The fast-paced digital transformation is already driving businesses towards an experienced era. It's crucial to be consistent across all the communication channels by providing personalized experiences. Once it was just a “good to have” phenomenon. However, today it’s a “must-have basic requirement” for all.
Businesses are exploring every possible way to provide the perfect personalized experience to their customers. Brands are investing in unified customer profiles to better understand them and deliver them with superior services. There was a time when organizations used to invest in in-house custom application development. It has always been believed third parties can never better understand business needs.
Unarguable, IT teams in companies are capable of designing their solutions. However, it costs time, capital, and capabilities. Hence, some businesses believe third parties must be given the work for them. From designing to services, and management, third parties can handle everything meticulously. This saves them time and money.
To build or to buy technological solutions for the enterprise is still debatable. Businesses expect solutions that can cost-effectively balance their immediate requirements. When building the solutions, yourself, instant implementation is usually not possible. But is it a really good idea to include a third-party provider to develop solutions for your needs? Or is it wise to work yourself and include your resources only?
Today, in this blog, we are going to outline the risks, benefits, and vital considerations before answering the question. We will weigh all the potential outcomes that may or may not help your organization. Continue reading the article to make your final decision fruitful.
Key Factors You Need to Take into Account
The global enterprise software spending is projected to reach USD 3.8 trillion mark by the end of 2021. Back in 2020, it was USD 3.6 trillion, making an increase of 4% overall. As per the statistics, businesses are finding it highly convenient to purchase commercial software. Instead of building in-house software themselves.
However, this approach doesn’t work for every company. Every business experiences different and unique challenges. Software built for the general market may not 100% fulfill your brand needs. Hence, here are four key factors you need to consider before evaluating whether or not to build or buy the enterprise solution.
Businesses are always going to lean towards a better, cost-effective, and proficient solution. By building an IT project internally, companies can decide the layout, costing, and developmental phase. They can estimate their spending power and the expectation from the development.
However, building software internally takes longer and costs extra than estimated. Harvard Business Review shared one in six IT projects exceeds the overrun cost by 200%. With an extreme costing crisis, there is always the chance of project failure. Gallup reports estimated 5% to 15% IT failure rates annually. This means a loss of USD 50 billion to USD 150 billion a year in the United States.
On the other hand, a purchased software usually has a high upfront cost. It also has a substantial subscription fee annually. However, these expenses are known and can be predicted. Even with higher costs, purchasing software outweighs the unpredictability associated with building the software.
The major appeal of building an enterprise solution in-house is the factor of control over it. When building the software, yourself, you can mold the development as per your business needs. However, the downfall is you need to be reliant on the developers always.
The most common issue is that if the developer is no longer working in the company, there would be no one to resolve the coding issues. This will intensify cost by hiring a maintenance expert, who rebuild the codebase for you.
Whereas, if you are purchasing software, you don’t need a maintenance backup. Even though you won’t have control over it. But you can work closely with the designing company, help you improve it forever.
Every company has its own ecosystem for the applications. This has to be compatible with the systems beyond the business. For instance, marketing destinations.
Therefore, if you are building your enterprise solution then these crucial connections can be made. This is because the team would be capable of undertaking the massive process of connecting the multiple smaller solutions together.
But who knows a better, advanced, and comprehensive solution is already available in the market? Some software solutions work as an extension to your existing ecosystem.
When you are building the software yourself, then you don’t have to rely on the external teams for its maintenance. However, sometimes, the internal teams lack the required expertise in handling the issues.
On the other hand, purchasing software leads to proper maintenance all the time. The third-party will provide maintenance, data compliance, and use best practices to sort the issues. They can handle enterprise-level solutions conveniently.
The Risks of Building the Enterprise Platform
We all know not to use an elevator in times of fire. It’s a metaphorical statement where the elevator is building the software and fire is the status of your business. If your business can’t tolerate the burden of building the solution, then it’s a complete risk leading to failure.
● Opportunity Cost
The first risk in building the software in-house is considering the opportunity cost. When you are allocating resources to build a solution. You are technically taking your employees away from meaningful work. Is it worth it?
For instance, you have hired employees for your AI and Machine Learning enhancement program. However, you take them away from this to build a user retention dashboard. This act can demoralize the employees leading to resentment. This is the cost of the opportunity are you willing to take as a business?
● Compromise over Quality
Building software requires more capital and time as expected. When you are managing existing resources to build new software, can two projects be delivered on time? This is where compromise over quality takes birth.
If you start hiring new resources for the project, this can increase your estimated money. And if the project fails, it would be a complete waste of money, time, and new resources. Businesses that build beyond their circle of proficiencies risk structuring inferior products that lead to failure.
● Technical Debt and Deficit
Another risk of building in-house software is technical debt and deficits. Technical debt is the compulsion of fixing integrally flawed software structures. Businesses move towards technical debt when the problem requires a quick fix. And they desire to remain within budget and timeline.
The technical deficit is the lack of experts and financial assistance. This deficit leads to a lack of envisaging for completion of the project. When the technical debt converts into a technical deficit, the quality suffers leading to loss of capital and time.
● Negative Economies of Scale
Another risky situation with building software is the lack of economies of scale. Depending on the size of the organization, it's vital to consider the final output. Would the built product be enough to justify the cost of the operations?
Unforeseen expenses, for instance, server fees, and the monthly database charges are risks to consider. Businesses that are servicing many customers can distribute the costs of their software operations. They can maintain them evenly across their clients. If not, then building the software in-house can never balance the economies of scale.
The Risks of Buying the Enterprise Platform
Many software solutions provide a trial version or demo edition for their clients. However, it's difficult to implement a trial edition for an enterprise level business. With minimum exposure and an unworthy demo version, buying the platform can lead to severe losses.
● Data Forfeit
The first and foremost risk of purchasing the software solution is forfeiture of data. The world today is all about privacy, rules, and regulations. Therefore, when you are opting for buying the enterprise platform, consider asking about data security. Can the third party misuse your proprietary data?
Misuse of exclusive data can lead you to lose access to your customers. It can oversight the crucial consumer data required for business insights. This can disrupt the overall analysis that can prove as a failure for your business in the long run.
● Risks Associated with Security
Another risk that arises is the lack of security oversight. Consider asking yourself, can the third-party software developer be trusted? Are they practicing industry-standard cybersecurity? Blind faith in third-party solutions can result in the worst data breach and backlash.
It’s a known fact that enterprise-level businesses are often the targets and victims of cyberattacks. These attacks can lead to thousands and millions of compromised accounts. Even with fascinating security practices, breaches are common and mostly unpredicted.
● Not a Meticulous Solution
Another risk of engaging with an external supplier is a lack of a thorough solution. A tool or solution built for the general market may not be enough for you. It might not be sufficient to resolve the unique edge cases of your business.
For instance, your business faces a unique problem. However, you got successful to find an already built solution from the market. But after implementation, you realize the solution isn’t enough to completely resolve the issues. This may be because the market has never identified a particular issue before.
● Exposure to Partner’s Market Risk
Let’s assume that you have purchased a CRM tool and have successfully integrated it into your business module. After a year, the third-party decided to raise the prices, which is unexpected for you. After the price hike, the third-party solution provider goes out of business.
See, this is a complete waste of time and money. When you are using third-party vendors, confidence and trustworthiness must be there. All the external factors must be considered to make sure the health of your business remains unaffected.
Advantages of Building the Enterprise Platform In-House
Every business has its unique requirements, therefore, not every ready-to-use software solution is preferable. Even when there are many risks associated with building an in-house enterprise platform, there are some advantages of it as well.
● Ability of Customization
The first and foremost advantage of building an in-house software solution is the ability of customization. When building the solution, yourself, you are completely aware of the issues, requirements, and necessities of your business.
Once you are aware, it becomes easy to build exact specifications that can directly address the disputes. You can certainly have complete control over the developmental phase and features of the software.
● Data Protection and Security
When you are building a software solution yourself, you can control data protection as well. Data breach and security threats increase with third-party interference. However, when you are developing it yourself, the risk of security compromise decreases.
With complete control over the data, you can also use valuable business insights for the betterment of the business. This reduces the risk of data leaks, privacy compromise, and data theft.
● Opportunity to Self-Code
Another advantage of building in-house software is getting ownership of software codes. You will not just own the codes but can also market them and sell them for profit. This leads to cost cover, spent when developing.
It's common that the developers later leave the company. Which in fact, can cause a problem, especially when coding requires maintenance. You can either hire maintenance experts to help out. Or have in-house coders who know the coding to sort things out.
● Competitive Advantage
Businesses are always in the pursuit of gaining a competitive advantage over their competitors. If you build a solution yourself, you can gain an advantage over your rivals. If your adversaries have the same business needs, you can also sell your platform to them.
This allows your business to make money and recover the capital invested in the development. Once the capital is recovered, it would be a straight profit situation, earning to help you stand out in the competition.
Advantages of Buying the Enterprise Platform
Despite the risks with purchasing the software solution, there are some advantages for it as well. The majority of the time, businesses move to buy a solution instead of building one due to limited budget or time.
● Narrow Time Horizon
The biggest advantage of buying a ready-to-use software solution is that it saves time. When you are buying the enterprise platform, the implementation time also decreases. It lessens to a few weeks instead of months and years of building.
It's recommended purchasing an enterprise platform when your business problem is common. And a ready-to-use solution is available that fits your criteria well. Choose it especially when the business crises are threatening your organization's existence.
● Pricing Advantage
Another benefit of purchasing an enterprise platform is that businesses can receive a pricing advantage. Especially when you have a business buying the resources in larger quantities. This, in fact, costs less in the long run.
Using external products or third-party developed solutions always costs less. With monthly payments and fees, businesses can predict the cash flow. However, with bulk purchases, receiving a pricing advantage also lowers the pressure on the business financials.
● Support and Maintenance
No need of hiring maintenance resources when you are buying the enterprise platform. The support and maintenance work is always handled by the vendors. This also saves not just your time but also money.
In the case of an online or a SaaS application, the vendor would handle everything themselves. From hosting to networking to security management. While the third-party manages everything, this gives you time to concentrate on your business's critical functions.
● Access to Latest Features
Another value of buying software solutions is getting hands on the latest features of the platform. Third-party vendors are compelled to add the latest features as per the standards of the industry. This way, without effort, you can get unique features with minor additional charges.
Sometimes, some third-party developers don’t add on the charges instantly. They provide a demo version before. This way, you can test the feature and if found successful, you can utilize it in your overall model.
Build vs Buy – The Epic Framework to Evaluate
It's always a head vs tail scenario for businesses. There’s a 50% chance of making the right decision. However, the remaining 50% says it may fail badly. So, here is a three-part framework you need to consider before drawing a conclusion for your business.
1. Weigh the Problem
The first step should always be strategizing how to solve the problem. Access either the problem is common for the industry or it’s a unique one for everyone.
If it’s a common problem then you can find many successful and prove software. You just need to purchase them. However, if the problem is unique and has never been resolved. It's better to start building the solution for it.
Sometimes, even when the solution is available, it might not suit your business requirements. There could be some edges that might need to be addressed. In such a position, you can opt for a combined, build and buy strategy by developing extra plugins.
2. Evaluate the Budget
The next concern that needs to be addressed is accessing the budget. The majority of the time, businesses lack with funds to build an enterprise-level solution. That’s why it's easier to justify the monthly recurring payment module.
However, sometimes your business requirement needs you to build the solution even when the budget is not great. In such a time, businesses usually opt for loans, credits, and mortgage plans. Always consider your financials before deciding. Sometimes you can’t afford the loans and interests, therefore, purchasing may sound the best option.
3. Finalize the Timeline
Well, yes! It’s a known fact that building enterprise solutions takes months, even years to complete. There is development, testing, alterations, quality control, etc. involved. You need to determine do you have enough time to do this?
Time horizon is a crucial factor to consider. If building the solution is a threat to the survival of your business, then is it worth it? It's necessary to evaluate whether your decision can compromise the overall health of your business.
If you have the capital and time, then building the solution yourself is great. However, if you have the funds but the time doesn’t fit your schedule, purchasing is a better option. And of course, if you don’t have a budget and time, then you know the answer!
Building a customized platform can be considered a smart investment. But only if your business has sufficient time and resources for its development. When the resources are sacred and the business problem needs immediate attention. Buying the solution can be the top priority.
Always partner up with reliable resources for custom software development. At Tkxel, we make sure your voice is heard and your concerns are considered before developing a solution.