One of the most critical decisions in IT architecture is whether to build or buy Software. Both approaches have advantages and challenges, and as a CTO, I've faced this crossroads many times. This article provides a structured approach to making this decision based on my professional experience in fintech.
The Pros and Cons of Each Approach
Build Software
Pros
Flexibility and Control: Building software allows you to fully tailor the business logic to meet your organization's unique needs.
Competitive Advantage: Building custom software can give you a unique competitive edge that is difficult for competitors to replicate.
Cons
Time, Cost, and Scope Risks: Building Software often takes more time, costs more, and delivers less scope than anticipated.
Studies back this up:
A Harvard Business Review study found that one in six IT projects experiences a 300% cost overrun and a 70% schedule overrun.
McKinsey reports that 56% of IT projects fall short of their original vision.
IT failures in the U.S. alone are estimated to cost between \$50 billion and \$150 billion annually.
Maintenance Burden: Once built, the Software requires ongoing maintenance, updates, and support, which can strain resources over time.
Buy Software
Pros
Risk Mitigation: The provider takes on the risks associated with time, cost, and scope.
Continuous Improvement: You benefit from the product's evolution and upgrades, often without additional effort.
Cons
Limited Customization: Customizing off-the-shelf Software can be cumbersome and may only partially meet your needs.
Dependency on External Providers: Relying on an external vendor for support and updates can pose risks significantly if their priorities change.
A Guiding Principle: Minimize What You Build
When deciding whether to build or buy, start by evaluating the strategic importance of the Software in question. Here are my two key guidelines:
Buy Commodities: If the Software supports a commodity function that doesn't differentiate your business from competitors, buy it.
Build to Differentiate: If the Software directly contributes to your competitive edge, consider building it. But even then, prioritize ruthlessly and build only what is essential.
Applying the Guidelines: Real-Life Examples
Simple Cases
Example 1: Lending Product (e.g., BNPL)
Buy: The mathematical logic to calculate a loan schedule. This is a commodity feature that won't differentiate your product.
Build: The onboarding application. A seamless, engaging user experience here can set you apart from competitors.
Complex Cases
Example 2: Landing Page for Marketing**
The content on your landing page may be crucial from a business perspective, but does that mean you should build it from scratch?
Answer: No. Instead, buy a content management system (CMS) that fits your needs. Development resources are better spent on high-impact features, like improving the core product experience, rather than building a landing page.
Final Thoughts
The decision to build or buy Software should always align with your organization's strategic priorities. Building software gives you unparalleled control, but it's resource-intensive and risky. Buying Software can save time and effort, but it has limitations and dependencies.
As a CTO, I've learned that the key is not just to choose wisely but to continually reassess whether your initial decision remains the best choice as your organization evolves. By minimizing what you build and prioritizing investments in areas that drive differentiation, you can strike the perfect balance between efficiency and innovation.
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