Kristen Goodell, Co Owner, HR Resource Force
Companies, both small and large, struggle to select the key software products that best fit their needs. Even within the same industry, the unique nuances of an individual business’s needs could mean adopting a platform that just doesn’t quite fit.
Six Key Considerations:
Cost
For many companies cost is the primary consideration in acquiring software. A small business often does not have the luxury to act strategically and take a long view on projects that will scale as their business needs change. Off-the-shelf software has traditionally been fast and cheap. However, many software companies have shifted away from offering free trial versions, no-cost implementations, and cheap support plans.
Return on investment calculations typically include: subscription cost, implementation fees, your growth plans, integration requirements, internal capabilities, hosting costs, tax implications of a capital versus operating expense, reduced data entry errors, and operations efficiency. And there are many more. Custom-built software can be seen as out of reach for many small to mid-sized companies but has become more affordable. Nonetheless, it is important to accurately calculate and objectively compare the ROI of all options.
Growth
Hockey great Wayne Gretzky is credited as saying “I skate to where the puck is going to be, not where it has been.” Successful businesses should think no differently when they select their technology tools. If you have outgrown any of the common ready-built accounting systems, you know that balancing today’s needs with tomorrow’s plans is an essential consideration. It doesn’t take long before migrating your data and integrations into a new platform becomes too difficult to be practical. What fits today will often not scale to work tomorrow.
Growth and industry alignment are important considerations if you are preparing your company for sale or if you are planning to acquire a company and plan to integrate systems.
Core Functions
In every industry, companies have key functions that must perform well in order to remain in business. Off-the- shelf software, even if it is very configurable, may cause inefficiency or create risk. On the other hand, a custom-built solution may waste resources if its purpose is to replace functionality that existing vendors have perfected in existing platforms. Only consider the more expensive alternative if the value to your company outweighs the cost.
In regulated industries with unique processes and layers of compliance, the advantages of agile, custom built solutions often outweigh the benefits of using commercially available solutions
Businesses that rely on accurate data and or have high turnover find value in eliminating human intensive manual processes with custom built systems.
Competitive Advantage
In cut throat industries it becomes more attractive to build custom solutions. This is particularly true if the providers of off-the-shelf solutions do not really understand your industry and the capabilities of existing service providers. Software companies are attracted to entering into large markets to the detriment of their customers after realizing the real needs in these large markets are often complex and specific.
In regulated industries with unique processes and layers of compliance, the advantages of agile, custom-built solutions often outweigh the benefits of using commercially available solutions. Companies that get this right dominate their industry. Off the shelf products can be slow and expensive to update because development costs are often only justified when it benefits enough customers.
Integration
The ability to manage end-to-end processes with efficiency can save tremendous money and time while ensuring accuracy.
Consider how much functionality is needed across the company for a particular task and what other products would need to integrate to fully complete a task. As a company grows, their manual functions become frustratingly difficult to manage when their tools are not built to scale. Off-the-shelf software is sometimes limited in its ability to integrate because the vendor that supplies it has not maintained good relationships with other vendors. This is more pronounced when the vendor does not understand the industry they are serving.
Internal Capabilities
Understanding your technical expertise and limits are critical. For small companies with limited staff the option to buy software has attractive cost and delivery benefits because it often comes with technical support and expertise that is not available internally. Off-the-shelf software is more attractive in industries where functional requirements change frequently that would require constant, ongoing development. An alternative is shared development software technology that a vendor develops to address a core need for a large client whose base platform is then used to reduce the development time and costs to build software for another client.
Conclusion
It is likely your company has faced, or will face, the decision to buy versus build software. Before your company chooses a solution, carefully weigh the pros and cons of buying an off-the-shelf solution or developing a custom solution. What makes the most sense for your business, your goals, and your bottom line is unique to your industry and company.
Common Traps Where Companies Fall
• Relying on their vendors to show what products are available in the market to address their core problems.
• Looking at a narrow view of the project goals versus how it is a critical piece to the holistic process.
• Using vendors who don’t understand your industry.
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