Navigating the Build vs Buy Dilemma in Enterprise Software
The question of whether to buy or build is a timeless dilemma that applies to many aspects of life, including enterprise software. For executives at numerous companies, this decision is a multimillion-dollar conundrum. This article aims to simplify the dilemma and guide decision-makers toward an informed choice.
Why Application Retirement Matters
When organizations modernize their systems or go through mergers and acquisitions, they often end up with outdated applications that are no longer in active use. These legacy systems can create technical debt—a term used to describe the extra work and costs that arise from using outdated technology.
Here’s why retiring applications properly is crucial:
- Financial Risks: Maintaining old systems can be expensive due to licensing, support, and infrastructure costs.
- Security Risks: Outdated applications may run on unsupported software, making them vulnerable to cyberattacks.
- Operational Risks: As employees leave or retire, the knowledge needed to maintain these systems may be lost.
- Business Risks: Data stored in old systems may become inaccessible, complicating compliance with data privacy regulations.
Key Strategies for Application Retirement
The Reality of Software Development
- Commercial Off The Shelf (COTS) Software: The existence of a multibillion-dollar COTS industry, including Free and Open Source Software (FOSS), underscores that most companies cannot build all their software in-house. It is rare to find a commercial operation that does not use any COTS software.
- Software Diversity: Software comes in various forms, such as operating systems, web servers, chatbots, databases, and more, each requiring different expertise.
- Ongoing Maintenance: Software is not a “build it and forget it” proposition; it requires continuous maintenance and updates.
- Resource Intensity: Developing and maintaining software demands expensive resources and skilled personnel for installation and operation.
- Personnel Challenges: Top software talent is often opinionated and scarce, particularly those who understand both the core business and coding.
- Turnover and Complexity: Personnel changes are common, and most enterprise software involves multiple components requiring comprehensive understanding.
- Organizational Dynamics: Larger companies often face drama and politics when managing teams.
- Core Business Focus: Companies primarily focus on their core business (e.g., banking, logistics, manufacturing, healthcare) rather than software development.
The Risks of Homegrown Software
- Success Rates: Successfully deployed and sustained homegrown software projects are fewer compared to those started with good intentions but later abandoned.
- Accountability: When issues arise, having an external party to hold accountable can be beneficial, especially one with a vested interest in customer satisfaction.
The Case for Buying
Unless a company requires highly customized, bespoke software for a unique use case not available in the market, it may not be advisable to take on the associated risks. The headaches and lost sleep can be substantial. Instead, companies should focus on their core business and let software vendors handle software development, as it is their core competency and livelihood.
Cost Considerations
If cost is a primary concern, it’s essential to realistically calculate the total cost of building and maintaining the software over a five-year period. Avoid being misled by accounting distinctions like capex, opex, above the line, or below the line, as these are merely different ways to account for expenses. Software prices can often be negotiated with vendors to create a mutually beneficial agreement, such as annual payments instead of a lump sum upfront. Vendors may have additional motivations, like enhancing their customer portfolio to increase their valuation.
About the Author’s Expertise
This perspective is supported by over 20 years of experience in technology management at Fortune 10 corporations and over 10 years of running a B2B software company. This extensive background has exposed the author to a wide range of successes, failures, and everything in between in software and technology.
By involving all these stakeholders, organizations can ensure a smooth and effective application retirement process.