Conversations with industry-leading asset managers, asset owners, investment consultants and private wealth groups have all spotlighted one theme: how to optimize internal resources and third parties when approaching a technology problem or need. The rapid pace of innovation has made it difficult for even the best internal technology teams to ensure their systems meet the investment and client team’s progressively complex needs. In an environment where many firms are struggling to source and retain in-house software and investment engineers,  it’s even more important these resources are productively utilized.

What are some of the main considerations when optimizing internal resources and third party technology?

Build where you can differentiate

Build where your team can create differentiated value among your competitors. For example, have your quantitative developers focus on building your firm’s proprietary portfolio optimization or attribution models, not the underlying infrastructure to support those processes. Or, enable your talented team of front-end engineers to build an industry-leading portfolio analytics dashboard that’s powered by a third party analytics engine. Put simply, have your team take on projects that actually align with their skill set and then buy elsewhere.

Be realistic about cost and time expectations

The complete cost of a project is nearly impossible to be represented as an accurate dollar amount — remember, opportunity cost is just as important as monetary cost. Your team should carefully examine and be realistic about the impact of a project on a team’s general function and the objectives within your organization. It usually makes sense to buy where you can significantly decrease the project duration. This ensures the project aligns with the business objective timeline.

Understanding that building is just the beginning

The development team’s work does not stop once they deliver the application; rather it’s just beginning. You must carefully evaluate future personnel and budget resources to ensure an application or system will be continuously maintained and improved. From my own past experience and conversations with partners, we tend to underestimate the post-implementation costs. If continuous responsibility is a scary thought then it might make sense to optimize for vendor technology that sits at the core of the project — underlying infrastructure often requires the most labor intensive forms of maintenance.

Are your potential technology partners and their product the right fit?

When evaluating new technology  you also need to carefully pick the right partners. How you evaluate a partner matters.

Scalability & business uptake: Assess how to utilize their technology across as many businesses/workflows as possible.
Partners in success: You’ll know a good partner when you sense they’re evaluating you as a partner (and not just a contract) as well — they want to ensure your organization is the right fit and will actually fully utilize their technology. The most productive partnerships really are two-way streets.
Technology Roadmap: Equally as important, evaluate whether they will truly be partners — how will your technology vendor provide best of class support and align product development with your feedback?
Integration: Lastly, the ability to seamlessly integrate data structures is the holy grail. Make sure your potential vendor’s platform can ingest your data and align your very specific data structures within their infrastructure. 

Getting Started

How to optimize internal resources and third party technology is unique to each organization and it might be the most difficult component of the whole project. While your organization will never be able to perfectly predict future business needs and direction of the industry, it’s important that you have a decision framework that incorporates your technology vision with clear guiding principles. In this world of uncertainty, compressed fees, low growth and disruptive technology, firms need to be extremely diligent about how they allocate technology resources and dollars.