August 11, 2023

Build, Buy or Partner

A Strategic Decision for Finance Software Vendors

McKinsey just published their annual “State of AI 2023” report. This latest report stands as a testament to the explosive growth of AI tools. Within merely a year of staggering growth of players in the AI eco system, these tools haven't just been experimented with but have become an integral part of business operations. Astonishingly, a third of the survey's respondents confirmed their organizations' regular use of generative AI in at least one business function, showcasing its swift embrace.

“While reported overall AI adoption remains steady at around 55 percent, more than two-thirds of respondents say their companies plan on increasing their investments in AI."

Michael Chui, McKinsey

The Business Opportunity

Providers of finance platforms such as ERP and invoice automation face a significant business opportunity if they are able to meet the market demand, as companies AI ambitions races ahead of platform capabilities.

The potential of AI hasn’t gone unnoticed when it comes to financial commitments. An impressive 40% of organizations are set to ramp up their AI investments, spurred on by advancements in the generative domain.

The promise of AI isn't just in streamlined operations but in the unparalleled value it brings. Tech giants are eyeing a potential windfall, with a possibility of adding value equivalent to 9% of the global industry's revenue.

The Future Perspective of Autonomous AI

With the rise of AI, the world of finance is undergoing a transformative shift. At the heart of this revolution lie autonomous agents—AI-driven entities capable of making decisions and adapting without human intervention. As finance processes become increasingly complex, these agents promise not just automation but intelligent autonomy, capable of handling tasks ranging from invoice management to real-time data analysis. While automation tools streamline operations, autonomous agents enhance accuracy, efficiency, and adaptability, challenging traditional finance mechanisms and setting the stage for a future where financial operations are not just automated, but self-evolving.

How Do Finance Platforms Keep the Competitive Edge?

In the midst of the AI revolution, providers of finance platforms face a race against time. The accelerated market demand for smart technology creates an innovation imperative. Those sluggish in adoption risk not only falling behind but becoming obsolete. The inability to match the market's innovative pace can result in significant consequences. As user expectations evolve, platforms that don't integrate AI might witness customer attrition. Furthermore, in a fiercely competitive landscape, this lack of innovation could cripple their capacity to attract new business, jeopardizing their market position and future growth prospects.

To maintain a competitive edge, platforms stand at a crossroads. They must decide how to seamlessly embed AI to ensure competitive leverage. As AI evolves from being a cutting-edge luxury to a fundamental necessity, it's crucial for C-level product leaders to judiciously weigh their options: build in-house, make strategic acquisitions, or forge beneficial partnerships.

1. Building In-House: An Ambitious Foray into Uncharted Territories

The allure of developing AI capabilities internally lies in direct control and tailored alignment with platform-specific objectives. Yet, this venture is not without its challenges:

  • Expertise Shortage: AI is an intricate ecosystem. Not every financial entity boasts ready access to domain experts, data scientists, and ML engineers.
  • Resource Implications: The financial and temporal investment required to bootstrap AI from scratch can be daunting.
  • The Risk of Missing the Mark: As highlighted by McKinsey's report, a misstep in understanding AI nuances can result in non-optimized or outright failed initiatives.
  • Time-to-Market Dilemma: Lengthy development cycles can render in-house solutions outdated upon launch, allowing agile competitors leveraging best-in-class third-party partnerships to dominate the market.

Historically, many software vendors, burdened by their own legacy solutions, have grappled with financial setbacks, often finding themselves stretched thin on resources, talent, and time, thus faltering in fulfilling their ambitious technological roadmaps.

“Generative AI [...] will still need highly skilled people to build large language models and train generative models."

McKinsey Insight

2. Acquiring AI: Quick Integration with Potential Pitfalls

Acquisitions may appear to be the fastest track to assimilating AI prowess. But this path brings its own set of complexities:

  • Premium Pricing: In today's competitive landscape, AI enterprises command top dollar.
  • Integration Roadblocks: Merging acquired technology and culture is seldom a smooth transition.
  • Agility Concerns: Post-acquisition, adapting to emerging technologies might become a constraint, potentially hindering innovation.
  • Due Diligence Challenges: Fully understanding and assessing the potential value and risks of an AI acquisition can be daunting given the technical complexities and rapid pace of AI advancements.
  • Hidden Costs: Beyond the initial acquisition price, there can be unforeseen expenses related to technology integration, training, and potential system overhauls.

Acquisitions, while laden with potential challenges, can be a synergistic strategy: large firms gain immediate access to innovative AI solutions, while acquired smaller entities benefit from the vast resources and market reach of their new parent company.

“High performers are particularly strong in staying focused on value, and then rewiring their organization to capture that value."

Bryce Hall, McKinsey

3. Partnering: The Contemporary Strategy for AI Mastery

Given the intricate challenges of building and buying, partnerships with AI-as-a-service providers emerge as a compelling strategy:

  • Instant Access to Expertise: Strategic alliances ensure platforms leverage state-of-the-art AI solutions.
  • Cost-Effective & Agile: Avoiding infrastructure costs and development delays, partnerships offer a swift and economically prudent route to market.
  • Securing a Competitive Position: Partnering ensures a proactive market stance, keeping platforms a step ahead of competitors, be they internal developers or high-spending acquirers.

While partnerships offer swift integration and a competitive edge, they also necessitate careful alignment of mutual objectives and vigilant oversight on data security. Additionally, there's inherent risk in dependency, as partners might shift business models, face integration complexities, or encounter unforeseen challenges that can impact long-term collaboration viability.

The Power of Modern API Integrations: Simplifying Third-Party Collaborations

Modern APIs act as the linchpins in today's technological fabric, enabling seamless integrations with third-party vendors. Their standardized interfaces and robust architectures simplify collaborations, effectively bridging disparate systems.  

With an API-first approach, businesses can rapidly onboard new tools, fostering agility and innovation. Furthermore, they ensure data consistency and integrity across platforms, enhancing reliability. In a world where time-to-market is pivotal, modern APIs reduce integration timelines, allowing companies to leverage best-in-class third-party solutions without reinventing the wheel. In essence, they democratize access to technology, making partnerships more accessible, efficient, and scalable.

Conclusion: Navigating the AI Landscape with Foresight

In the race to AI integration, decision-makers face a multi-dimensional challenge: balancing resource allocation, time-to-market, and ensuring cutting-edge technology adoption.

While building or buying have their moments of merit, the McKinsey 'State of AI 2023' report, combined with industry trends, highlights partnerships as the avant-garde approach. As financial platforms stand on the precipice of the AI revolution, strategic alliances, offering a blend of speed, expertise, and economic prudence, seemingly emerge as the linchpin for success in this transformative journey.

Embracing the AI wave necessitates a discerning eye. At Kaunt, we firmly advocate for harnessing best-in-class solutions available in the market, understanding that reinventing the wheel internally can sometimes become a quagmire of time, resources, and misaligned ambitions.  

This isn't to undermine in-house ingenuity but to recognize the rapid pace of AI evolution and the myriad of experts trailblazing in this space. Our rigorous Proof of Concept (POC) programs underscore our commitment to partnering only with the industry's crème de la crème.  

In an era where AI is not just a technological advantage but a competitive imperative, it's imperative to choose the right strategy, be it building, buying, or partnering, to ensure that the edge remains sharp and effective.

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