Custom Software vs. SaaS — What should you choose?

There’s a widely debated dilemma among innovation specialists: should companies build their own software or opt for a SaaS (Software as a Service) solution? Opinions are divided. Some argue that SaaS solutions, with their efficiency and ready-to-use nature, are the best choice. Others believe that building solutions in-house with a small team of experts can avoid recurring payments — which can balloon especially in enterprises. Additionally, financial sector companies, as well as others in highly regulated environments often prefer custom-built software due to concerns over potential data breaches or reputational damage.

Choosing between the two options can be challenging. The decision should consider factors such as sector regulations, the SaaS provider’s reputation and security protocols, annual costs, and efficiency.

The process begins with a seemingly simple question: Should we develop new capabilities in-house, or should we purchase a ready-made solution? Buying third-party software provides immediate access to proven capabilities at the cost of customization and control — or high costs of customization. On the other hand, creating custom software ensures a perfect fit for specific needs but can require more resources and effort.

This dilemma of build vs. buy appears binary, yet it encompasses a multifaceted decision with radically different outcomes depending on an organization’s specific needs and circumstances.

Build vs. Saas — First Assessment

For needs that are clear, immediate, and carry a relatively low potential impact on the organization, it may make sense to swiftly decide and proceed with the chosen path. However, for larger impact areas or capabilities expected to significantly and long-term affect the organization, the build vs. buy decision becomes much more complex.

When making a build vs. buy decision, the real question is whether the needed capability exists as a pre-built solution or if it necessitates custom development.

This inquiry leads to further considerations:

• Is the capability a key differentiator for our business?
• Can a third-party solution meet our specific technical needs?
• Which vendor can realistically deliver the level of capability and service we require, and for how long are they likely to support the solution?

Every company has two types of capabilities:

• Non-differentiating capabilities — these are solutions that would make the day-to-day tasks easier for the employees. These capabilities are not disruptive in nature, rather they are solutions that are adopted by most companies in a sector as their industry’s best practice. I.e. online KYC for banking clients, waste reporting for FMCG etc.
• Differentiating capabilities — solutions that are making your company stand out in your industry, your specific tools or features that attract your target persona towards your brand and that are offering you a competitive edge over other companies in the same industry. E.g. Tesla’s EV batteries, Schwab’s Advisory Services software, Unilever’s AI-based R&D software etc.

What works as a non-differentiating capability for one organization may be a differentiator for another, depending on the industry, market position, and strategic goals.

For example, in the technology sector, advanced data analytics is a standard expectation and doesn’t necessarily set a company apart from its competitors. However, in the traditional manufacturing industry, this same capability becomes a powerful differentiator, enabling a company to optimize production processes, predict maintenance needs, and tailor products to customer demands in ways that many others in the industry cannot.

Deciding

Choosing a non-differentiating capability often means adapting your processes to fit your SaaS vendor’s definition of best practice. While this can streamline operations, it may also limit your ability to deliver unique value to your customers or internal stakeholders. On the contrary, investing in differentiating capabilities requires a more innovative approach, potentially leading to the development of proprietary systems or processes that offer a clear competitive advantage.

For non-differentiating capabilities, leveraging SaaS solutions can often be the most cost-effective and efficient path, enabling organizations to implement best practices without significant investment in custom development. On the other hand, for differentiating capabilities, custom software development can be a strategic investment, creating unique value and competitive advantage that cannot be easily replicated by competitors.

Custom Software Development

Custom software development stands as a beacon for businesses seeking a perfect fit for their unique operational requirements and strategic visions. This section of the “Custom Software vs. SaaS” article delves into the intricacies of custom software development, contrasting its bespoke nature with the standardized offerings of Software as a Service (SaaS) to guide organizations in making informed decisions.

Bespoke Solutions for Unique Requirements

Custom software development involves creating software tailored to the specific needs of a business, ensuring a perfect alignment with its processes, workflows, and long-term goals. Unlike SaaS solutions, which are developed to cater to a broad market, custom software is designed from the ground up to address the unique challenges and opportunities of the organization it serves. This approach allows for customization, enabling businesses to gain a competitive edge by leveraging technology that is tuned to their operational dynamics and strategic imperatives.

Integration and Compatibility

A significant advantage of custom software is its potential for seamless integration with existing systems and software within the organization. Custom development projects can be designed to work in harmony with the technology ecosystem of the business, ensuring smooth data flow and interoperability across platforms. This integration capability eliminates the silos that can often result from adopting off-the-shelf SaaS solutions, fostering efficiency and synergy across business operations.

Ownership and Control

Choosing custom software development grants businesses full ownership and control over their software solutions. This includes the freedom to modify, update, or expand the software as the business evolves, without being constrained by the development roadmap or subscription models of external SaaS providers. Full ownership also means that businesses are not subject to recurring subscription fees, potentially leading to cost savings over the long term.

Security and Compliance

With custom software, security measures and compliance with industry regulations can be built into the solution from the outset, tailored to the specific risk profile and regulatory environment of the business. This personalized approach to security can provide a higher level of protection and peace of mind, particularly for organizations operating in sectors where data sensitivity and compliance are paramount.

Considerations and Challenges

Despite its advantages, custom software development is not without its challenges. The process requires a significant upfront investment in time and resources, with development timelines that can extend significantly longer than the deployment of SaaS solutions. Finding and retaining the right talent for development and ongoing maintenance is also a critical consideration, as is managing the risk of project overruns and ensuring that the final product meets the initial vision and requirements.

Moreover, businesses must weigh the total cost of ownership, including initial development, ongoing maintenance, and future upgrades, against the benefits of a solution that is tailor-made for their needs. The responsibility for security, compliance, and updates rests entirely with the organization, requiring a commitment to ongoing investment in technology infrastructure and expertise.

Choosing the Right Custom Software Development Partner

Selecting the right partner for custom software development is crucial for businesses aiming to tailor solutions to their specific needs and strategic objectives. This decision can significantly impact the success of your project, affecting everything from the quality of the final product to the efficiency of the development process. Here are key considerations to keep in mind when choosing a custom software development partner:

Experience and Expertise

• Industry Knowledge: Look for a partner with experience in your industry. They should understand your market’s challenges and regulatory environment to tailor solutions that meet your specific needs.
• Technical Skills: Ensure the partner has the technical expertise required for your project. They should be proficient in the technologies and programming languages relevant to your solution.

Portfolio and References

• Past Projects: Review their portfolio to evaluate the quality and scope of their previous work. It can give you insights into their capability to handle projects like yours.
• Client Testimonials: References or testimonials from past clients can provide valuable information about the partner’s reliability, responsiveness, and the quality of their customer service.

Communication and Collaboration

• Communication Channels: Effective communication is key to the success of custom software projects. Your partner should offer clear and consistent communication channels throughout the development process.
• Collaborative Approach: Choose a partner who values collaboration, willing to work closely with your team to ensure the final product aligns with your vision and requirements.

Project Management and Methodology

• Project Management Practices: A reliable partner employs robust project management practices to ensure your project stays on schedule and within budget. Ask about their project management tools and methodologies.
• Development Methodology: Whether Agile, Waterfall, or a hybrid approach, the development methodology should align with your project’s needs and your company’s working style for optimal results.

Quality Assurance and Support

• Testing and Quality Assurance: Comprehensive testing is essential to ensure the software is reliable and bug-free. Inquire about their quality assurance processes and testing methodologies.
• Post-launch Support: Understand the level of post-launch support offered. A good partner provides maintenance and support services to address any issues that arise after deployment.

Cost and Contract Terms

• Transparent Pricing: Look for transparency in pricing to avoid unexpected costs. A reputable partner provides a detailed quote outlining the project’s scope, deliverables, and any additional costs.
• Flexible Contract Terms: The contract should be flexible enough to accommodate changes in scope or requirements without significant penalties.

Cultural Fit

• Company Culture: A partner whose company culture aligns with yours can lead to a smoother working relationship. Cultural compatibility facilitates collaboration and mutual understanding throughout the project.

SaaS

SaaS (Software as a Service) solutions are designed to scale with your business, accommodating increasing demands without necessitating significant changes to your existing infrastructure or the need for substantial investments in new hardware.

Basic Financial Considerations

Financially, SaaS offers an appealing cost structure. Unlike traditional software purchases that require hefty upfront investments in licenses and infrastructure, SaaS operates on a subscription basis. This model aids in budget predictability by including maintenance, updates, and support within the subscription fees, thereby reducing the overall cost of ownership. Businesses benefit from access to the latest software features and security enhancements without additional expenses or the need to allocate internal IT resources for these tasks.

However, the decision to adopt SaaS warrants careful consideration. The nature of SaaS means it may not offer the detailed customization or integration capabilities some businesses with unique processes or specific needs might require, potentially impacting operational efficiency and necessitating additional custom development anyways, which often ends up being cumbersome and can be as costly as developing a custom solution.

Security, Compliance, and Governance

Security and privacy are also paramount concerns. Despite the rigorous security measures implemented by many SaaS providers, the shared responsibility model of these solutions requires businesses to perform due diligence in entrusting their data to external parties.

This involves a comprehensive assessment of the provider’s security protocols, compliance standards, and data management practices to ensure they align with the business’s needs and regulatory requirements. Unfortunately, relying on the wrong provider can have a hefty impact on any business.

Additional Costs & Vendor Lock-in

Furthermore, the initial cost benefits of the SaaS subscription model need to be evaluated against the cumulative nature of subscription fees. Over time, these fees may approach or surpass the total investment that would have been required for developing a custom solution — especially for enterprises who may have thousands of users and need many customization options.

The ease of SaaS adoption also raises the issue of potential vendor lock-in, making it challenging to transition to other solutions due to complexities in data migration, custom integrations, and retraining requirements.

While adopting SaaS can increase efficiency and solve your problems in the shorter term at the cost of a yearly subscription, potential security issues, and lack of customization, let’s dive into the other side of the dilemma.

How to Select a SaaS Vendor for Your Company

Selecting the right Software as a Service (SaaS) vendor involves a strategic evaluation of numerous factors to ensure the chosen solution aligns with your company’s needs, goals, and budget.

Assess Your Business Needs

Begin by identifying the specific problems your company aims to solve with a SaaS solution. Determine the features and functionalities required to meet your business objectives, whether it’s enhancing customer relationships, streamlining project management, or improving data security.

Use Wardley Mapping

Wardley Maps are a strategic planning tool that helps visualize the value chain of your business needs and the market landscape. By mapping out your internal processes and how they connect to the SaaS solutions you’re considering, you can identify which services are essential for your operations and where each potential vendor fits within the market.

This method aids in understanding the maturity of the service, its position in the market, and how it evolves over time.

Security and Compliance

Ensure the vendor adheres to industry standards and regulations pertinent to your business, such as AML, GDPR or HIPAA. Inquire about their security protocols, data encryption, authentication, and policies on data backup and recovery to protect your company’s and customers’ information.

Scalability and Flexibility

The SaaS solution should support your business growth and allow for adjustments as your needs change. Look for scalable, customizable solutions that can integrate smoothly with your existing systems, ensuring operational continuity and efficiency.

Reputation and Reliability

Investigate each vendor’s reputation through client reviews, case studies, and testimonials. This insight into their reliability, customer service quality, and user satisfaction can inform your decision-making process.

Cost-Effectiveness

While evaluating pricing plans, consider the overall value the solution brings to your business. Transparent pricing models that fit within your budget, without hidden costs for additional features or support, are preferable.

Technical Support and Customer Service

Quality customer support is crucial for navigating the initial setup, integration, and any future issues. Evaluate the vendor’s support structure, availability, and the resources they provide for troubleshooting and learning.

Trial Periods and Demonstrations

Taking advantage of free trials or demos allows you to test the SaaS solution in your environment, assessing its compatibility with your business requirements, ease of use, and performance.

Exit Strategy

Understand the process and implications of disengaging with the vendor, including data ownership, migration assistance, and any contractual constraints that may affect your ability to switch vendors or terminate the service.

Wardley Mapping, along with a detailed assessment of security, scalability, cost, and support considerations, will help you choose a SaaS vendor that meets your immediate needs and supports your company’s growth.

Conclusion

In conclusion, navigating the decision between custom software development and adopting a SaaS solution is a multifaceted process that demands careful consideration. From the initial stages of defining your specific needs and evaluating the capabilities of available third-party SaaS solutions, to the meticulous assessment of potential technology partners and the strategic planning of implementation, each step is crucial to ensuring that the chosen solution aligns with your company’s goals and operational requirements.

Choosing between building a custom solution or opting for a SaaS offering is a significant decision that affects the entire organization. Let us make the decision easier for you, contact our team of experts and let us help you decide what would be the best course of action for your company.

Originally published at https://www.itmagination.com.