The options for building or buying software seem straightforward – but for businesses, choosing between building custom software in-house or purchasing off-the-shelf software is an important strategic decision with significant implications. Buy it or build it has become a common phrase that encapsulates this decision-making process.
Developing custom software allows for a tailored solution but is risky and expensive while buying software enables fast deployment and lower costs but limits customization options.
There is no single right choice, so businesses must weigh the pros and cons of building vs. buying based on their unique needs, resources, and goals. In this article, we explore the key factors to consider, share lessons from real-world examples, and provide guidance for making the choice that is best for your organization.
With the growth of cloud-based and open-source solutions, build vs. buy has become an increasingly complex question. However, by understanding all your alternatives, determining the key priorities that matter most, and evaluating options objectively, any company can make a build vs. buy decision with confidence.
Let’s dive in!
Table of Contents
When choosing the best software development strategy for your business, you face a fundamental decision: should you build custom software solutions in-house or purchase off-the-shelf software packages? This is known as the “build vs. buy” dilemma.
There are pros and cons to each approach that depends on your unique business needs, technical capabilities, budget, and risk tolerance.
On the one hand, building custom software provides the most flexibility and control over development, but also introduces the greatest costs, risks, and time requirements. On the other hand, buying packaged software gives you an out-of-the-box solution at a lower upfront cost, but with less room for customization and greater reliance on the vendor’s roadmap.
For many businesses, a hybrid approach using both in-house and off-the-shelf software provides the right balance. But determining the optimal build vs. buy strategy for your organization requires evaluating your options objectively based on factors like:
By evaluating these factors thoughtfully and objectively, you can make a well-reasoned build vs. buy decision that helps ensure you choose the most strategic and effective software development approach for your organization.
With the right solution in place, you’ll be able to accelerate business value, reduce risk, and gain a competitive advantage through better technology management.
Developing software solutions in-house, rather than purchasing off-the-shelf software, offers some significant advantages for businesses. However, it also comes with additional costs and challenges that must be considered.
Building software internally allows for complete control over the development process and unlimited customization options. The final product can be tailored precisely to your business needs. In contrast, off-the-shelf software provides more generic solutions that require workarounds.
Internal software development teams have deep knowledge of your business processes, data, and systems.
They can ensure seamless integrations and interfaces between new software and your existing infrastructure. This results in fewer compatibility issues and a more streamlined user experience.
An in-house team can make changes and improvements to software much more quickly than an external vendor.
They have direct access to user feedback and key metrics to prioritize enhancements based on actual needs and usage patterns. Software built internally continues to adapt over time to optimize business outcomes.
Although building software requires significant upfront costs, these expenses may be lower over the lifetime of the solution compared to licensing and maintenance fees charged by some vendors. The total cost of ownership can be lower, especially for customized, mission-critical systems.
By developing software internally, you maintain complete control over the systems and data.
There are no third-party vendors with access to your infrastructure or sensitive business information. This helps reduce security risks as statistics show that developing software internally helps avoid the 44% of businesses that suffered a data breach from third parties in the past year.
Ensuring your systems and data remain under your complete control also helps prevent the 74% of breaches that resulted from providing too many permissions to external suppliers and partners.
Internal development allows you to maintain compliance with privacy and security standards by limiting access to only your authorized employees.
Custom, innovative software solutions can provide a competitive advantage that is difficult for competitors to replicate. If implemented successfully, internal software development can lead to new capabilities and insights that strengthen your business’s market positioning.
An in-house team immersed in your business domain is ideally positioned to develop creative new solutions and features that delight your customers. They understand your users’ key pain points and can build software that provides seamless, frictionless experiences.
Internal development also enables an experimental, fail-fast approach to innovation that might be harder to achieve with an off-the-shelf product.
Building software internally allows for a highly flexible approach that can adapt quickly to change.
As business priorities shift or new opportunities emerge, your development team can pivot direction rapidly to align technology with strategy. They can also dismantle solutions that no longer provide value and redeploy resources to higher-priority initiatives.
This level of agility might not be feasible when relying on external vendors and their product roadmaps.
In contrast, developing software in-house also introduces higher costs, greater risks, and additional complexity:
Salaries, benefits, overhead costs, and other expenses associated with a dedicated development team can be substantially higher than purchasing an off-the-shelf solution. These costs must be justified by the value provided.
Building complex business software solutions often takes longer than purchasing and implementing a pre-built product. Development cycles of 6-24 months or even longer are common, during which time resources are tied up, and opportunity costs increase.
There is a growing shortage of talent with the skills required to develop high-quality, mission-critical software. Recruiting and retaining top developers can be challenging and expensive. Many software engineers also prefer to work for large technology companies rather than in-house at a business.
The field of software engineering is constantly evolving, with new languages, frameworks, philosophies, and best practices emerging frequently.
An in-house team needs to continuously upgrade its skills and stay up-to-date with innovations to build the most effective solutions, requiring ongoing investments in training and resources.
Choosing in-house development means committing to the technology stack and systems that are built. These solutions become deeply integrated with a company’s business processes and data. However, technology evolves rapidly, according to statistical trends, technology grows exponentially.
Processing capacity increases by 2x every 18 months. Over 89% of Big Data has been generated in the past two years alone. Over the past 50 years, technology has grown at a steady and rapid rate.
Sooner or later, the systems may become obsolete or too difficult and costly to maintain, requiring a difficult and expensive migration.
Buying packaged software solutions off-the-shelf is often an attractive option for businesses looking to develop new software. Off-the-shelf software has some key advantages over building custom software:
Lower upfront costs are one of the primary benefits of selecting commercially available software over building proprietary solutions.
The software is already designed, developed, and built, so little additional work is required to get it operational. Off-the-shelf solutions are created for a wide range of customers, allowing costs to be spread across many buyers.
In contrast, in-house software development demands a major investment of time and resources for a single client.
Off-the-shelf software is ready to deploy, so you can realize value from it in a matter of months, not years.
In contrast, the time and effort that goes into designing, developing, testing, and refining customized software results in a far longer timeline to implementation and a slower ramp to gain, as illustrated above.
The ongoing licensing and maintenance fees for off-the-shelf software are frequently less expensive than the salaries and overhead required to maintain a custom software solution. There are fewer resources needed since the software is not tailored to your unique business processes.
There is less uncertainty with an established software product versus building something new from scratch. Off-the-shelf software also typically comes with vendor support, minimizing the risks of system failures, bugs, or other issues.
However, off-the-shelf software also has some downsides to consider:
Limited customization is a downside of packaged solutions. They are designed to be broadly applicable, so they necessarily lack the deep customization that can be achieved with custom software built specifically for a business’s needs.
While packaged software can provide an effective and affordable solution for some common requirements, for many companies their customized processes and complex workflows ultimately require a tailored software solution.
A one-size-fits-all approach will not match the intricacies of every business. With custom development, every detail can be crafted to optimize the software for a specific organization.
Using third-party software introduces more reliance on the vendor and ties the solution to their strategies and schedules.
Users have less influence over the direction of the software and must depend on the vendor for new features, fixes, and ongoing maintenance. The software is not within the business’s control and the vendor could cease developing or supporting it at any point.
Off-the-shelf products are not always the perfect solution for a company’s customized needs. They are designed for generalized use cases, not the specialized requirements of every organization. As a result, they may imperfectly meet a company’s needs or end up being a mismatch.
In addition, these generic applications typically do not integrate seamlessly with other systems. They require extra software, time, and resources to handle data sharing and transfers between the solutions.
It is difficult to fully know how well an off-the-shelf product will satisfy a company’s unique demands until after purchasing and implementing it. There is a greater likelihood of it proving an imperfect or mismatched solution for the organization’s actual needs.
Off-the-shelf software solutions often have patchy functionality or lack critical features altogether, necessitating workarounds. They do not provide the complete range of capabilities and tools that every organization needs.
As a result, businesses end up with software that does not fully automate core business processes or improve productivity as promised. Return on investment suffers when additional resources must be spent patching together the solution and addressing its shortcomings.
Building custom software in-house typically requires a larger upfront investment than buying an off-the-shelf solution. You need to pay developers and fund the development process. Buying software usually just requires licensing fees.
For small businesses with limited budgets, buying software may be more affordable. For example, buying a customer relationship management (CRM) tool may cost $12-$200 per user per month, while building a custom CRM could cost $200,000-$500,000 upfront, of course depending on complexity.
If you need a solution implemented quickly, buying software is probably a better option. Developing software from scratch can take months or years of development time.
Off-the-shelf software can usually be deployed within a few weeks. For example, if you urgently need to comply with a new set of regulations, buying a pre-built compliance tool may be the only way to meet the deadline.
If your business lacks technical expertise, building software in-house will be very challenging. You need skilled developers, project managers, and IT staff to build and maintain a custom system.
Buying software does not require as much technical knowledge and is easier to implement and manage. If your internal team has limited technical experience, off-the-shelf software may be a more viable and less risky choice.
With custom development, you have full control over the features and functionality. The software can be perfectly tailored to your needs.
Off-the-shelf solutions provide limited ability to customize the software to your specific requirements. If your needs are highly unique, building from scratch may be the only way to get the functionality you want.
However, for most common business needs, the customization options of commercial software are sufficient.
As your business grows, will the solution you choose be able to scale accordingly? Built software can be designed for scalability, but may require re-architecture. Commercial software typically provides clear scalability options but may require costly upgrades to unlock higher limits.
Now that you have identified potential build vs. buy strategies to meet your software development needs, it is time to evaluate the options to determine the optimal approach for your business.
This evaluation should start with determining your key priorities for the solution, such as cost, speed of development, flexibility, and integration with existing systems.
Research commercial off-the-shelf solutions that meet your needs to evaluate against building custom software.
Look at options from vendors of various sizes to find the right balance of features, cost, and support for your company. Also determine the costs of developing the software in-house, including both upfront development fees as well as ongoing maintenance and support costs.
Conduct a thorough cost-benefit analysis that compares the total costs of ownership of each solution over the expected lifetime of the software.
For off-the-shelf software, calculate licensing, subscription, integration, customization, and upgrade fees. For custom software, estimate development, testing, deployment, and maintenance costs. Also, evaluate the potential ROI of each option.
Assess the options not just from a business and technical perspective but also by getting input from key stakeholders.
Meet with decision-makers, sponsors, future users, and subject matter experts to get their perspectives on the pros and cons of each solution based on factors like the ability to meet requirements, ease of use, and adaptability.
Their feedback will help ensure the final choice has broad support.
Software needs to evolve over time, so plan to re-evaluate your build vs. buy decision regularly based on changes in priorities, business goals, technical capabilities, and other factors.
What seemed like the best choice at implementation may no longer meet your evolving needs years later. Be prepared to switch strategies if needed to maintain an optimal software development approach.
In conclusion, choosing between building custom software solutions or purchasing packaged software solutions depends on multiple factors. Some key considerations include:
At the end of the day, determining when to build vs. buy software depends on evaluating which options will deliver the most value for your unique business needs, constraints, and priorities.
With clear thinking around these key factors, companies can make an intelligent choice that supports their digital transformation and success. A balanced perspective will ensure solutions are built only when truly needed, and bought whenever possible, for optimal results either way.
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