Investing in software, should you buy or build?

When we are approached by clients with a need for a new software solution, we usually start by evaluation whether they are better of buying an off the shelf commercial solution rather than building their own custom one. The first thing we address is the scope of the intended product. Adding new software to a business usually also transforms the business in some sense and a common mistake made is to assume that the scope for the product needs to 100% match the current business processes, which is not the case. The client might have a few different off the shelf products in mind and it is important to do some research and find out to what extent these products match the client’s needs in terms of the core business.

Why do we take this approach? The purpose of adding/modernizing or replacing a software product used in business should always be centered in “adding additional revenue to the business”. This might sound like common sense but many businesses are simply seeing software investments as a cost of doing business and something necessary evil rather than an opportunity to increase their revenue.

Setting the business in the focus when doing software investments puts requirements in the center when deciding between buying and building. Here below x number of areas that need to be addressed in this process.

  • Analyzing the processes which this software product will be supporting
  • Analyzing the proximity between the off the shelf products and the companies needs.
  • Analyzing the real cost of the off the shelf product and compare that to a custom-made solution.

Analyzing the processes which this software product will be supporting

Before you can start analyzing the processes you need to identify them. Who will be using the software product and what processes are they involved in? Which of these processes are important enough for the business to invest money in them? Usually, these important processes are related to the core of the business and/or processes that significantly contribute to achieving business goals.

5 essential questions to address this, suggested by Peter Ducker:

  1. What is our mission?
  2. Who is our client?
  3. What does the customer value?
  4. What are our Key Results?
  5. What’s our plan?

The importance of documenting the core processes, both, as is today, but also conceptualizing what possibly can be improved. At Hire Quality we usually start up with email conversations, follow this up with flow charts and use cases and end up with full system documentation.

Analyzing the proximity between the off the shelf products and the companies needs

When you have a good grasp of what processes that are important and you have a plan for how you can increase revenue, it’s time to start comparing viable investment solutions.

Off the shelf solutions will not meet all your needs, for the simple reason that all businesses are different, all businesses differ in culture and processes. But, you are likely to find products on the market that meets most of your demands. Most off the shelf solutions have limited support of customizations and If you have very specific needs you are probably better off custom building your solution.

Off the shelf solutions also needs to fit with your existing infrastructure of software, and without taking this into consideration you might end up with compatibility issues where your new software cannot communicate with your old existing software.

Analyzing the real cost of the off the shelf product and compare that to a custom-made solution

Since an off the shelf product will not likely match all your needs, there is a cost involved in the loss of revenue compared to a custom-built solution. Furthermore, by going with an off the shelf solution you miss the opportunity to gain an edge against your competitors.

Your internal processes are dependent on the software product and with an off the shelf product you will be restricted in modifying your internal processes since you don’t control the software product and you cannot modify it.

Summary,

You can and should utilize software to leverage to drive market value and disrupt markets. In today’s competitive business environment, not putting software in the center of the business is a mistake.

Having a custom-made solution can give you a significant competitive edge, but it is important to make sure that you get a good fit for your business. There are off the shelf products that might be a good fit, but also take into consideration the real cost of using off the shelf product.