WHAT IS A MAKE-OR-BUY DECISION
A make-or-buy decision is the act of choosing between creating a custom business software in-house, or purchasing a software package from an external supplier. Therefore, the choice should be made between the business managers and the IS professionals. The make-or-buy decision compares the costs and benefits for the both options.
However, to decide if you should buy a software of build a custom one, you first have to determine your goal with the technology you are about to implement into your business, or what makes you want to have that package at all. Here are some considerations:
- Time – Does it help you achieve more with less (through automation)?
- Analytics – Does it help you maintaining visibility over operational items, costs, revenue and measure outcomes through easy-to-read reports and user-friendly dashboards?
- Product – Are you able to deliver a superior product and increase product quality?
- Trends – Can you advantage of future trends and new technology tools?
- TCO – What are the direct and indirect costs?
PURCHASE A SOFTWARE PACKAGE: WHY & WHY NOT?
Buying a software package can have multiple advantages and disadvantages for a business. We’ll talk about all of them in details.
- Reduced time and costs. The software package can be implemented much sooner than a custom built one. Therefore, the companies that acquire the software will share its development and upgrade costs.
- Allocation of Internal IS resources. Internal resources could focus on developing mission-critical applications that provide the firm a competitive advantage. Still, additional cost for customization by internal staff or consultants is usually necessary to make the system interoperable.
- High quality. The quality of a software package might be better than that of a custom system, because the vendor usually focuses on optimizing a business solution and spends much more time and effort developing the system.
- Best practices. Purchased software can provide the best practices for a specific business situation, or problem.
Smaller businesses mostly benefit of purchased software. Here’s why:
- Limited budget. Purchased software is cheaper and therefore can make much more financial sense for a company with a smaller budget.
- Lack of technical proficiency. If you do not have a software team with the necessary skills to build out this custom software, better buy one.
- Lack of time. Software takes a time and resources to complete successfully. There are a lot of software solutions already available on the market, optimized for specific business industries. Hence, if you have a common business, and especially if IT isn’t your core function, then better purchase then make.
- Process support. If the software won’t provide you with a competitive advantage, or support your core business processes, purchasing is a better idea.
- Lack of package knowledge. The package implementation can require significant training for IS as well as business personnel, which increases the implementation costs.
- Organizational changes. Organizations may have to change their business processes to support the new system.
- Vendor dependance. Firms that purchase or lease a software package also typically need to purchase services from the software vendor to help install and maintain the software for their business. The organization becomes dependent on an external IT provider.
Uncertainty about an organization’s needs is a significant barrier to packaged software adoption. Packages should be eliminated if they do not have particular required features or will not work with existing hardware, operating system and database management software, or networks. Evaluate how well the package will conform to current standards.
CUSTOM SOFTWARE: WHY & WHY NOT?
If an organization has an in-house development team, there is always the push to build because they can supposedly satisfy all needs, even if it is usually far cheaper and faster to buy than to build.
Companies should pursue this strategy if the built solution can help them achieve competitive advantage. You should dedicate significant energy, resources, and time must to its development. Here’s why a custom solution is a good idea:
- Increased productivity. You can create one comprehensive technology platform instead of using multiple different programs. An integrated platform like an ERP system, can provide you major efficiency gains since all the data is one place and users do not have to switch between different websites as part of their workflow.
- Competitive advantage.By designing your own technology that is ideally suited for your specific business operations and need, you can use that technology to gain a competitive advantage between your competitors.
- Business need. You can meet you specialized business needs. Purchased software generally addressesmany of the needs of most
- Customization. You can develop proper functionalities for your business, since purchased software is hardly modifiable.
- Integration. You can integrate with a wider set of APIs from different software and data partners, because purchased software may not be compatible with other programs.
- Faster reaction time. If you have a IS team of your own, you can build a variety of products, tools, and systems to follow business trends and changes in the industry.
Custom software disadvantages:
- Time and cost. Developing a customized solutions takes much more time and resources than buying a software package.
- Expertise. The software team assigned to the development should possess the right skills and expertise. Otherwise, the project is destined to fail.
- Purchasing options. There are a lot of software packages out there. Developing a software which is already on the market is a waste of time. So, if the custom software doesn’t provide you with a competitive advantage on the market or support your core business processes. You should consider buying.
Still, building your own software that is specifically tailored to your company’s needs, can help you highlight the difference between offering a commoditized service and offering a highly differentiated one at a better price.
HOW TO MAKE THE RIGHT DECISION
Determine the following aspects:
- Technology. The new technology should support an existing business need. That need should help the organization achieve its strategic goals and objectives.
- Business requirements. The technology should provide a solution to business problems and optimize core business processes.
- Architecture. What is the current technology infrastructure and standards? Because, the new solution should support them.
- Existing systems. Before deciding on a new solution, first determine if any existing system within the organization can be easily scaled or extended to meet your business need. Also, make sure that the new solution can integrate with the existing system without damaging its current benefits.
- Expertise. Do your employees have the needed skill set to build the custom solution? If not, make sure you provide them with the proper training, or apply better recruiting practices to find personnel with the necessary skills and experience to implement the solution.
- Purchasing. If you lack personnel, skills, experience, or you need a solution just to support business processes, but not optimize core ones, then purchasing a software solution might be the better solution.