Buy And Build? The 'Enabling Technology' Approach Adopted By 8 Out Of The Top 11 Investment Banks | The Financial Technologist

Outsourcing is one of the more common ways banks have sought to mitigate the cost and risk of ongoing technology investment, leaving the financial institution to focus on its ‘core competencies’. The rationale here is that outsourcing companies must scale to service the needs of multiple firms, reducing ‘unit’ costs and giving all participating businesses the automatic benefit of service enhancements. While this makes theoretical sense, these benefits have to be balanced against the risk that an outsourcing partner might not deliver on promised performance levels or worse, that they might fail completely. In the context of a trading environment, the repercussions of these could be disastrous.

The exponential growth of the FinTech sector, and proliferation of companies each promising the latest and greatest technology solutions, has presented financial firms with even more potential choices with respect to buying a ready-made product and plugging it in, or funding and resourcing proprietary product/service development. The ‘buy OR build’ conundrum is particularly prevalent with respect to specialist software development.

Beyond this binary choice, however, lies a third, more nuanced approach: 'Buy AND Build’. That is to say, buying a ready-to-use product but with the ability to work with the provider to tailor it to fit within an existing tech stack, or to satisfy a specific business or performance requirement. Unlike full outsourcing and other buy OR build permutations, ‘buy AND build’ is a much more ‘enabling’ approach that also satisfies the psychological phenomenon known as the ‘IKEA Effect’.

The IKEA effect is where a higher perceived value is attributed to things that have been built with the active contribution of their ‘owners’ – rather than simply being delivered and installed in finished form. A comparable example might be the difference between buying an M&S ready- meal – albeit a high quality product – and sticking it in the oven, or sourcing one from HelloFresh where the ‘owner’ receives the right ingredients and recipe for their chosen meal, but is responsible for cooking it. Understandably, inhouse teams will likely be much more engaged when they maintain a degree of hands-on involvement and ownership of technology solutions, rather than simply being handed a third-party product to plug in to the tech stack.

That said, there’s an IKEA Effect sweet spot – the optimum point between having no involvement in something’s development at one end, and having to be too involved in its implementation and maintenance once installed on the other. In the trading software development world, striking this delicate balance is pivotal and frames the essential principles of what we refer to as ‘enabling technology’.