Drew provides a crucial perspective and knowledge set to Clearwater as the firm continues to build out its technology and services offering for its investment manager partners.
Drew’s expertise, developed over more than 37 years at top-tier global institutions, has focused on the intersection of business operations and technology. In executive leadership roles at PIMCO, Nomura, and Morgan Stanley, Drew helped set the vision for the role of innovative technology in daily operations to support trading, client servicing, and reporting.
Drew retired from PIMCO in 2017, where he was a Managing Director and CTO for five years. Prior to that he was CIO for the Americas at Nomura America Holdings, and CIO for Institutional Securities at Morgan Stanley, where he spent 29 years as a technologist, trader, and manager in both business and technology roles.
In financial services businesses today, CTOs face an ongoing set of challenges: increased complexity in business needs, budget limitations, competition for tech talent (as well as keeping up with an increasing pace of technology change), more regulation, and the ever-present cyber security threats. Now, more than ever, managers need to find leverage wherever they can to deliver cost-effective business solutions that allow them to devote budget dollars and key resources to the most critical business problems, without increasing their technical debt with more quick fixes and tactical solutions.
Fortunately, there are now more choices than ever to help solve those problems. In the last ten years or so, there has been significant growth in companies that provide high-quality solutions that you can buy — built and maintained by experts and delivered as services that are easy to implement and integrate with an existing technology footprint. The functionality available spans a wide range of business processes as well as many components of your technology stack. These days, there are great opportunities to buy a best of breed tool where good solutions are available and focus internal build resources on technology that can give your business a unique competitive edge.
Look at it this way: Boeing doesn’t build jet engines, Ford doesn’t make tires, Apple outsources screen manufacturing. Why? Because they can pay someone else who does it better and focus on their core business value proposition. So, the scales in the age-old debate of, “should we build it, or should we buy it?” have tipped significantly. My bottom line for today’s world is: Buy what you can, build what you must.
I spent my career as an IT leader and business manager at financial services firms that were highly biased toward building internal technology solutions and often defaulted to building instead of buying. We were quite adept at figuring out if we could build a solution and how to build it but didn’t always sufficiently explore whether we should build it.
A lot of firms in financial services operated that way. Why was that? In fairness, early on, there wasn’t much that you could buy that sufficiently met your needs if your business was in any way complex. We also put a high premium on innovation, customization, and the ability to make changes rapidly when needed, and many vendor products at the time were built for a least common denominator set of functions and slow to change. My firm even built its own internal email system in the early 80s because you couldn’t buy it then — Microsoft didn’t come out with Outlook until 1991. It was a huge productivity improvement, and I loved that my Email ID for the longest time was just “Drew.” Then there was the organizational bias: We hired engineers, programmers, user interface designers — people who build things. So, it’s not surprising that we were more inclined to put those skills to work rather than implementing someone else’s potentially mediocre software.
This approach resulted in some really excellent technology being built internally that contributed significantly to our business success. As time went on and external vendor offerings improved, I can’t help thinking that it also resulted in instances where we put resources toward building something because that’s what we were used to doing, when we could have bought a solution that met our needs instead. The technology world has continued to evolve at an accelerating pace, but old habits can die hard.
In retrospect, I’ve realized that the costs and resources needed to build, update, and maintain a large base of in-house systems are cumulative in the long term, and end up being higher than many would anticipate in their comparative cost calculations. You can’t build a system and walk away. For every system you build, some number of people then have to spend time supporting the software itself: new functionality, regulatory changes, security patches, new users, performance enhancements, just to name a few. Over time, you either have to increase your staff to keep up, or your teams’ capacity to deliver new software erodes to the point where most of the organization spends its time supporting what you already have.
The same goes for the infrastructure that it runs on: server and database capacity, operating system upgrades, increased network traffic, etc. All of that takes ongoing engineering effort and step function investments in equipment and space.
There is also pressure to finish projects as quickly as possible, and changes in priorities that require moving resources to the next project before the current one is complete. The result is a technology footprint that is increasingly difficult to change or maintain, inconsistencies in data, and increasingly unpredictable stability and performance. Broadly speaking, that is called technical debt.
What has significantly changed the build vs. buy equation for me over the last five to ten years is the substantial growth of vendors that provide highly specialized, high-quality solutions across a spectrum of business functions. Now, more than ever before, you have some very good alternatives to building solutions yourself. In many cases, you can buy a solution that is as good, or (more likely) better than what you could build on your own. Often these vendor offerings are the result of hundreds of people-years of development and continue to be improved through reinvestment in the platform. Software-as-a-Service (SaaS) has also been a game changer, making implementation of vendor solutions significantly easier and less risky from an execution perspective. And with SaaS offerings, you get the benefit of being able to do hands-on evaluations of the system with minimal upfront effort. So, you can make a decision with a high degree of certainty about what you’re going to get before you pay for it.
Leading technology vendors deliver services via the cloud. This is another consideration, and more investment managers are choosing cloud options to further streamline their tech stack. With cloud technology, you get out of the hardware, operating system, and backup business, because the vendor handles all of that for you.
A great example is customer relationship management (CRM) systems. Back in the 90s, my firm spent quite a lot of money building its own CRM system, because client relationship management was critical to our business, and there weren’t good options to buy. Now, it would never make sense to do that because you can buy a great solution from one of the several players in that space and quickly benefit from the significant investments that have gone into developing their products.
However, not all vendors are created equal. One critical factor to look at on the buy side of the equation is who the vendor is. You want someone who is highly experienced and focused on a specific product domain with a strong track record in their space. Domain expertise, implementation assistance, user training and support all matter. Find out how much ongoing investment is being put back into the platform, ask about the future roadmap for the product, and understand the release cycles. Also, importantly, get feedback from existing clients about their experience with the product and the vendor.
Another example is now closer to home: at one of my previous firms, my team was looking at Clearwater to help us solve some accounting and client reporting problems, and my first reaction was, “why can’t we build that?” My opinion changed when I considered the time and resources it would take to build and maintain something that had even a fraction of Clearwater’s capabilities: all the connections to outside data sources, data cleansing and aggregation, complete accounting calculations, extensive reporting capabilities, and the daily data reconciliation service.
All of those are critical functions, but not differentiating for your business unless you’re bad at them. I realized it was not a good use of our valuable resources and I didn’t want to be in that business. Instead, we could tap into a proven solution that met our needs and get it much faster. Add to that the fact that Clearwater is a web-based SaaS solution, and in my opinion the decision is pretty easy.
With technology, it is both wonderful and frustrating that there is never just one way to solve a problem. There are more options than ever to consider these days when IT and business leaders are looking at how to improve their businesses. There are still instances where building homegrown software for your firm makes sense, particularly when it’s a true business differentiator, but I advise weighing the benefits and drawbacks of building vs. buying rather than defaulting to your own biases. I suggest taking a portfolio approach and finding the right mix of solutions that balance optimizing your people resources and budget dollars over the long run. Use your talented team of internal resources wisely so they can focus on areas that will move the needle the most. For other solutions, research what’s already available and find a proven solution that’s the right tool for your business.
The bottom line — buy what you can, build what you must.