Why Building vs. Buying Software is a Critical Decision for ERP Over 60% of CXOs report struggling with the choice to build or buy an ERP solution due to the complications of cost, customization and strategic fit. Considering the humongous impact an ERP system has on day-to-day business operations, this choice is critical to get […] The post Build vs. Buy: A Decision Guide for ERP Software appeared first on Rootstock Software.

Why Building vs. Buying Software is a Critical Decision for ERP

Over 60% of CXOs report struggling with the choice to build or buy an ERP solution due to the complications of cost, customization and strategic fit.

Considering the humongous impact an ERP system has on day-to-day business operations, this choice is critical to get right. An error in judgement can balloon into a crisis that disrupts regular operations.

In smaller organizations, the struggles typically revolve around budget restrictions and limitations due to small IT teams. Here, the leaning is more towards pre-built, affordable, and ready-to-use ERP tools.

However, as they grow, the pains of scaling are inevitable. While the problem of budgets and resources might fade away, it brings in new challenges of migration, upgrades, and the need to support new internal use-cases, that lead to customization requirements.

On the other hand, in larger organizations, they tend to have extremely specific requirements that need heavy customizations. They also need to ensure the ERP system runs without any hiccups at that scale.

For mid-sized organizations, change is the only constant and navigating a high-flux environment is a challenge in itself.

In all of these cases, build vs. buy is a high-stakes decision impacting the following:

• Cost: There is either an upfront cost of development (Build) or ongoing license fees (Buy). In either case, this is a highly volatile figure, thereby making it unpredictable. However, the cost of a wrong decision is far greater, and reversing it is expensive.
• Scalability: As an organization grows, emerging challenges and unforeseen scenarios will inevitably test a CXO’s conviction in their choices.
• Future Innovation: With operational excellence becoming a key priority, the ERP needs to drive innovation in every process at every stage. The ERP’s ability to enable this determines its relevance and shapes the build-versus-buy approach.

With nearly 2 decades of experience in this space and with over 200+ customers, we have drafted a framework to help decision-makers arrive at the Build vs Buy decision, factoring a well-defined set of parameters.

This framework can be used to benchmark where your organization is and adopt the right approach. However, before getting into the framework, let us explore the differences between the two approaches.

Decoding the Build vs Buy Paradox 

While both building and buying an ERP software has the same end goal, the approach, path, and driving factors for both these are starkly different.

Building an ERP involves creating a fully custom solution from the ground up, designed to address the organization’s present needs. It can also mean building out additional capabilities to be added on top of the existing system.

Buying an ERP solution involves purchasing an already-built system, which could either be on-premise or cloud-based. For example, Rootstock is a readymade ERP solution which is cloud-based and is built to suit the needs of manufacturing and product companies.

Here are 6 parameters that can help us clearly understand the differences between the two options:

1) Cost:

• Build: This involves high upfront costs for development, ongoing maintenance, and upgrades. One can only estimate these costs and more often than not, projects can outrun projected costs.
• Buy: This has ongoing license fees but low upfront costs. This is a lot more predictable and the frequency is set, which makes budgeting easier and more accurate.

2) Time:

• Build: Depending on the complexity of requirements, building an ERP system takes longer. Oftentimes, there are scope changes and this further prolongs development time. The advantage in this approach is that it can be tailored to the organization’s exact requirements, that often justifies the time invested.
• Buy: Since it is a templatized or a standard version requiring customizations, the rollout time is much shorter in comparison.

3) Control:

• Build: Since this is perfectly tailored to suit an organization’s needs, there is much better control as compared to buying a standard product and customizing it to force-fit the needs of the organization. Although many ERP products offer a wide scope for customizing, there still could be some limitations and it is rare to find a solution that offers complete precision.
• Buy: This is a ready-made solution that can be customized to cater to specific requirements. This could involve additional fees. However, the advantage is, since this kind of tool caters to the needs of many customers in the market, it keeps continuously evolving incorporating best practices and new capabilities which in an on-prem setup is approached reactively.

4) Upgrades:

• Build: Since this is an in-house solution, upgrades typically happen on the basis of how requirements change internally. There is limited opportunity to proactively innovate and build new features.
• Buy: Vendors typically ship new features and upgrades more frequently, that ensures your organization always stays one step ahead to meet the changing requirements.

5) Risks:

• Build: This is more capital-heavy and resource-intensive. There is a high chance of project timeline and budget overruns. Rollbacks are harder in case the solution does not work for the business.
• Buy: This is far less riskier as one can always switch to a different vendor if one does not meet the requirements of a business. Most ERPs are built to integrate with exiting systems seamlessly.

Why is this decision important?

Businesses are deliberately focusing on making themselves asset-light and efficient. They need the empowerment and freedom to make decisions swiftly and manage scale seamlessly.

In today’s SaaS-first mindset, businesses are increasingly leaning towards buying a cloud-based solution that can alleviate concerns such as scalability, security, and provide them with agility and control.

Decisioning Matrix: Pros & Cons of Build vs. Buy

Determining the Right Choice for your Business

To make the right choice for your business, here is a checklist based on some key criteria to evaluate.

1) Budget

• Is there consensus to make high initial investments and wait for it to take shape and generate RoI.
• Are there budgets to fund future upgrades, ongoing maintenance and resources?
• Are we comfortable with an upfront high capital expenditure or steady but lower ongoing operational expenditure?

2) Timeline

• How urgently do we need the ERP to be fully operational?
• Can our business withstand a phased rollout or do we need a single but complete deployment?
• How long is our RoI runway?

3) Internal IT resources 

• What level of in-house technical and domain expertise can we commit to this?
• Do we have adequate capacity and bandwidth for ongoing maintenance?
• Are we good with internal documentation practices to avoid dependency on IT staff, in case they leave?
• Are we equipped enough to ensure data governance, compliances, upgrades and managing scale?

4) Growth Plans 

• If we expand to new markets or geographies, will our platform seamlessly allow it and adapt?
• Does it align fully with long-time goals like AI adoption, sustainability and more?

5) Scale

• Is the system capable of handling scale – surging transaction volumes etc.
• Is current infrastructure capable of scaling with future ERP demands without costly overhauls? 

The Bottomline

This decision between building your own ERP software in-house vs. buying a ready-to-run ERP solution out-of-the-box is a tricky one where context plays a major role. When your processes adhere to standard industry practices, your budgets for high CapEx are constrained, and urgency to go-live is high, buying an ERP is highly recommended.

To further help you decide, here are a few additional resources:

See how you can unlock growth with Salesforce Cloud ERP

15 Reasons you Need ERP on Salesforce eBook

If you need help in making an informed decision, our in-house experts are available to help you. Get in touch to talk to our experts and we will help you decide what is best for your business.

The post Build vs. Buy: A Decision Guide for ERP Software appeared first on Rootstock Software.

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