For most hedge funds, there is no debate on whether to buy software rather than build it. They are not software houses; their expertise is not in software development.
However, when you think of larger organisations such as the global investment banks, you might assume they develop most – if not all – their own software. You would be wrong.
Even these large institutions, with hundreds of thousands of employees including large teams of developers, buy software. In fact, Edgefolio has implemented software with several global investment banks, and supplies some of the biggest platforms for their cap intro businesses.
So why is buying software often the right choice even for large organisations?
Access to expertise. Rather than work to develop their own software, firms opt to purchase robust, tried and tested systems. This skips over the learning curve, taking the experience and expertise gleaned from years of work and hundreds of deployments, and just implementing the resulting product. Sometimes there’s just no value in reinventing the wheel. Other platforms may require some customisation or even specific development, but you are still building on existing knowledge and technology.
Speed to market. Again, rather than going on a journey of learning and discovery, firms can purchase software to fast-track their project. Software that may have taken years to develop and refine can be deployed within a fraction of the time, and with none of the uncertainty.
Cost control. Purchasing already-live software has a known cost. The software vendor clearly has a profit margin to protect, but the cost will still likely be far lower than if the financial services institution set about building it from scratch. And, above all, it is a known cost that won’t spiral due to unforeseen issues.
Risk mitigation. For a firm looking to process payments for example, it is essential that the technology works reliably and is secure. Most firms do not want to risk their reputation on a solution that is littered with bugs, or is clunky and difficult to use, or worst case simply is not fit for purpose. Furthermore for regulated entities or functions, the risk of non-compliance goes far beyond reputational damage.
Scalability and future-proofing. Firms need to use software that can scale efficiently, support their changing operations, and continue to deliver cutting-edge functionality as technology evolves. Keeping up with the pace of change can be very challenging for a company that is not rooted in software development. Working with an experienced vendor that is focused wholly on this piece of software and the challenge it solves liberates the purchasing company from this burden.
The reality is that to develop new software from scratch takes time and skill, and even then it will inevitably face challenges along the way. For the organistion undertaking the project, it is writing a black cheque for an unknown product with no confirmed delivery date. Rather than taking on this uncertainty themselves, many organisations – including large, global institutions – see the advantages of simply receiving the result; the finished product.