planning.

Industry perspective:

The WBR report further confirms this; however worryingly, most respondents claim their organizations are only somewhat effective or not very practical at data quality assurance, data integration, data analysis and analytics, consolidated multi-asset class investment data, and asset allocation and exposure management. These statistics underscore the importance of choosing an EDM solution that aligns with industry benchmarks for data accuracy.

Validated benchmark data at the core

Data source reliability is vital in an EDM environment, particularly in dynamic industries where data types and volumes constantly evolve. Validated benchmark data is a non-negotiable requirement which helps to ensure data quality, consistency, and reliability. It provides a trusted foundational layer used to compare, assess, and improve data quality before integration, find anomalies, and support decision-making processes, helping to drive optimum performance and measure capabilities across multiple systems, processes and products across the business. Without expert support, keeping benchmark data up to date is labor-intensive and error prone. It requires ongoing monitoring and updates and close collaboration between data management teams, IT, and business units to ensure everything aligns with organizational goals. In summary, the choice between buying and building an EDM solution appears to be heavily influenced by how firms value validated data.

‍

Buying an EDM as a Service Solution

In today’s fast-paced world, speed to market and flexibility are top priorities, resulting in many firms leaning towards a proven, cloud-first, ‘off-the-shelf’ option. While these solutions always require customization, such as tailoring reporting templates or integrating specific data sources, they enable users to address common data management challenges rapidly. Modern EDM solutions come with tried-and-tested processes that significantly reduce the risks of an in-house build program. Their inherent flexibility allows seamless downstream and legacy system integration and the easy adoption of emerging data types, such as ESG or Cryptocurrencies and new techniques, such as artificial intelligence (AI). Moreover, commercial vendors excel in support and maintenance, ensuring the solution stays current and functionally rich as part of their service level agreements (SLAs).

Industry perspective:

Firms acknowledge the transformative potential of AI in restructuring their operations, optimizing efficiency, and driving profitability. Notably, 56% of surveyed leaders ranked artificial intelligence adoption as their first or second focus.

‍

Industry best practices

Navigating the complexities of increasing regulatory compliance is no small feat. Validated data plays a crucial role here, ensuring compliance and reducing the risk of costly errors. With years of experience managing multiple client environments across diverse geographies, commercial solutions incorporate industry best practices and compliance with differing global regulatory standards. This robust framework ensures efficient, cost-effective data management while providing clients the control and oversight they demand.‍

Industry perspective:

When asked to name their two most significant challenges when leveraging their data in 2023, most respondents found reducing time to business value (51%). Over one-third of respondents (39%) identified regulatory compliance as well.

A predictable cost structure

With margins under constant pressure, rigorous expense management is crucial. Ready-made solutions offer a predictable cost structure, covering system management and maintenance, data licensing, usage fees, and subscriptions. This transparency simplifies budgeting and planning, making financial control more manageable. Cost predictability extends to maintaining data validation processes and ensuring ongoing data accuracy and reliability.

‍

A subscription-based service model

A vastly underestimated benefit of subscribing to a proven external service provider is the on-demand access to a deep pool of skilled data management practitioners and technologists. Their combined wealth of knowledge and practical experience not only ensures the delivery and ongoing maintenance of a robust and up-to-date solution, but the operational elasticity this approach provides enables the user to seamlessly flex their data management infrastructure requirements in line with changing needs with minimal impact on day-to-day business operations

‍

In-House development considerations

Every firm wants complete control of its destiny, but achieving stakeholder consent across the business is notoriously difficult for an enterprise-scale in-house development project. Considering this and knowing that time is of the essence, speed to market is paramount. While homegrown projects have their merits, building a workable EDM solution within a specified period is much easier said than done. Internal build projects are costly, time-consuming, and fraught with risk, often taking years to complete. The scarcity of appropriate skills can divert valuable resources from essential activities, potentially derailing or delaying the program and impacting other business-critical priorities.

Industry perspective:

When asked to rank four capabilities in terms of importance in considering their asset owners’ EDM investment management platform needs, most respondents (86%) ranked consolidation of internal and downstream systems as their most crucial capability; 67% ranked exposure management as their second most important capability.

‍

Cost comparisons

When weighing development costs against an off-the-shelf choice, the budget for in-house builds can be eye-wateringly expensive and unpredictable, requiring significant investment in hard-to-finds killed personnel, creating an innovative technology infrastructure, and ongoing development efforts. The revised support burden—including data sourcing, negotiations with multiple providers, training, updates, security patches, and evolving requirements—is also daunting. Additionally, the continuous need for validated data sets adds another layer of complexity and cost.

‍

A hybrid approach

Ultimately, the final decision can only be taken, following a thorough analysis of the firm’s needs, budget and time constraints, and strategic direction. In many cases, a hybrid approach—where specialist components are bought and others built—may offer the best balance of benefits. For example, a firm might subscribe to a commercial EDM as a Service platform but develop custom modules for specific analytical capabilities.

‍Industry perspective:

The WBR survey findings suggest a strong preference among financial services firms to leverage third-party enterprise data management (EDM) solutions. A significant majority (54%) of respondents indicated a ‘buy’ versus ‘build’ inclination in their EDM strategies, when and where they can. By outsourcing these operations, firms can focus more on their core competencies, ensuring optimal performance and competitive advantage.

Industry collaboration is crucial

Heraclitus’s insight that everything flows and changes captures the essence of enterprise data management. Therefore, if we agree that change is constant, collaborating on validated data solutions, rather than trying to reinvent the wheel all the time, will drive the positive transformation needed for success.