Is make-or-buy still a topic? How to assess your decision correctly.
Introduction
When switching to new commercial software, e.g. in inventory management, ERP or CRM, it used to be common to have it developed—or even to program it in-house.
Missing specific functions, such as complex pricing in retail, were not always adequately covered by standard software and therefore had to be developed individually for the customer.
Of course, software vendors didn’t mind adding customer-specific functions, because custom development enabled customers to gain competitive advantages.
Since standard software is now increasingly mature and individual adjustments can often be implemented more easily through customizing, additional custom development has become less common.
Today, companies rely almost exclusively on proven standard software or industry solutions. This keeps the standard application intact and ensures the vendor can continue to provide updates.
So if you’re facing the make or buy decision in software development, you should definitely read this article so you can make the best possible decision yourself.
Pros and cons of standard software and custom software
Advantages of standard software:
- Continuous updates
- Legal changes
- Security vulnerabilities patched
- Standard interfaces to other systems already included
- Common business processes already included
- Modular design
- Proven in the market
- Costs can be calculated precisely
- Fewer errors/bugs
- Documentation available
- Software company provides consultants/consulting/service hotline (often) free of charge
- Always the latest technology
- Exchange of experience within user groups
- Easier to find qualified IT staff
Disadvantages of standard software
- Unnecessary functions; overly extensive
- Too many adjustment options
- The software vendor runs into trouble; key players leave the company
Advantages of custom software / in-house development
- Business processes are reviewed precisely and thoroughly
- No overhead functions that aren’t needed
- New functions may be implemented faster
- Ownership rights
- Software functions can provide a competitive advantage (USP)
- No license costs
- No fixed maintenance fees for unnecessary functions
- Independence from the software vendor/manufacturer
- Growth opportunities
- Agile development
Disadvantages of custom software / in-house development
- Skills shortage (good developers are expensive)
- Long development process
- Complete dependence on the developers
- Necessary, complex project management
- Unpredictable total costs (opportunity costs)
- Security vulnerabilities
- Core business suffers
- You can’t swap out the software overnight
- Documentation and training plans must be created
- Development abroad/in low-wage countries leads to many problems (offshore)
- Real control only with your own resources (at least partially)
- Complete dependence on external resources
- Unpredictable completion date (with agile development)
- Software life cycles are getting shorter and shorter
- Sunk cost effect
- Risk of groupthink
- No input from other companies
- Development costs and later maintenance costs are higher than with standard software
Criteria for or against the make-or-buy software decision
Pro buy (standard software)
- Little to no IT department
- The right vendor must be found
- No developers required
- Software must be deployable quickly
- Predictable budget for purchase and maintenance
Pro make (in-house development)
- Standard software doesn’t cover processes (USP)
- Control over source code and further development required
- Internal IT know-how (if developed in-house)
Approach to developing custom software
- Software development phase models must be followed
- Software must be built modularly (microservice)
- Open source yes/no?
- Keep time to market in mind
- Developers’ know-how and product understanding vary depending on the task
- Keep an eye on IT trends (e.g. cloud computing, serverless applications, Microsoft standards)
Approach to selecting and implementing standard software/industry software
- Needs analysis and analysis of available capacities
- Process and potential analysis
- Requirements analysis
- Create the requirements specification
- Selection management, preselection, performance comparison, and request to software vendors
- You can find a detailed guide to software selection here: https://www.der-digitalisierungsberater.de/Leistungen/softwareauswahl-beratung/
FAQ – Frequently asked questions
Was bedeutet make or buy?
Eigenfertigung oder Fremdbezug. Sprich selber herstellen oder eine Leistung einkaufen. Im Zusammenhang mit Sofwareentwicklung wird auch der Ausdruck Build or Buy verwendet.
Was sind die Gründe für make or buy?
Minimierung der Beschaffungskosten bei gegebenem technischen Ziel, sprich Kostenminimierung.
Individualsoftware was ist das?
Eine individuell für einen Anwender gefertigte Software.
Warum Individualsoftware entwickeln?
Wenn Geschäftsprozesse nicht durch Standardsoftware oder Branchenlösungen abgedeckt werden.
Conclusion
Today, we face a shortage of suitable skilled professionals and development resources. While capacity can be bought in, it means more project management effort, e.g. different time zones, languages, and cultures.
In addition, technology is evolving ever faster, making it very difficult for in-house development to keep up with major software vendors for standard software, operating systems, and industry solutions.
Before you start an in-house development project, you should definitely:
- run a combined software tender
- carry out a comprehensive cost comparison
- and perform a risk analysis
Because only AFTER you have all options and offers on the table can you decide which path is better for your project and your company.
Experience shows:
With a professionally executed software selection process, including comprehensive market research, you can usually find a software vendor with a high level of coverage for your requirements.
Get an overview for yourself:
With our software search engine, you can compare over 1,600 software solutions and vendors. This way, you’re guaranteed to find the right vendor for your company—one that can map all your business processes.
Good luck with your search!