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Building Software In-house, Is It Worth It?

build or buy logistics software

What’s in this article:

  • In-house developed software is a thing of the past
  • Technological evolution has made the cost of in-house software unbearable in the long term for most companies
  • In-house IT departments cannot create software that is competitive with commercially available solutions
  • Most vendors that sell business software can create an implementation and adaptation strategy for a specific company

Custom software is less and less relevant

A few years ago, the question about buying or building a software solution for a business was quite common. Over the years, however, it is becoming more apparent that the optimal choice is to buy the product in most cases. Technological advances and specialization by companies that offer commercial software have made the solutions on the market increasingly specific, robust, and scalable.

Does that mean that building software in-house is no longer an option? In most cases, the answer is yes. There are particular circumstances in which the best solution is to develop the software internally. Still, there are fewer and fewer cases given the global needs both at the business and technological level of companies. In-house software in a medium-large company may require such a constant effort of maintenance and optimization that it is not feasible as a long-term project.

Studies show that software development projects always increase the initial cost estimate (sometimes by more than 200%). Also, development deadlines are frequently underestimated, resulting in significant delays that can considerably impact the organization’s everyday operations. Software development requires many resources, and even a medium-sized project can need a considerable number of people fully dedicated to this task for an extended period. And that, for a company whose main line of business is not technology, can be an unbearable burden.

Then we find purely technical obstacles that cannot be ignored. For many years, the standard method was to have the software hosted on-premise, and the person who had the license installed was the one who controlled the software. To update it, you have to be aware of a new version and wait for someone to install it. This requires the software and the proper hardware to run it, which adds to both development and maintenance costs.

Current systems can be hosted in the cloud, where everything is automatically updated, there is no limitation of bandwidth or users, and there is no dependence on the company’s servers, which significantly reduces personnel and infrastructure costs.

Know your strengths

Another aspect to consider is the company’s vocation for permanent research on new

technologies. It is clear that at the speed at which technology evolves, any in-house development will lose technological relevance in the short term. This term is usually eighteen months to two years, which is also the average term for developing a software solution. The implication here is that the technology update processes must begin as soon as the developed software product has been implemented. Also, the objectives of a business change over time, and it is necessary to review them periodically since, in this way, it is possible to ensure that they are being met or that it is time to change them. With proprietary software, the burden of this constant task always falls on the organization itself, which again requires human and material resources.

Why do many companies still consider building the software in-house the best option despite all these factors? They believe that if they develop it themselves, it will include all of the features they require to run their business in their unique way.  Because of the unique nature of proprietary ownership, they will have a competitive advantage in the marketplace. They feel it will be less expensive. (Unfortunately, whatever cost savings they find initially are frequently lost as their enterprises grow.) To address the new needs that every developing organization encounters, more and more money is required to adapt and upgrade the software. This expense is entirely covered by the corporation, with no contribution from pooled investment.

The sunk cost fallacy

There is also a hidden danger in the decision to develop your own tool. Once an organization builds its new software, it can become increasingly difficult to back out if it doesn’t work. It’s known as the sunk cost fallacy. Reluctance to accept that the time and effort taken to try to make your own software has been wasted means more costs are sunk into trying to make a failed attempt work.

One way to focus the build vs. buy debate is to consider that carriers or brokers are not programmers and developers. A specialized software development team is a very specifically trained group of people with extensive knowledge and skills that can rarely be found in the IT department of a transportation company.

Finally, companies believe that owning the program will safeguard them from having their confidential information stolen or their systems falling for extended periods. These are all incorrect assumptions. They are compelled to put in safety safeguards and redundancy to protect against those risks, which becomes very costly and burdensome to handle in-house, which is why these services are frequently outsourced.

Software as a Service

The rise of software-as-a-service (SaaS) has removed the need to purchase hardware and make an initial capital investment. SaaS enables a business to start small and scale up its solution based on actual usage. In the build vs. buy debate, SaaS is rapidly replacing cost as a critical factor. By purchasing an existing specialized solution such as Turvo, costs are significantly reduced, resource commitments disappear, there is no development risk, and the product can be deployed and integrated with the existing systems and teams in no time.

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