Build vs Buy: Factors to consider

Date posted
16 June 2022
Reading time
5 minutes
Samuel Bafunso
Digital Advisory Consultant · Kainos

Build vs Buy: Factors to consider

It is commonly believed that it is more cost-effective to buy software rather than build it, but this is not always the case. This debate is still very much prevalent today, especially with modern software development approaches such as DevOps, Agile, low/no-code platforms, and the evolution of cloud platforms in the last few years, to name a few.

According to Mckinsey, The Covid-19 pandemic has exacerbated the adoption of digital technologies and pushed businesses to adjust rapidly, embrace new business models and find new ways to connect with customers. This need for speed has raised the ongoing build vs buy dilemma.

In this article, I will briefly discuss some of the factors to be considered before choosing to either buy or build a solution.

 

Use case/Technology Purpose

One of the fundamental questions needed to be addressed before buying or building a software is what problem it solves, as the use case of the solution determines who the key stakeholders are. Are you addressing an internal issue, solving one of your customers pain points or differentiating your customer experience? Is the solution improving the operating model or enabling business model transformation?

For example, even companies with different business models, most likely operate with similar IT and HR processes. Hence, it might not be best to build a custom solution, considering there are a variety of technology vendors that have already developed proven out-of-the-box solutions suitable for various operating models.

 

Costs

Cost is usually the biggest debate when it comes to a buy/build scenario. According to Gartner, enterprise software is expected to grow by 9.8% to $674.9 billion 2022. In most cases, companies opt for the most cost-effective and efficient solution for their business. However, I personally think it’s a risky approach, as although it might save you some capital in the short term but there’s a huge possibility of compromising competitive advantage in the long run if it doesn’t add value to your. Furthermore, the decision to build or buy might substantially change the future shaping of your organisation, so the decision shouldn’t be based solely on costs.

In a build scenario, it isn’t uncommon that IT projects usually take longer than expected and often cost more than initially predicted. In fact, Gallup reports that one in 6 IT projects exceed  their estimated timeline and have an overrun average cost of up to 200%. However, this theory is based on old development models, as developing an in-house solution shouldn’t be viewed as a herculean process. Organisations can leverage on cloud services and modern development approaches to build faster, adaptive, and cheaper solutions.

Although, in a buy scenario, purchased solutions might have a high fixed upfront cost or subscription fee but the product is ready to use, whereas the resource needed to provide this in-house comes at a variable cost. Finally, another important, often overlooked element is the opportunity cost, as when you build internally, you are making a trade-off and choosing to divert resources from one project to the other.

 

Integration/Connectivity

Another factor to consider is integration and which option provides the simplest way to compete a task as this can have a great impact on business productivity.

If a project requires several integrations with different platforms, sometimes building an in-house solution might be easier than purchasing a SaaS solution which may not have all the integrations needed and is not built for change.

Every organisation has its suite of applications that all need to integrate flawlessly. Developing a solution in-house can ensure that these integrations are accounted for. For purchased solutions, it’s important to understand how the product integrates with the existing software (if it needs to) and how complex the integration process is.

 

Time to Value

Realising value quickly, helps companies gain a competitive advantage and keeps their customers engaged. It is generally believed that packaged applications offer a faster time to value but this is not always the case. It could be quicker if a proper assessment has been conducted with regards to evaluating if the solution is fit for purpose from a user perspective and has a functional and architectural fit with the organisation whilst also ensuring the right personnel is available to oversee the configuration process.

Furthermore, Iit is also important to note that an out of the box solution usually operates in a specific way, abiding to a specific set of processes. However, as businesses are not keen on adapting their procedures to align with the new system, this can consequently lead to an increased cost due to the customisations required for the solution including other associated testing costs and further updates.

Additionally, it is important to understand if the internal team has the capacity to build the solution within the agreed project timeframe and can keep up with the varying product requirements over time. If the issue at hand is time critical, buying might be faster than building as it will allow addressing pressing issues promptly.

 

Conclusion 

The decision to build/buy isn’t a one size fits all answer as organisations are like snowflakes. It is important for organisations to quickly react to change, and softwares can often provide that much-needed adaptability. One of the most important lessons from the Covid-19 pandemic is that organisations with rapid application development platforms were nimble and quickly adapted to the pandemic whilst others struggled. Building in-house solutions has now become faster due to innovations in software development, which is another important consideration.

In summary, the decision to build/buy should arise from aligning with business resources, capabilities, the potential to generate business value (either to differentiate your offering among competitors or gain more market share) and goals.

 

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Please get in contact with Samuel Bafunso at Samuel.Bafunso@kainos.com if you would like to find out more about our Tech Modernisation offering and Technology consulting capability.

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About the author

Samuel Bafunso
Digital Advisory Consultant · Kainos