For most businesses, digital transformation is their first priority; however, they are unsure on how to proceed when resources are quite scarce. Is it a smarter decision to go for award-wining development of custom software or buy out-of-the-box software solutions from an outside vendor? There is also the option of in-house software developers.
There is no standard answer because software projects usually vary according to the company’s goals. A smart decision is usually determined by the opportunity cost. Unfortunately, it is difficult to calculate opportunity costs even in straightforward situations.
If the technology will enable operating model transformation, a better option is to buy out-of-the-box solutions. If the technology will allow business model transformation, a better option is to build. Since transformation initiatives vary, a decision framework will not apply to every conceivable scenario.
An organization’s operating model is based on the way it sells products and services and how it generates value. The operating model includes people and processes as well as equipment, technology and the systems that support the organization. An example is Uber that introduced a unique business model in the form of a digital platform that will connect consumers to the service provider. The unique business model disrupted the transport and delivery sector.
In order to execute the business model, Uber built an operating model that can provide the resources and mechanisms necessary to make the business profitable. The approach used covered the way that employees are hired, how technology and other assets are managed and how billings and suppliers are coordinated.
In order to create consistency among business models, technology vendors developed a wide range of proven out-of-the-box solutions. However, opportunity cost is quite high. When there are no application systems and technologies that are available to support the digital transformation, developing their own software solution becomes a better option.
There are award-winning development teams that can build custom software using their own resources. If the technology will make a huge difference for the business model, the best option is to build. If it is for anything else, a good option will be to buy the out-of-the-box software solutions.