To build or not to build

Organisations are moving away from purchasing off-the-peg solutions and opting for a custom-built development tailored to the organisation’s growing need instead

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By  Peter Branton Published  January 8, 2006

|~|buytobuildbody.jpg|~||~|The question of buying a packaged application or building one’s own is one which is familiar to many firms. Many — seemingly smart — organisations have sunk millions in adopting packaged applications such as an enterprise resource planning (ERP) or a customer relationship management(CRM) solution. And many firms have been affected by poor installation of these applications. Even where the implementation has been successful, the return of investment (ROI) has been difficult to quantify or too slow to come in. Some of the factors to consider when making the decision to implement a solution include the functionalities that the application will need to have, the cost of procurement or development, support and maintenance costs and the degree to which the application needs to integrate with the existing applications in the organisation. IT also needs to look at the options available in the market and how mature they are, how well they meet the top-of-the-list requirements, and how much time, money and effort will go into getting the application live. Traditionally, organisations have adopted custom-built software for some very clear-cut reasons. Custom development has been undertaken when the organisation has not found a packaged solution that meets the explicit needs of the company. Before the end of the 1980s, this option did not exist as the software industry was in its infancy. But by the mid-1990s, a plethora of options were available in the market. Organisations also opted for custom software development when the software solution promised to offer clear strategic or compe- titive advantage or ensured information/ process confidentiality. Organisations had to consider whether the software solution would be core to the firm’s process and operations and was able to change as the company itself evolved. A packaged solution in this scenario meant that there would be an ongoing development cost attached to the solution. It would not be a viable option to adopt a packaged solution, which would require an ongoing expenditure on vendor support for meeting the changing needs of the process/organisation, aside from the initial customisation effort and cost. If an organisation did decide to look outside for an off-the-shelf solution, some considerations could still prove a development effort to be more viable. The organisation would have to look at whether reliable, suitable technology partners were available with the required domain knowledge to service its need. After finding such a vendor and studying its quoted price for the solution, an organisation would then ask itself if the benefit from the cost of development, implementation/roll-out and maintenance could be justified. The next important question would be whether the time taken to complete implementation would be within the timeframe tduring which users could live without the solution. If the answer is no, it may make more sense to buy an off-the-shelf application even if it does not meet all the requirements the majority of which might not be essential’. These are just some of the factors that are driving organisations in the region and around the world to review their perception of custom-built software and the costs involved in developing and maintaining them. The banking industry was the first one to tap the strategic advantage of in-house software that IT companies had to offer. Core banking applications in the 1980s were built in-house and did the job well. However, information now needs to be shared with partners. In-house applications, which were until very recently enablers, have become hurdles. Even within the bank, custom applications have found it hard to cope with changing requirements, bigger user bases and the high cost of maintenance. It is then no surprise that established banks like Arab National Bank of Saudi Arabia are going in for packaged software solutions for their core banking operations. Infosys Technologies is one vendor that has found businesses more open to the advantages of packaged software. The company’s packaged banking solution, Finacle, has been implemented by Arab National Bank. Sanat Rao, assistant vice president and global head for product development for Finacle, Infosys, says, “In the core banking market, over the years, banks have built applications that are very specific to their requirements.” “This has impacted them in a number of ways. One is obviously the cost, which has acted as a big deterrent in today’s context. Secondly, banks find that they do not find the kind of flexibility that they are looking for to make changes,” he adds. Rao also adds that the cost of supporting these applications has also been traditionally high. Another advantage that business has is, that the onus of being up-to-date rests on the vendor. Rao claims, “With the paradigm [in banking] changing so rapidly, it is far easier and a way to mitigate risk for the bank by placing the onus of being up-to-date on the vendor.” However, the biggest advantage that packaged software offers is neither its cost advantage or ease of integration. It is in the industry best practices which vendors are beginning to include in the very working of the application. Rao points out that that this comes with having a wider scope than any single company’s in-house development team could possibly have. As Yasar Yalmaz, applications marketing manager, MEA region, Oracle points out: “Generally, customised solutions are developed for non-process oriented and short-run oriented departmental purposes. These usually take into account their own best practices and tend to ignore industry best practices.” It is perhaps with these advantages in mind that companies are beginning to look at packaged as an option with more than just a cost advantage. ||**||The ASP model|~|Sanatbody.jpg|~|Sanat Rao of Infosys points to the banking sector as an example of firms that have built their own solutions. |~|“We do find organisations going in for packaged software for horizontal lines of business. These applications would serve the needs of ERP, SCM and CRM,” says Imad Choucair, general manager, eSolutions, Microsoft, part of MDS Holdings of UAE. He cites cost advantage, shorter cycle time and industry standards as the chief reasons for increasing adoption of packaged software by firms in the GCC. For the region this is a very recent change. Most core business applications in the region are close to 15 years old and require the maintenance of unviable resources, such as COBOL developers who can tweak the mainframe-based application to get that extra bit of functionality. As late as three to four years ago, companies in the Middle East region relied on these custom-built applications as a rule. Except for ERP, SCM and CRM packages, most software was developed from scratch and packaged software was viewed with some scepticism. However, as Rao points out, things are changing and vendors like Infosys and Oracle are finding the Middle East more open to packaged applications. Of course, some level of customisation is still required. This can be at two different levels. The first level is localisation of the software, which calls for vendors who have developed the package to tweak the application to meet the language and regulatory requirements. This would include setting the application to produce local repo- rts, take into account local tax laws or any other tweak required by the region in which the application is being implemented. “The customisation layer is specific to a particular bank [for example]. This would be done to suit the practices that the bank follows or if the bank wants to leverage some of the functionalities that are already available in the package,” says Rao. This could be in terms of workflow or various types of reports that they want to generate which are very specific to their operation,” he adds. He also claims that aside from the localisation, the customisation that a bank wants done becomes their intellectual property. This could translate to the operation’s strategic and competitive advantage. It’s not that packaged software doesn’t incur maintenance costs. However what companies need to take a long, hard look at, is the price difference between the maintenance cost of packaged software and that of a custom built one. Legacy systems based on archaic technologies do tend to cost more because skills for this type of maintenance come at a premium. Besides this, ERP vendors such as SAP can charge up to 22% of the application cost annually towards maintenance. But what do you do when the size of your user base or the strategic importance of an application does not warrant the cost of development or buying an off-the-shelf application? Hire. There has been a silent revolution going on while the build to buy debate raged on. Surviving the dotcom bubble, the Application Service Provider (ASP) model has been quietly evolving. From the simplest of uses like web hosting, ASPs are now steadily finding a firm footing in the enterprise space. Widely known as on-demand applications or application on-tap, ASPs offer perhaps the most cost effective enterprise tool for application types, which see wide usage like sales force automation and customer relationship management. It’s early days for ASP in the Middle East. “The ASP model is picking up in the Middle East specially with the small and medium businesses,” says Microsoft’s Choucair. “Though right now the usage is limited to connectivity, messaging and web hosting, we do expect applications like CRM to be the first ones to see adoption,” he adds. It is really and truly the next wave after the commoditisation of line of business software, like inventory management, which now has a huge market. An indicative example of this is Salesforce.com, a web-based sales force automation tool. The company boasts of having served 18,700 customers in the CRM space, where it draws its experience base from. Like Salesforce.com, many other ASPs claim to be able to integrate with most ERP packages and feed data into them for enterprise-wide reporting. That’s another advantage over the more obvious ones such as not having to buy hardware any more complex than an Internet-ready PC or laptop, connectivity to enterprise applications anywhere, no maintenance costs and the ability to go live as soon as the contract is signed. Whatever decision one may have to make according to business realities, one thing is certainly clear. With more choices available, even in such a strong vendor-ruled environment, the customer will become the king. ||**||

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