Last year, the Red Bull Racing team won its 100th F1 Grand Prix race.1 To reach that milestone, Red Bull had to meticulously control every detail of its race effort. However, one thing Red Bull did not do was build the engine.
Instead, like a number of other F1 teams, Red Bull currently outsources its engine production,2 they rely on engine manufacturers to produce and deliver them, freeing up the team to focus its attention on the other things that make the difference between victory and defeat.
Building the technology engine
F1 teams don’t buy pre-made engines off the shelf. Instead, they enter into deep, consultative partnerships with manufacturers to design custom engines that will mesh perfectly with their machines. This process works so well that teams are comfortable relying on people and systems outside their own organizations to produce what is arguably the most important part of their cars.
F1 owners understand that modern technology enables external partners to build exactly to the team’s specifications, and to seamlessly integrate the engine. Likewise, senior executives at banks and broker-dealers should understand that rapid technology innovation and advances in modular design have equipped technology providers in their own industry with the same capabilities.
Today’s Fintechs operate less like vendors and more like expert consultants, helping clients create and implement the technology engines that drive their organizations.
These partnerships can take whatever form works best for the client, some firms see specific technology systems as core value generators and maintain significant levels of technology talent and resources within their own organizations. In this model, the vendor might provide the platform that runs an application and the documentation that supports it, but then it’s up to the firm to complete the buildout using their own intellectual property to create a bespoke, value-added solution.
In some newer iterations, technology providers go a step further, allowing clients access to the equivalent of an “app store” where in-house developers can obtain pre-configured software components, alongside creating their own apps, that can then be used to assemble into their own trading solution. This approach is cost effective and provides the firm with complete control. However, it requires firms to have robust internal technology capabilities, as well as a certain level of experience in building and implementing complex systems.
Today’s Fintechs operate less like vendors and more like expert consultants, helping clients create and implement the technology engines that drive their organizations.
At the other end of the spectrum, the off-the-shelf Fintech model, delivers a more or less complete, turnkey technology platform. This can appeal to firms looking to quickly and easily install what might be considered a commoditized capability or function — one that takes care of the plumbing but does not provide the differentiator and might not contribute much in the way of value to their business.
Most firms find the sweet spot in the middle. Using this approach, the Fintech partners with the client on system design, and then taps into a broad suite of pre-built and often turnkey apps to construct a customized platform.
In today's dynamic financial landscape, technological evolution is not just an option but a necessity for survival. Yet, for many financial institutions, the prospect of upgrading aging legacy technology trading solutions can be daunting. The challenge lies not only in the complexity of integrating new systems but also in the need to ensure seamless continuity of operations while minimizing disruption to critical processes.
Herein lies the root of exactly why the “buy and build” strategy is so effective. It is a proactive approach that offers financial institutions a viable path to navigate the maze of legacy technology upgrades. Instead of starting from scratch, this strategy involves acquiring existing solutions and then customizing or integrating them to fit specific institutional needs.
The advantages of this approach are multi-faceted, with the six key benefits being: Speed to market, cost efficiency, scalability and flexibility, access to expertise, time to focus on core competencies, and regulatory compliance.
The buy-and-build strategy presents a compelling proposition for financial institutions looking to upgrade their aging legacy technology trading solutions. By combining the advantages of speed, cost efficiency, scalability, expertise access, focus, and regulatory compliance, this approach empowers institutions to embrace technological innovation with confidence, positioning them for sustained success in today's fast-paced and competitive financial landscape.
This accepted article first appeared in TRADE Magazine
1 Verstappen takes Red Bull’s 100th win in Formula One | Reuters
2 Honda RBPTH001 | Honda Racing