We’ve previously written about building or outsourcing investment technologies. As with any decision on purchasing or building something from the ground up, with a digital diligence platform (DDP), it comes down to internal decision criteria used to evaluate the trade-offs and opportunity costs. At DiligenceVault, we’ve identified 5 main considerations at play:
When building in-house
Using the factors above as a guide post, the biggest advantages derived from building a DDP solution in-house include the ability to have more control over every piece of the solution’s technology. When your in-house team builds the diligence platform, there is the opportunity to create a more unique and tailored solution that works to your firm’s internal and external stakeholder needs. For instance, there can be synergies gained from integrating with internal systems or applications that your teams have already created.
Depending on what the objectives and needs are of the firm, there may be a financial ROI if the project is of limited scope and an easy solution can be identified. The big contingencies are if there are no cost overruns and if the project has well defined requirements with limited additional needs. However, this is often not the case as new use scenarios arise or contingencies are added on. These additions often make gathering requirements tedious and lead to longer timelines and reduced ROIs as more resources are dedicated to the project. Additionally, it is hard to assess when to stop building, and not every feature has the same ROI.
With timing, there are a number of prerequisite steps before implementation. Resources need to be identified, budgets need to be approved, and then there is the actual building-out process. Each step in the process will take a set amount of time. With a delay at any stage, this cascades down throughout the process and increases the time before a new solution can be used. While an ambitious team will want to use their new solution within one to two quarters, it may take years for a new solution to be built out, tested, and integrated into existing diligence processes.
Even once it is built and implemented, a DDP is not a static solution. The platform has to be improved, new document types and data structures need to be added, and teams face staff turnover which require new or ongoing training. Improving the platform requires dedicated engineers working on it which means fewer resources available to allocate for other internal projects. Onboarding others means a resource team member has to be used to provide ongoing support for training internal or external users of the platform. The DDP will always be in beta, so the project feels like it is never complete. Hence, it will necessitate making tradeoffs on cost, time, and resources when building an in-house DDP solution.
When choosing to purchase
While parts of a digital diligence platform’s features can be created in-house, the purchased solution cannot be matched in deployment time, future proofing, and industry scalability.
Where there is a tax on engineers’ time to create and utilize an internal solution, this can actually be seen as an advantage in a market solution. Implementation times in a market solution are drastically reduced; features are already built out, and customization can be done quickly to fit your organization. This immediately shortens the adoption of a ready-to-go solution from years to a matter of weeks. Instead of gathering engineering resources or hiring a new team, you can redirect these resources to testing the out-of-the-box solution and focusing on their core competencies.
With an outsourced solution, there is constant feedback and improvements to enhance usability for all its users. Product improvements and new use cases are continuously addressed and new enhancements are constantly being added to the platform. There is no internal competition for engineering resources and each deployment is focused on making the end-product better. For example, if there are new analysis files, a solution that is outsourced will be able to more readily adapt and deploy to cloud platforms or incorporate new file formats.
Along the way, a dedicated client success team generates an immediate ROI with an outsourced option. With those new product updates, there are also specialists to support and help you leverage the features for your team. Being able to understand your use cases and then proactively make recommendations makes your process ever more efficient. Onboarding new teammates or external parties also becomes a breeze. A team can educate and encourage adoption of existing product features, saving your teams precious troubleshooting time and removing the need to maintain and upkeep your DDP solution. Getting locked out of an account, receiving email bouncebacks, or configuring user accounts for different rights and access are all activities that a client success team can quickly resolve.
With less time spent on building, testing, implementing and troubleshooting, there are time and money savings realized when using an industry-ready market solution. This quickly allows for teams to scale processes without the need for additional headcount.
A sustainable ecosystem
Ultimately, the decision that must be weighed is whether an ecosystem is important to your team and your firm. The purpose of an outsourced industry solution like DiligenceVault is to drive more efficiency than an individual firm in the market could create on their own. By building to serve both sides of the investment management ecosystem, the platform becomes a tool that can be mutualized across the industry. The goal is for the information requestor to see process improvements, faster turnarounds, etc. and for the information provider to realize a more productive and collaborative workflow. These benefits for both sides of the diligence equation cannot be replicated by an internally built system because those are purpose-built to service only one side of the ecosystem. In fact, over time, internally built solutions may lead to greater fragmentation and increase the requirements of training, maintenance, and usability of the system for everyone.
Productivity gains multiply as teams coalesce their disparate processes into an ecosystem and make their workflows more efficient. With more users across the industry, there is a real advantage to everyone purchasing an industry solution because there is a net positive effect for both the users on the collection and distributing side of any due diligence process. The centralized platform allows teams to stay agile with a solution that has more features for more users than a single purpose-built solution. Further, API’s create greater flexibility for developers and new solutions to integrate their technology stacks, systems, and tap into their existing processes more easily. Innovations are brought to the market faster, and more accessible across the ecosystem.
The advantages ofan in-house system are its ability to be focused on a singular internal use-case and flexibility of interfacing with your custom-built processes. However, these come at the opportunity cost of time, money, and ongoing maintenance that an outsourced solution can provide at a fraction of the costs. Additionally, when using an industry solution, it effectively frees up the resources and operational resources across all companies to build the best solution from an ROI standpoint.
Whether you build or buy a DDP solution, the benefits of a DDP are clear – it speeds up the time to analysis and is set up with an intention of fostering collaboration with internal and external stakeholders.
To learn more about our best-in-class DDP solution, book a demo with DiligenceVault.