To build or to buy?

Priya Jain examines the pros and cons of two disparate approaches to acquiring enterprise software—buying it off-the-shelf or building your own

The decision to buy or build applications is no longer based on the traditional thought process of purchasing when you need to automate commodity business processes or to build for core processes that differentiate your organisation. It is need-based and depends on factors such as availability, acceptability and expertise of the IT team in the company.

However, there are organisations that prefer buying applications and customising the same to suit their business processes. This helps the decision maker to fully utilise the potential of the commercial application.

“Whether to buy packaged software or develop it in-house depends on the software and the value that the organisation gains by developing it in-house. In case the cost of development, scaling up and maintenance is more than the cost of procuring the application off-the-shelf, then it is always a prudent decision to go for packaged software,” suggests Ravikiran S Mankikar, DGM-Credit & IT, The Shamrao Vitthal Co-operative Bank.

Wanted: vendor commitment

When a company buys an application, it must realise that it is getting into a partnership with the vendor. It is more than a commercial transaction since companies want to lock-in their data into the application. Therefore the long-term commitment of a vendor to the product, customer support, application upgradation, ease of use and maintenance, longevity of technology used, customer base and life span of application (past and expected foreseeable future) are the factors influencing application purchase. Technology platform and complexity of business requirements should be the factors to be considered while building applications.

Vilas Pujari, General Manager, IT, Tata International prefers buying packaged applications. He believes that packaged applications are built by deriving the best from the latest technologies, best practices across same or similar domains, and after extensive testing. Further, he says, “Technical and functional enhancements or upgrades are available in a timely manner at reasonable cost helping us budget expenditure on IT applications.”

Tata International trades in leather and has specific business requirements that were not met by ERP packages available and this led them to develop an application ground-up. They evaluated ERP systems and found that they would have to change many of their basic business practices to make the ERP system match their requirements. The other option was to customise which was not feasible.

“This requirement of our business made us opt for in-house development. This has been an excellent experience and the application has really given high returns on investment. However, in the last few years our organisation, like many others, is moving towards using packaged applications. We are using Ramco HRIS and are now going live on SAP (ERP) for our leather business soon,” says Pujari.

Pujari’s view is shared by most CIOs. With vendors providing the best technology and agreeing to be a partner in business growth it makes sense to go in for packaged applications.

However, there are proponents of in-house software as well. Globus Stores uses applications like merchandising management systems, point of sales, financial systems and SCM among others. Meheriar Patel, DGM & Head IT, Globus Stores also agrees that the choice of buying and building applications is purely need-based. He mentions that they believe in buying applications and customising it according to their requirement.

Patel states, “In case there is a specific requirement we also choose to go for in-house applications. For instance, Globus has built fabric software to support its organisational requirements.”

Another point elaborated by Pujari is dependence on IT staff, “Buying an application provides benefits such as lesser dependence on internal IT staff, lower overheads and flexibility to change as per business needs. While building applications lowers investment and is tailor-made to the business needs and hence would not pose challenges of change management.”

The case for in-house applications

Shamrao Vitthal Co-operative Bank has always believed in building applications in-house. Mankikar says, “In our bank, the Genius family of applications has been developed in-house. Developing the software has been cheaper and better than procuring software as the bank has been able to implement just the right blend of business requirements to suit all the customer requirements through appropriate technology.”

In case of in-house applications, customisation is minimal as it is custom built to user specifications. The development is carried out after being aware of the pitfalls and the advantages of the technology used and that technology is aligned to business needs. However, those who plan to go in for this should have a dedicated IT team in place to take care of software challenges.

On the other hand, in case of commercial packages there is no need to have a staff with specific skill sets, it is easy to procure and implement. It has better acceptability as the usage is across the board.

Mankikar further adds, “In case of in-house applications there is a need to have skill sets. The organisation needs to constantly upgrade skill sets in tune with changes in technology. It also requires continuing with technology as change required due to evolution may be expensive and re-inventing the wheel may be necessary. And in case of commercial packages the onus of maintaining skill sets is with vendor. The technology upgrade roadmap has to be adhered to by vendor and the cost of change is not factored.”

Patel says, “The aspects that affect the decision to buy or build applications depend on easy availability and acceptability in the industry. It also depends on the time and cost to build the application.”

Pujari however insists that in-house applications have disadvantages of continued dependence on internal IT staff, lack of documentation, delays in new technology adoption and continued bug fixing. “While packaged applications have the disadvantage of changing organisational practices in order to adopt the processes as laid down by the application, it also has high initial cost, risk of getting stuck with one vendor or application for life time (at the mercy of the vendor that can change terms midway like licensing policy, support costs among others),” he further adds.

Future Trends

Every business has its own requirements but the evaluation standards remain the same for a decision maker. According to Patel, the most important criterion to be kept in mind while building an application is the time taken to build it. The decision should be taken after comparing the value of the application to the cost involved in building it.

Pujari predicts, “We see a clear trend towards packaged applications specifically in core business areas in established business domains. In new and emerging businesses, some amount of in-house development will have to happen before best practices emerge, domain knowledge is enriched paving the way for packaged solutions.” Further, companies with niche requirements and small businesses will have to depend upon in-house development.