To build or to buy IT applications?

The oldest question in IT keeps getting more complicated as new options emerge. Here's how MCI, Motorola, Visa, and others are tackling the problem

Even in core areas that touch an enterprise’s customers, products, or services -- and even when an IT shop has a cultural bias toward inventing software in-house -- buying can still win the day. Visa, for instance, has a build-centric IT organization, partly due to security, reliability, and privacy concerns, but also because of the global financial network’s enormous scale. “The sheer volume of information makes it often impractical to outsource projects effectively to smaller organizations,” says David Allen, a consultant who served as Visa’s CTO (through Visa’s technology arm Inovant) for three years.

Nevertheless, when Visa was looking to offer greater support to its member banks and merchants with such applications as profitability-usage analysis, it streamlined its approach to data collection, dissemination, and reporting, integrating vendor-based solutions versus its more typical building approach (Visa promotes PMI certification across the board, and uses both classical methodologies and iterative styles in development). Visa purchased applications for information processing from Ab Initio and for reporting and analysis from Microstrategy because the functionality could be delivered much more quickly with lower lifecycle costs than building.

In areas such as infrastructure and tools, Allen pushed Visa to the buy side.  “They work, and there is no competitive advantage to build,” he says. “Those systems are built at a scale because you’re leveraging the technology across many companies.”

Moreover, the open source movement has been a boon for Visa in areas such as development, operations, databases, and programming languages.

“The combination of low-cost tools and having the source code available can be like getting the best of both worlds [of buying and building],” Allen says. “We have gotten as good if not better in deploying new services on open source as on commercially available software like Windows.”

Buy, don’t modify

Although open source implementations invite all sorts of customization, a clear lesson learned from the ERP wars of the ‘90s appears to have sunk in: When it comes to commercial software, avoid hacking the system when possible or you’ll end up with maintenance costs equal to or greater than those incurred by apps developed in-house.

MCI’s Laird says many companies, including his, have made the mistake of rewriting third-party apps until they are essentially homegrown. “If you are going to buy something and make significant changes to fit your business, why bother?” he asks. In areas of the business that are not unique to MCI -- such as sales and financials -- he opts for adapting MCI’s processes to fit off-the-shelf software. “[The software] has to be close to our business processes or we can readily adapt our business processes to it.”

As an alternative to customization, Lutchen recommends turning to aftermarket products, such as the raft of plug-ins now available for the major ERP packages. “If you can avoid touching the main package, it will keep your maintenance costs down,” he says.

SaaS solutions, which deliver applications through the browser, by their very nature, prevent costly modifications. Moreover, SaaS is “a better sales model and return model for the enterprise,” says Toby Redshaw, corporate vice president of strategy, architecture, and e-business at Motorola, which uses SaaS offerings from Salesforce.com and Rearden Commerce. In part, Redshaw says, this is because SaaS vendors typically let customers pick and pay for functionality in modular fashion, versus licensing packaged software functionality that will never be used.