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