Figuring out whether you should buy or build software is a big challenge. Can an off-the-shelf solution be configured to meet your company’s needs? How much will it cost to build a custom solution? These are hard questions to answer. To help you on your journey, Mark Lotter and Jeremy Smith recently shared some recommendations for what to avoid in the process. Now, we’re sharing the times when building software is a better option than buying.
We’ve worked with many companies who've made the decision to buy or build software—decisions that have lead to success and failure. Through this experience, we’ve recognized a couple of scenarios where building a custom solution is almost always the right thing to do.
Build when your software enables competitive differentiation
One of the best examples of competitive differentiation presented in probably every MBA program in the US, is Walmart’s strategy to dominate their supply chain. If you want to sell through Walmart, you have to share sales and inventory data. This helps the retail giant manage extremely low inventory and gives them a huge advantage over their competition.
So what does that have to do with software? Well, every Walmart supplier has used Walmart’s Retail Link software to provide their data. Did Walmart use an off-the-shelf solution to make this happen? Definitely not. They knew that their process was unique, and they invested in building the solution to ensure they created the advantage they were looking for. Even though there have been many supply chain management applications built since Retail Link was released, Walmart continues to invest in the development of their custom software to maintain their unique advantage.
How does your company differentiate? Are you using off-the-shelf software to enable that differentiation? Packaged or SaaS software can provide table stakes, but if you want to stand out from your competition, you need to ensure your software creates the advantage you are shooting for.
Build when you are engaging your customers
Summa recently worked with a client who was concerned about inconsistencies between their customers’ digital and in-store experiences. We discussed the importance of curating the customer’s digital experience. This is difficult to do when you’re relying on an off-the-shelf solution—maybe even multiple solutions from multiple vendors—for brand promotion and differentiation. One of the client’s management staff really engaged with this idea. “You don’t want to outsource the customer experience,” he said to his colleagues. We couldn’t agree more.
A perfect example of a company choosing to own their customer’s experience is the B2B e-commerce giant Grainger. When they decided to start a digital sales channel, the options for an e-commerce engine were limited and primarily focused on B2C. Instead of trying to build on one of these platforms, Grainger built their own solution because they knew selling to businesses would be different than selling to consumers. For instance, they built in the ability for a buyer to make a business case for a purchase right in their app. They also made it easy to integrate with procurement and invoicing systems to reduce purchase friction. They knew these efforts would build loyalty with buyers. In 2015, the digital sales channels made up 41% of Grainger’s more than $9B in sales. “Outsourcing” their customer experience would not have afforded them the differentiating capabilities that lead to their success.
Does this mean that every company should build their own software, such as an e-commerce engine? Definitely not, but to use e-commerce an an example, you may want to extend the capabilities of an existing engine to strengthen engagement, like co-creating a product with your customer.
Have you outsourced your customer experience? Are you feeling pain from that choice?
When not to build
Packaged software solutions for critical but common business functions like accounting, CRM, HR, reporting, inventory management and others make perfect sense to buy. For example, unless your business strategy is based on an innovative and custom sales process, you are better off using one of the many strong CRM solutions available today. But even if your sales process is innovative, it is quite possible one of the CRM products can be customized or integrated with a custom solution to save cost and reduce your support footprint.
Let your business strategy be your guide for whether to build or buy (or do a combination of the two).
If you’re looking for software to create a competitive advantage or to engage your customers, you and your colleagues need to consider whether running the same off-the-shelf solution that your competitors are using will give you the return you desire. You can start small and explore with your customers and prospects. Beware of taking an inside-out view—engage your target market to get feedback so you know you're building the right thing.
If you’re unsure what your next step should be, we at Summa can collaborate with you to develop a technology strategy, define an execution plan and select the appropriate off-the-shelf product, custom solution, or combination of the two that gives you the value you need from your investment.