SELECTING BUSINESS APPLICATION SOFTWARE: BUILD VS. BUY

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1 WHITE PAPER SELECTING BUSINESS APPLICATION SOFTWARE: BUILD VS. BUY Guidance for Associations Evaluating Software Technology Solutions

2 Build or Buy? It s a recurring and timely question for associations in their quest to implement efficient, cost-effective IT solutions that engage membership and meet specific needs for collaboration. On one side, organizations are tempted to harness the power of modern software development to create unique, targeted software solutions that meet their needs. On the other side, there is the option to buy pre-built, off-the-shelf solutions, which are often delivered through the web, and commonly referred to as Software-as-a- Service (SaaS). The choice is ultimately driven by analysis of business requirements versus the costs of development, implementation and support. While both choices have merits, the maturing global technology infrastructure known generally as the cloud is changing the calculation of total cost of ownership and upending some long-held assumptions about the acquisition of business software. Let s take a look at the pros and cons of each. The Case for Build Building or hiring the creation of a custom collaboration solution seems like a logical direction for many organizations, and it is certainly the traditional approach of many businesses. In some cases, building a one-off solution may in fact be your only effective choice if your requirements are especially unique. It allows you to design and implement a system to meet specific needs or unique process requirements. Also, you are in control of the development and can tailor the solution if requirements shift. If you decide to build, several factors can play a large role in your success. First, be certain you have the technical expertise and IT staffing required for developing software, or if you are commissioning custom software, your project managers must have deep IT experience. Your team must have an understanding of current technologies, your legacy systems, and the interaction/interconnection between the two. You can avoid revisions and delays by defining clear requirements before development begins, and resisting the temptation to shift midstream. Finally, the team must have a clear path to focus on the project without distraction, with clear objectives and milestones that continue beyond deployment of the system and into maintenance and upgrades. 2

3 Many in-house development efforts require integration between existing legacy systems, in combination with new application development. This common approach highlights even more the need for a high level of sophistication among your in-house IT team. Merging new software applications into an existing infrastructure that could include membership management, content management, customer relationship management, or collaboration tools may mean adjustments to several systems at once. This approach may look favorable in terms of maintaining familiar systems for the benefit of legacy staff. Again, success depends on stable long-term IT budgets and clearly defined requirements. The Case for Buy A few years ago the phrase, the cloud wouldn t have meant much to many of us. Today, it s synonymous with a level of data security, storage, accessibility, and flexibility that was previously inaccessible to all but the largest IT shops. Software-as-a-Service (SaaS) was made possible by cloud technology, and has become a preferred delivery method for business applications including customer relationship management (CRM), accounting, and project management. Forrester Research is citing SaaS as a major growth driver for the worldwide software market in 2013, and identifies collaboration, in particular, as a category of business application that will experience the fastest growth. Under the SaaS model, software applications are developed, hosted and managed by the SaaS provider and delivered via the Web. The SaaS provider assumes the responsibility for application development, maintenance, hosting, network infrastructure, backups, security and monitoring. New features, security patches and performance enhancements are deployed continuously, and dedicated system administrators look after the hardware and network infrastructure to ensure reliability and availability. BREAKING DOWN TOTAL COST OF OWNERSHIP FOR BUILD VS. BUY At the highest level, total cost of ownership for IT expenditures can be sorted into three buckets, as described below: SOFTWARE Programs and data used for computing, communication and information processing. HARDWARE Servers, desktop computers, routers and other network equipment. PEOPLE Salaries and professional services fees associated with the people who develop, support, and ensure the continued operation, usability, and reliability of your systems. 3

4 Delegating IT infrastructure responsibilities to an external provider can result in both short- and longterm benefits to your organization. In the short term, you ll gain a better understanding of your cost outlay, and your internal IT budget can be refocused. The best part is that your organization can focus on core business activities without the distraction of managing costly, complex software development and integration projects. Over time, you ll probably notice that the quality, reliability, and security of your applications have increased now that you have a vendor accountable for quality of service. In addition, since SaaS vendors are able to rapidly apply new technologies such as virtualization, each subscriber pays only a tiny share of infrastructure costs while enjoying the full benefits. Mature SaaS solutions offer the business-specific functionality that come with previous generations of inhouse products while preserving the principal SaaS benefits of economies of scale, quality of service, and continuous improvement. For example, you can subscribe to a SaaS solution that can be configured, extended, and integrated with other web services to address your organization s requirements. According to research conducted by Gartner Group in 2012, SaaS adoption is on the rise worldwide, with most companies surveyed planning to shift IT spending toward SaaS solutions. Most of the adoption has been recent, in line with enhancements to Cloud security and improvements to SaaS offerings. Gartner found that 71% of responding organizations have been using SaaS solutions for less than three years. The report states that initial concerns about security, response time and service availability have diminished for many organizations as SaaS business and computing models have matured and adoption has become more widespread. Figure 1. Relative weighting of cost categories in IT spend In-house licensed or custom software SaaS and cloud solutions 4

5 Among the three categories above, the software category delivers the specific business value. In other words, the goals of the IT spend - whether reducing administrative costs, accelerating revenue or both - are met primarily by the software itself. Hardware and people resources are simply a means by which your software application is delivered. Under the in-house approach, the majority of your organization's expenses fall into the hardware and people categories to pay for servers, network infrastructure, development and support. In the SaaS model, those infrastructure costs are minimized relative to the overall value of the software application itself. In the SaaS model, hardware costs and resources are shared among your vendor's customers and a dedicated engineering team handles development, maintenance, updates, and backups. The result is that a much smaller proportion of your IT budget is consumed by hardware and people expenses and a larger proportion goes where the value lies software. SaaS models are designed to deliver more value as usage increases, both in terms of cost effectiveness (per user pricing) and business value (meeting organizational needs). The biggest variables in the build scenario are time and cost both initial design and development cost and ongoing maintenance. Estimating and tracking the actual cost of a custom solution is tricky because the development effort requires a mind share commitment from many facets of the organization. In addition, no one really plans or estimates for the near-inevitable delays in the software development and testing life cycle. While some projects are delivered exactly on time and on budget, veteran IT managers are likely to agree that those are the exception rather than the rule. There is also the long-term commitment to the care and feeding of the solution you build. As a rule of thumb, around 70% of the cost to develop a custom solution is then needed year after year to maintain it. Finally, perhaps most importantly, if you decide on a custom solution, you re usually looking at a months-long (or even years-long) design, development and testing cycle, whereas a SaaS solution could be deployed in a matter of weeks. If the software solution aims to solve a specific problem or address a specific opportunity, you don t want to see that opportunity disappear while the code is still in development. 5

6 Summary Building or commissioning a custom solution gives you the opportunity to design and implement a system tailored to the unique requirements of your organization. The pivotal question is whether your business model can accommodate the risks and long term investment that comes with managing an inhouse software development cycle. Software development requires a unique set of skills and expertise, and association leadership needs to assess whether those belong in their core business model. Adopting a pre-built, configurable solution has become increasingly attractive as cloud and SaaS technologies continue to mature. With surveys from industry analysts pointing to significant growth in this technology, the cloud approach is fast becoming the dominant IT paradigm of the next decade. Additionally, total cost of ownership data points to SaaS as the increasingly economical choice. The key is to select a product that can be configured to meet your business needs and to partner with an established SaaS vendor you can trust to provide a great quality of service so you can focus on your core business. About the Author: Ashley DeGiacomo is Sales Manager at Kavi Corporation and a Board Member for the Society for Standards Professionals. More resources for consortia and standards organizations are available at the Kavi web site: Sources: Forrester Research: Gartner Group: Business2Community: State of Cloud Computing: SaaS GigaOm: Gartner Defines the Success of SaaS and the Decline of Legacy Enterprise Applications 6

7 KAVI Workspace Software for purpose-driven collaboration. Kavi Workspace is a secure web-based platform that enables committees and workgroups to achieve critical goals. Kavi tools propel the process, measure participation, track activity and facilitate consensus. See the resources section on our website for more information: kavi.com/resources About Kavi Kavi Corporation is a leading provider of enterprise-class collaboration solutions for purpose-driven organizations. Hundreds of thousands of users representing 30,000 companies operate in over 80 Kavipowered associations and organizations. Kavi Workspace helps organizations define their collaborative processes and provide better management of group activities. Our third-generation platform lets you bridge geographic and corporate boundaries with a secure, controlled environment that is as configurable, adaptable and as flexible as you want it to be. Kavi Corporation 225 SE Main Street Portland, OR T F

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