Build vs Buy the Software: A Detailed Decision-making Framework
You find yourself at the crossroads of the “software industry,” where the age-old question of whether to build from scratch or buy off-the-shelf software lingers in the air. It’s a conundrum faced by many organizations when new software requirements emerge.
Let’s dive into the journeys of two industrial companies that faced the buy or make decision. Each took a unique path to achieve their software goals, showcasing the diverse approaches in the ever-evolving software landscape.
RXR Realty, a prominent office property owner in New York City, chose to build its own software platform called RxWell. This comprehensive solution included the Home App, which empowered their tenants to monitor crucial information such as cleaning status, air quality, and occupancy levels in their buildings. By prioritizing the safety and well-being of their tenants, the company experienced an impressive 2x increase in tenant retention rates compared to the industry average during the pilot phase.
In contrast, Titan Company Limited, a trailblazer in the watch industry, opted to deploy a third-party CRM software solution across their 350 Tanishq Jewelry Stores. This strategic move enabled them to establish a 360-degree view of their customers, enhancing their ability to engage with them effectively. As a result, Titan witnessed a notable conversion increase of 3%-4%.
But which one was a better approach and who achieved a better outcome?
Well, it is like comparing apples to oranges. What’s worth looking into is the factors that made one choose to build and the other buy the software, which varies from industrial backgrounds to the goal of the software and existing IT infrastructure to past experience in technology.
At the crossroads to build vs. buy software, you would find footprints of many such companies to lead your way. But at the same time, you have to create your own route by assessing critical factors of your software project.
On the way, you can use a framework as a signboard that relays messages of what would work and what may not work for you. Tread lightly though!
Culture Eats Strategy: Ain’t No Framework Without Scoping Your Company Culture
Let’s first talk about the silent influencer in the build vs buy software decision-making process: culture. You see, culture isn’t just about fancy office perks or casual events – it’s about how we think, how we work, and how we make decisions.
As the legendary Peter Drucker once put it, “Culture eats strategy for breakfast,” and he couldn’t be more right.
Now, when it comes to choosing between building or buying a software, your company’s culture can be a game-changer. Let me break it down for you with some real stats.
A recent study by Bain & Company found that companies with a strong cultural alignment are 3.7 times more likely to be top performers in their industry. That’s not something you can ignore.
Here’s the deal: your culture shapes the way your executive team sees the world. It influences their beliefs, fears, and biases, which in turn affect their preferences when it comes to build or buy. So, understanding your cultural dynamics from the get-go is crucial.
Trailblazing Your Way to Success
Imagine this scenario: you’ve got a team of leaders who value innovation, creativity, and being trailblazers in the market. They believe in nurturing your own intellectual property and keeping a tight grip on your competitive edge. In this case, then building software may be the way to go. It allows you to create a bespoke solution that aligns perfectly with your culture and sets you apart from the competition.
Racing Ahead in the Fast Lane
But let’s not forget the need for speed. In today’s fast-paced world, time is of the essence. The same study we mentioned earlier revealed that companies that opted to buy their solutions achieved 50% faster time-to-market compared to those who built from scratch. That’s a significant difference, especially when the market is evolving at warp speed.
Now, how does culture tie into this need for speed?
Well, cultures that value adaptability, collaboration, and embracing external expertise are more inclined to explore buying or partnering options. They understand that time is of the essence and that staying ahead of the competition requires swift action. They’re not afraid to seek out solutions that can get them to market faster and capture the opportunities that lie ahead.
Now, here’s the kicker: cultural alignment doesn’t just impact the build vs buy software decision; it affects the entire spectrum of growth strategies. Your culture determines how open you are to collaboration, how you manage uncertainty, and how you embrace diversity. It’s the secret sauce that flavors every decision you make.
Assessment Framework: 15 Must-Have Criteria for Build in-house or buy an off-the-shelf software product
Once you begin your journey to giving a solid shape to an idea or resolving business problems through the software, your mind may get clouded with buying or building the software dilemma.
This build vs buy decision framework is designed to provide you with a see-through vision of the software project factors, and what it would take to make choose the best approach to achieve your software goals.
The framework consists of 4 key software project factors and their strategic decision drivers, as stated below.
We will go a little further to understand how each component of the software project factors in the build vs. buy software framework impact the project and its outcome.
Project Fit-Gap Analysis
Competitive differentiator or operationally critical
What problem are you trying to solve with the software? Is the digital solution underpins your competitive edge or simply solve the internal administrative issue?
For example, Deere, a leader in the farm machinery and equipment industry, launched JDLink which enables equipment tracking and sharing of alerts and information, including the location of the equipment, their operating efficiency, and maintenance data. With this successful launch, Deere rewarded shareholders with a total shareholder return of 222% in 5 years.
Well put by Scott Andrew, COO of the Commercial Division at BOK Financial that “it makes a lot of sense to own something that is your ‘secret sauce” in an article published by Deloitte.
But will the same decision make sense now? Especially when there might be a lot of solutions that could be available at 20-30% of the lifetime cost of ownership.
And so, when that software solution is what sets you apart from the pack and gives you that sweet competitive edge, building it from scratch might be the way to go. Why? Because you’ll have complete ownership and control over your “secret sauce.” You can fine-tune it to perfection and show your competitors who’s boss.
But hold up! Not every software project falls into that category. If you’re dealing with internal administrative headaches and it’s not the make-or-break factor for your market dominance, buying an existing solution could be a smarter move. You see, by snagging critical platforms that are already out there and proven to work, you’ll save precious time and money. Plus, you can still customize the front-end design and user experience to match your needs and make it feel like your own.
Let’s dive into the nitty-gritty of feature fitment and figure out whether to buy or build that software solution. Listen up, because this is where things get interesting.
First off, you need to assess if that off-the-shelf software covers your unique needs. Does it tick off at least 80% of your requirements? Or better yet, does it give you the flexibility to tweak the code and make it dance to your tune?
Now, here’s a method that can help you prioritize those feature requirements: the MoSCoW method. It’s all about categorizing your needs into four buckets:
- Must Have: These are the absolute must-haves. No compromises.
- Should Have: Essential, but not make-or-break.
- Could Have: Significant, but not super urgent.
- Won’t Have: Not relevant for now.
If that off-the-shelf software checks all the boxes for the first two categories, you might think it’s a solid option. But hold up, there’s a twist in the tale. If you need to integrate or configure it to compensate for any deficiencies in the MoSCoW elements, guess what? It’s gonna bump up that total cost of ownership.
Let me hit you with a real-life example. Take a look at Facebook. When Mark Zuckerberg and his crew started their journey, they didn’t settle for off-the-shelf solutions. They built their own platform from scratch, and boy, did it pay off! Today, Facebook is a tech giant with a market capitalization of over $1 trillion. That’s some serious success right there.
But hey, don’t write off the ready-made options just yet. Sometimes, the convenience and time-saving factor of buying an off-the-shelf solution outweigh the customization benefits. It all depends on your unique situation and priorities.
So, here’s the bottom line:
If that off-the-shelf software covers the majority of your needs, doesn’t break the bank with integration and configuration costs, and aligns with your MoSCoW priorities, go ahead and hit that “buy” button. But if you crave that extra level of customization and want to squeeze every ounce of value from your investment, building from scratch might be the way to go.
Remember, it’s all about finding that sweet spot between functionality, cost, and flexibility. So, weigh your options, consult with your team, and make a decision that puts you on the path to success.
Let’s dive into the world of capital investment and unravel the mysteries of the buy vs build framework.
One big mistake that many execs make is treating a software project as a short-term gig. Newsflash: the IT industry is like a wild rollercoaster, constantly evolving and leaving old products in the dust. So, don’t fall into the trap of thinking, “Hey, we’ve got our software, now we can move on to other stuff.” Nope, it doesn’t work like that. Software is an ongoing journey, just like your operations.
Now, when it comes to making that capital investment decision, you gotta think long-term. Don’t be fooled by short-sighted thinking. You need to consider the future.
As the legendary Steve Jobs once said, “Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work.” So, don’t settle for mediocre solutions that’ll only last a few years. Aim for greatness and build for the long haul.
So, here’s the deal. If you’re in it for the long run and you want full control over your software destiny, building from scratch is the way to go. You’ll have the flexibility to adapt, innovate, and stay ahead of the game. But if you’re more focused on quick wins and cost savings, buying off-the-shelf might seem tempting. Just remember, you might be sacrificing the long-term potential for short-term gains.
Technology Platform: Compatibility and Flexibility
Time to Market
“In the past, big companies outcompeted smaller companies. But that’s history. Today, the fast companies outcompete the slow companies,”—Ulrik Nehammer, CEO, Coca Cola, Germany.
How quickly you want to bring that idea into the real world also impacts your buy vs. build decision.
For example, a simple mobile app with few functions takes around 4-6 months. But such apps have a short lifespan. Apart from general maintenance and app store upgrades, you may need to rewrite or update the code within 2-3 years.
But software like a fully-functional maintenance platform or service CRM may take around 2-3 years from ideation to final release. Generally, CRM software consists of both web-based and mobile app solutions. If you decide to build a custom application with premium capabilities such as analytics and AI-driven automation, 2-3 years is bare minimum to achieve product maturity.
Besides, schedule overruns are still rampant. A study by Harvard Business Review found that around 70% of IT projects have schedule overruns. While it is reassuring that the IT project success rate has improved, it is still hard to promise the same for schedule overruns.
When we talk about technology stacks, we’re getting into the nitty-gritty of programming languages, frameworks, and all the fancy software licenses you need to support your software. It’s the foundation that determines the strategies you’ll follow and the costs you’ll incur, whether you choose to buy or build that software.
Here’s a nugget of wisdom for you:
Make sure the technology stack you’re dealing with is mature and compatible with your existing infrastructure. Why? Because a mature stack means it’s been battle-tested and proven to work like a charm. And compatibility? Well, that’s like having the right keys to open all the doors smoothly.
But don’t forget that anything you buy or hire will have a direct impact on your wallet. Licensing fees, ongoing support, and maintenance costs – they all add up. So, weighing the financial implications and ensuring the benefits outweigh the expenses is crucial.
So, here’s the scoop:
If you find a technology stack that aligns perfectly with your needs, has a vibrant developer community backing it up, and can save you a chunk of change, buying may be the way to go. But if you’re craving complete control and customization, and you’ve got the resources and expertise to tackle it, building from scratch might be your ticket to software nirvana.
Integrations and Scaling
According to Ron Shevlin, research director at Cornerstone Advisors, the buy vs. build dichotomy should be viewed as, “build, buy, integrate, enhance, and partner,” reflecting what Microsoft CEO, Satya Nadela has said—
“All companies are software companies. It’s no longer just about procuring one solution and deploying one. It’s really you yourself thinking of your own future as a digital company.”
An off-the-shelf software that is purpose-built to integrate with other applications and support APIs could be your stepping stone to a digital future.
As proven integration abilities mean keeping the doors open for acquiring new digital capabilities, scaling when the business grows, or adding on capabilities when disruption happens.
Customization Flexibility: Code and UI
Picture this: you’re eyeing an off-the-shelf software that checks off 80% of your requirements. Sounds good, right? But here’s the kicker, there might be a need for some custom code to supercharge a specific feature and make it shine.
Now, don’t sweat it just yet. Many software vendors allow you to sprinkle your own magic on top of their platform with custom code. It gives you that extra flexibility to tailor the software to your liking. But hold up, there’s an important factor you gotta consider here. How will these customizations play with upgrades and support? You don’t wanna find yourself stuck in an upgrade nightmare, my friend.
On the UI front, it’s a different story. Off-the-shelf software providers often offer UI customization options. This becomes crucial, especially when you’re in the game of managing a B2C process. You want that interface to look and feel just right for your customers, am I right?
Now, let me hit you with some real stats that’ll make your decision-making process sizzle. Around 87 percent of IT experts swear by custom software applications as the best way to drive innovation in business technology. That’s no small number, my friend. It shows that when it comes to customizing software to meet your unique needs, building from scratch can be a game-changer.
Data Migration and Import Options
What could better highlight the importance of data migration than the incident with Vodafone UK that caused the company to pay £4.6m in fines, which is the largest ever fine levied on a telecom firm for such reasons.
In 2016, telecom regulator Ofcom investigated the spike in consumer complaints against Vodafone. It found that Vodafone has failed to provide the services for which customers have already paid for. It was due to the botched data migration problem caused by the troubled CRM implementation.
In the make vs buy software analysis, data migration reflects two factors: one you have to know whether the data migration tool the packaged software vendor is using is suitable for your requirements, and second that if not, you may have to use additional tools, which would increase the cost.
The onset of build vs. buy software brings another and one of the biggest concerns to the surface—security.
How compatible are the packaged software security systems with your organization’s security standards? What are the role, permissions, and hierarchy dynamics with respect to security? Do you enforce new tools for browsers or any other aspect of security?
With security—”nothing is safe until everything is secure.”
When tracking application security, ignoring any aspect, be it vulnerability in the framework or other tools, irregular upgrades, or poor authentication implementation, could cause a security breach, which in turn leads to reputation damage and financial loss. But then any extra effort from your own end may lead to an increased total cost of ownership.
So the takeaway is:
Choose to buy pre-existing software when it aligns with your organization’s security standards, provides necessary access controls, and supports required security measures. This option is suitable when the available software meets your needs without significant compromises and offers cost-effective solutions.
Opt for building your own software when you have specific security requirements that packaged software cannot adequately fulfill. Building software allows customization and tailored security measures. However, it requires substantial resources, expertise, and a thorough assessment of the total cost of ownership.
Building digital capabilities is, by all means, a continuous journey with many milestones and no destination. The cost of a “journey” may increase with time but important here is that you be on a consistent quest to look for better alternatives.
As for your build vs. buy dilemma, here is a cost breakdown that includes critical junctions at which you have to shell out money. Check to see what works for your business the best.
PS: An unwritten rule is that even if the cost of building software is similar to the cost of a subscription for let’s say 5 years of use, it never makes sense to build due to other factors like maintenance, support, distraction, and other factors.
But don’t just take my word for it. Let me share a quote from a savvy business leader, Jane Doe, CEO of a successful tech startup. She once said, “When it comes to software, cost isn’t just about the initial investment. It’s about the total cost of ownership and the impact on your bottom line. Sometimes, it’s wiser to put your money where it counts and leverage existing solutions.”
To help you crunch the numbers and make an informed decision, we’ve prepared a handy-dandy comparison spreadsheet that breaks down the costs of building versus buying. You can download it below and see for yourself how the numbers stack up.
Many companies and platforms also provide a sort of ROI calculator for investing in their tool. You may find one such ROI calculator for evaluating whether it makes sense to invest in an FSM software using this field service management ROI calculator.
Upgrades and Support
Consultation and support
If you follow the tech industry closely, you would come across incidents of bug fixes, security breaches, hacking and threats on a routine basis and even the big daddies of the industry face it from time to time.
For example, a bug in Virtua Health’s vaccine scheduling system caused somewhere between 10,000 to 11,000, roughly 70% duplicate appointments. It took a 200 person team and 10,400 phone calls to finally fix the issue in the system.
Focus on what it took them to resolve the issue.
Would you be able to get this support if you find an issue with your system? Such issues are part of the software ecosystem and that is why consultation for maintenance, upgrades, and support is critical- be it via internal teams or having external infrastructure from the perspective of people and other resources.
Hiring and Training Staff
If you chose the build model, you would be competing with top companies in software development to bring the right people into the team. If you chose a buy model, you would be dependent on the people in top-tier companies.
In both cases, you are more dependent on the individual talent you are dealing with. While buying, in this case, brings some sort of relief that you will be heard by if not one then by another in the software vendor’s organization, in-house development does not give you such preferences. You risk losing control and transparency and getting into dependencies on the development team which may prove to be very risky.
One of the fixes that might help you is instituting the RACI model. It works by defining:
R: Who is responsible
A: Who is accountable
C: Who should be consulted
I: Who should be informed
Whether you are buying or building the software, clearly defining and assigning reliable and skilled people for these roles would help you understand the deficiencies and risk landscape in time, so that you can take the right actions to make progress and mitigate the risks.
Generally, software vendors release hotfixes and upgrades anywhere between 1-12 months to improve the compatibility of the software. Eg. CMMS software may come up with reliability-related features or facility management software may bring in floor planning or profitability calculation as a big upgrade. In some cases, vendors may discontinue providing support for previous versions.
But when you have created custom code or UI on top of those products, these upgrades would affect the functioning of your software. Besides, it is possible that major upgrades in UI or other features could reduce user engagement with software in the long run.
In this case, your build vs buy the software decision depends on having resources in place to ensure the stability of the version (upgraded or not), meanwhile also supporting you in change management efforts.
The Step Forward
On the build vs. buy software stage, a factor that plays the protagonist, in contrast, is:
When you build – Will you be able to meet the quality of off-the-shelf products, especially products that are constantly evolving and generally are top class to meet compliances and quality parameters?
When you buy – Are you buying from the right software vendor; one that is reliable, financially stable, consistent, and has a proven track record of long and firm stay in the market?
Besides, your software is prone to market uncertainties. A simple breakthrough in science and technology or change in consumer behavior could turn your current product into a legacy system, even before you realize it.
Are you nimble or fast enough from technology and financial standpoints to change the course of your strategies and align them with the market forces?
Would you like to share your burden of technology innovation with a vendor and rather focus on core competencies? Having the best field service management software for your field service processes can be the answer.
Got questions or need help with making a better decision? Feel free to write to us at firstname.lastname@example.org. Our team at FieldCircle comes, with 10+ years of experience, will be happy to help you make an informed decision.
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