Technology: When to Build and When to Buy

BuildorbuyWe know that coming up with the next best technology solution isn’t easy. Then why do so many companies insist on growing their own systems? Do you think you can do it better than an expert who completely transforms an industry?

When companies choose to build their own system, it usually isn’t a case of doing it better. It’s a case of doing it cheaper. Taking on a major upfront cost for implementation makes the price tag a little scary. And that’s still true today, even when there are lower cost options available. So before a company starts to build, it needs to assess whether to buy.

Buying technology can save you time, money, and resources. The economic principle of comparative advantage says you shouldn’t focus resources on areas you don’t have expertise. You would receive far greater gains when you can concentrate on your specialty, especially when it’s a distinct advantage. Companies pop up all over the place with software and systems to help you get back to what’s important. So why not just buy when you need it?

You can also prepare yourself better to scale the system as you grow, when you buy. Many software companies can set you up whether your company has 1,000 people or 10,000. That scalability also means that you pay for what you need, which is a bonus. Cloud economics reduces the total cost of ownership and the resource drains on upgrades, and it fits the price point where you need it. Even when external systems or software can cause IT headaches, it could be better than draining all your resources on one homegrown system.

But sometimes you need to build. Companies do have reasons to build technology, and the world is better for it. Those are the times when things just don’t exist or you want to take something further. Look at 37signals: It started as a Web design firm but shifted when its project management tool opened the door to software development for small business. If your company has the opportunity to take something you may have built internally and develop it as a product for external markets, your resources have gone from draining to gaining.

Make technology build-or-buy decisions with the same scrutiny you make other business decisions. You’ll either select a partner who has the expertise you need, or you’ll find a way to set your company apart.

Enhanced by Zemanta