To Build or To Buy? Navigating the Enterprise Software Dilemma
In 2022, the enterprise software market was valued at $670.3 billion, projected to grow at a compound annual growth rate (CAGR) of 10.9% from 2022 to 2027. For modern enterprises, software is the lifeblood of operations and strategy. As businesses strive to digitally transform and leverage technology for competitive advantage, enterprise software decisions carry increasing weight and complexity. Should you build solutions in-house or buy off-the-shelf? What are the key risks and considerations? In this comprehensive guide, we’ll explore the nuances of choosing between building and buying enterprise software to empower your organization to make the optimal decision.
The Allure of Building Custom Software
A study by Deloitte found that the average cost of building custom enterprise software is $1 million. The average cost of buying off-the-shelf enterprise software is $500,000.
The option to build customized enterprise software is alluring for many businesses. By crafting tailored solutions, organizations believe they can create systems that seamlessly align with existing processes, integrate with other tools, and provide strategic differentiation. Building also allows for complete control over features and innovation cycles.
However, while the lure of customization is strong, building enterprise-grade software requires significant investments of time, resources, and expertise. Let’s examine the key advantages and disadvantages of creating proprietary solutions:
The Potential Benefits
- Total Customization
Purpose-built software enables you to incorporate niche features, workflows, and capabilities that integrate perfectly with your tech stack and business operations. Off-the-shelf solutions cannot match this degree of customization.
- Competitive Differentiation
For some industries, having proprietary software can potentially provide an edge over the competition. Building solutions in-house allows you to experiment with innovative features that set you apart.
- Enhanced Security
With custom code, you have complete control over the security of your software, reducing reliance on third-party vendors. You can build solutions to your exact security standards.
- Flexibility and Scalability
Scaling custom systems to accommodate growth and new demands is simplified. You avoid dependencies on external vendors’ roadmaps and release cycles.
The Potential Drawbacks
- Substantial Upfront Costs
Developing enterprise-grade software requires significant investments in scalable infrastructure, skilled developers, UX designers, QA testers, security experts, and more. These costs ramp up quickly.
- Long Development Cycles
Depending on scope, building software solutions from scratch can take months or years before deployment, delaying your ability to drive value.
- Talent Scarcity
Recruiting and retaining specialized technical talent to build software is extremely challenging in today’s scarce talent pool. Competition for skilled developers is fierce.
- Long-Term Maintenance
Once built, software requires ongoing maintenance, updates, troubleshooting, and patching. This constant care and feeding increases costs over time.
- Lack of Built-In Best Practices
Unlike vendors who refine solutions over years, your developers will be creating version 1.0 of your software. Knowledge around optimal workflows, features, and architecture may be lacking.
Clearly, the allure of total customization comes with substantial risks and costs. Next, let’s examine the alternative.
The Efficiency of Buying Software
Rather than building in-house, enterprises can choose from a multitude of off-the-shelf software solutions offered by vendors and partners. While buying eliminates customization, it offers advantages in speed, affordability, and reduced risk.
The Potential Benefits
- Rapid Deployment and Implementation
Choosing existing, market-tested software enables much faster deployment vs. long development cycles. You can rapidly start driving ROI.
- Lower Upfront Investment
Purchasing software involves predictable licensing costs and minimal infrastructure needs. The large upfront costs of building are avoided.
- Leverage Existing Expertise
Mature solutions incorporate years of vendor experience on optimal workflows, features, integrations, and UX. You leverage their expertise.
- Frees Internal Resources
Rather than hiring scarce technical talent, buying software frees your developers to focus on core competencies and innovations.
- Ongoing Maintenance and Support
Vendors handle ongoing updates, troubleshooting, security patching, and maintenance. These burdens shift away from your team.
The Potential Drawbacks
- Less Customization
Off-the-shelf systems cannot match the tailored fit of custom-built software, although vendors offer configuration options.
- Release Cycle Dependency
You must wait for the vendor’s release cycles for new features, updates, and fixes. No special access or control.
- Integration Challenges
Connecting purchased software with your existing tech stack may require complex integrations and API development.
- Lack of Competitive Differentiation
Popular off-the-shelf solutions are used widely, limiting your ability to achieve differentiation through technology.
- Vendor Lock-in
Once deployed, switching software vendors can be challenging due to investments in integration and change management.
Clearly, buying software provides speed and savings, albeit with less control. To optimize the build vs. buy decision, let’s examine key considerations.
Optimizing the Build vs. Buy Decision
Choosing between building and buying enterprise software requires carefully weighing a multitude of factors across your organization’s strategy, culture, and operations. Consider the following perspectives:
- Strategic Alignment
- How aligned is the software with your broader strategic objectives and digital transformation roadmap?
- Will it confer strategic advantages in your industry or market?
- Is this core to your business success or ancillary?
- Time Horizon
- Do you need software solutions deployed urgently to capitalize on a market opportunity?
- Or is a longer development cycle acceptable for maximum customization?
- Operational Impact
- Will the software streamline critical workflows and processes?
- Does it connect with related tools and data sources?
- Can it scale to meet projected operational demands?
- IT Considerations
- Can your IT team support and maintain this long-term?
- Does it require scarce skills or additional hiring?
- Will it integrate smoothly with existing infrastructure?
- Cultural Fit
- Does the software align with your culture and ways of operating?
- Will internal stakeholders embrace and adopt it effectively?
- Does it support any organizational changes on the horizon?
- Total Cost
- What are the estimated total costs over 3-5 years—both internal and external?
- Does the ROI justify the costs? How does TCO compare between options?
- What risks or hidden costs might emerge downstream?
By carefully evaluating these critical dimensions, you can determine the ideal path aligned with your organization’s needs and positioning.
A study by Forbes Insights found that 70% of organizations surveyed use a combination of build and buy strategies for enterprise software. In some cases, blending both approaches is optimal. You may buy foundational software from vendors while customizing on top to differentiate. Alternatively, you can utilize low-code dev platforms to quickly build some tailored modules. Prioritize where customization is most impactful.
Key Takeaways: Forging the Optimal Path
The build vs. buy decision requires a deep analysis of your strategic imperatives, operational needs, time horizons, and costs. Key insights include:
- Building software delivers customization at the expense of time and resources. Buying software sacrifices customization for speed and affordability.
- Blending both approaches is often optimal. Focus custom-building only on areas of critical strategic value. Buy foundational modules that will not confer a competitive advantage.
- Regularly re-evaluate TCO projections including ongoing maintenance, updates, integrations, and op costs. The long view may change build vs. buy decisions.
- Align to your time horizon and determine if you can tolerate longer development cycles. If speed-to-market is critical, buying existing solutions has the advantage.
- Consider if your developers’ scarce skills are best invested in software that will differentiate, or if their time is better focused on other innovations.
- Culture and change management are equally key. Ensure adoption and alignment by the organization, not just technology fit.
By following this decision framework, your organization will be empowered to make the right software choice to meet strategic goals, scale efficiently, and set the stage for success. The needs of the business should remain the guiding light.
While the build vs. buy dilemma has complexity, through careful analysis of the critical dimensions, you can craft an optimal path tailored to the unique needs of your enterprise. With the right software approach powering operations, your organization will thrive both today and into the future.
As companies strive to align their practices with evolving business trends and rapid technological advancements, the need for experienced bespoke enterprise application development has become more pronounced.
At our globally acclaimed enterprise software development company, we recognize the significance of staying ahead in the software game. Trantor’s proficiently trained team is dedicated to assisting you in crafting custom enterprise software solutions that resonate with your unique requirements. We specialize in seamlessly integrating these solutions into your existing systems, creating a harmonious software ecosystem. Our team of skilled developers is equipped to handle a cluster of enterprise applications, ensuring a comprehensive approach to your software needs.
Our Proven Approach to Enterprise Application Development
We understand that when it comes to enterprise software, two key factors reign supreme: maximizing Return on Investment (ROI) and minimizing overall development costs. Our time-tested approach to development is strategically designed to achieve both these goals, offering you an optimum balance. As you contemplate the build vs. buy dilemma, our expertise can guide you through this decision-making process.