Build vs. Buy Software in the AI Era: How to Decide

Introduction

There have always been trade-offs when deciding to build or buy. When building, you can have more control over your software and be able to tailor it to your business needs. When buying software, there can be a quicker time to implement, less build time, and it may include functions you don’t currently have and that have been proven in the field.

AI has entered the picture.

Whether your team is leveraging AI coding tools or agents, developers can assist with build-out, exploration, creating test cases, and even help with modernizing your current applications. Some tasks that may have taken a lot of time can be accomplished more quickly with the help of AI. Allowing for more custom development to occur for your business needs.

There are still build vs. buy software costs to consider when making this decision. If you’ve created an application, you still need to consider security, building out integrations, QA, and monitoring your solution. Many software providers are incorporating AI into their platform that could cost you more if you try to develop and maintain the same features.

Technology leaders will want to ask themselves whether we can build our own software. If the answer is yes, should we buy, build, or both?

Having a build vs. buy decision framework will allow your business to analyze where the most value lies. While considering all costs associated with owning that piece of software. Whether you decide to build your own or rely on a software provider there are things to keep in mind. As well as the ability to buy and build your own on top of it.

What’s Changed With the Build vs. Buy Software Decision?

With AI we can consider these factors when making a decision to build vs. buy:

Custom Development is Becoming More Accessible

You can use AI to help build your custom software. By giving developers the ability to create code from requirements. Build test cases, gain a better understanding of your application, or create documentation. All of these steps can allow for less time to develop certain pieces of your software.

Depending on the requirements, application, and experience of your developer, there may be varying degrees of accuracy.

It is important to consider that if your company wants to build an enterprise-level application. There are certain standards you would want to build your code with. You will still have to consider any bugs or vulnerabilities that may be found in AI-generated code.

Commercial Products are Becoming More Capable

As mentioned earlier, many enterprise software companies are utilizing AI within their platforms. This can be to help with their customer service, finance, HR, or any aspect of their business. There are many reasons why you should consider buying commercial software.

When looking at commercial software, you want to evaluate the product and understand what it is offering. As well as how they are using AI. What AI models they are using and whom they are subprocessing data with. They should be able to tell you how their AI is evaluated and if they can meet your standards.

The Cost Equation is More Complex

Developing software with the use of AI can allow for less development cost upfront. When building out an application, you’ll still need to consider the cost of maintaining your software.

The same goes for buying commercial software. You may find lower prices upfront, but when you start adding users and utilizing more AI, you’ll notice an increase in cost.

It’s best to compare lifecycle costs when determining build vs.. buy.

The Decision is Increasingly Hybrid

Many businesses will decide to buy commercial software and build their own custom solution. This allows companies to leverage others’ solutions and use those as building blocks to build their own custom software.

This can be beneficial as your company can grow its custom application to fit its business needs and have the ability to sell that solution.

Build vs. Buy Software: What Does Each Option Mean?

Now that we know why we may want to build vs. buy software, let’s understand what we’re looking at.

Build will allow you to create your own solution. This may include hiring a build partner to assist with developing your custom software. Your team will be able to have more control over what your application can do.

Buy will give you the ability to purchase a product or SaaS solution that will fulfill your business’s needs.

There is also a combination where you buy and build. By allowing your company to build custom features and add to commercial software. You can leverage other companies’ solutions and add your own differentiator to the product.

Understanding these options will help you evaluate which one fits your business the best.

When Should an Enterprise Build Software?

There are many reasons you may want to build your own software. It’s important to consider why your company may benefit from having ownership of its software.

The Capability Differentiates the Business

By building your own solution, you are creating something that fits your company’s business. There may be certain areas that you feel are important to your business that may not be included in commercial software.

You’ll have the ability to grow and adapt your application to your business needs. Instead of having a vendor that will allow you to grow in certain directions.

Will your company continue to see benefits from the software you’re building?

Commercial Products Leave Critical Gaps

Many times commercial software will have most of the requirements you are looking for. But there will always be some that you don’t think will benefit your company. These can range from simple business rules to heavy workload requirements.

When comparing these two, you should also consider if the vendor has configurations, extensions, API’s or software they sell on their marketplace that may benefit your needs.

Data Control and Architecture are Central Requirements

Some companies require certain standards when it comes to data. If you’re building your own software, you have the ability to allow for these standards and build around your needs.

Of course, when building your own, you have to make sure your software meets security standards. There are steps that should be followed when building an application. Whether you buy or build, there should be security measures in place.

The Economics Support Long-Term Ownership

If you are paying for software per user or usage, you may want to consider building your own. If you have the ability to maintain the software, then you may want to create your own.

Again, consider all your lifecycle costs when deciding to build your own. From build, hosting, AI usage and cost of supporting that software. You’ll want to make sure it’s beneficial to your business.

When Should an Enterprise Buy Software?

As we know, there are pros and cons to buying software. Below are reasons why you may want to purchase a commercial product.

The Requirement is Common Across Organizations

There are many software options that companies buy to run their day-to-day business. Software that helps with collaboration, expense reports, payment to employees, and more. There are always going to be products out there that have built these features.

You may not want to spend the time and cost to develop these features if others have done it for you.

Time to Value is a Priority

If your business needs to have a feature implemented sooner. Purchasing commercial software may get you there quicker than building your own.

You will still have to consider any integration and migration work that may be involved.

The Vendor has Capabilities that Would be Expensive to Reproduce

When looking at commercial software, you want to research the company and see what they can offer. They may have already incorporated these features into their platform. If they don’t, they may have roadmaps in place to achieve these goals.

Similar to when building your own, you should research if they are able to meet your expectations.

Internal Ownership Would Create Unnecessary Operational Burden

When you decide to build your own, you have to understand that there are maintenance tasks that will have to occur. Fixing bugs, upgrading technology, and ensuring someone has the knowledge to support that application.

When buying, you are offloading some of these tasks to your software provider. Your team will still need to monitor their solution and understand how their software will operate within your company.

Build vs. Buy Software Decision Framework

Below is a list of items to consider when evaluating build vs. buy software.

Is the Capability Something That Distinguishes Your Business

If the answer is yes, you may want to consider building your own software. Some products you’ll want your customers to experience that can set you apart from others. Having these capabilities built out will help your business stay ahead.

There are always pros and cons to buying and building software. But if this feature can benefit your revenue stream, then you may want to build.

Is There Key Functions Missing From Commercial Products

Commercial products can meet most of your requirements but may fall short on some. There may be times when a key business requirement isn’t offered by a vendor.

Evaluate these gaps and determine if they will affect your business. You can also look at these products and see if they offer any services or configurations that may fill these gaps.

Do You Require More Control Over Your Data and Architecture

Your company may have requirements that need to be considered when handling data. Some may need more granular controls when building out an application. If building allows your team to accomplish these tasks, you may want to consider that.

Remember that when you build, you will need to have controls in place to protect your data.

Does It Benefit Your Business to Own That Software

There may be times when software charges increase with more usage. Your team may know the application they want to build better than a vendor will be able to. Make sure to compare the lifecycle cost of owning the software.

Some software may have higher costs when building out your own. If you can still stay under budget and meet your business needs, then building your own may be the best option.

A Practical Build vs. Buy Scorecard

Using this scorecard can help determine if it’s best for your business to buy or build software. Keep in mind these numbers are not scientific and are just meant to be a guideline.

Add up your score and get a number between 7 and 35. If your number falls between 7 and 16, you may want to consider buying. 17 and 25 could go either way, so you’ll want to dive deeper into your options. If you get a number of 26 or higher, you may want to look at building.

Make sure you understand why you got the score that you did. There may be certain areas that your business will disagree on and want to dig deeper.

How AI Changes the Economics Without Removing Engineering Responsibility

AI has opened up many conversations when deciding to build vs. buy. Developers can use AI to their advantage when creating custom software. It can allow for quick prototyping of applications and can help build test cases.

Companies that offer commercial software are also building these capabilities into their products. Your team may be able to spend less time developing applications and rely on the vendor to incorporate these AI features.

Make sure you have proper test cases in place and continue to evaluate if the product you’ve chosen is meeting your expectations. If your team decides to build, there will be lifecycle costs that need to be accounted for.

The same goes for if you decide to buy. There will always be costs when using a vendor’s solution. Just know that there are considerations to keep in mind when making your decision.

AI has allowed us to develop faster, but that doesn’t mean we should always build our own. Evaluate what is best for your business and allow AI to be a factor when making that decision.

A Six-Step Process for Making the Decision

When determining if your business should build or buy, there are some steps you should follow.

Step 1: Define the Business Outcome

What is the business problem you are trying to solve? Make sure your team understands the problem and knows what your end result is. Set metrics that you want to achieve by building or buying software.

Don’t jump into a decision of wanting to build an AI tool because AI exists. Understand why you need the solution.

Step 2: Separate Essential Requirements from Preferences

After you know what problem you’re trying to solve, you want to understand what features you need. Having these required features will allow you to decide if building or buying is best.

When looking for features, don’t disqualify a vendor because they may not offer what you want. Understand how these features will affect your business and see if there’s another way to meet your requirement.

Step 3: Evaluate Commercial Options and Custom Development

Research products and determine if you can meet your needs by building or buying. There are many times you can build on a purchased product and add your own custom features to it. Allow for these discussions when determining what will benefit your company.

Step 4: Model Lifecycle Cost and Risk

You want to know what costs are going into building or buying your solution. How many hours will your team need to dedicate to the build? Are there licenses or additional costs you may not be aware of when purchasing?

Document any additional risks that you may encounter that can’t be determined by dollar amount.

Step 5: Test the Riskiest Assumptions

Once you have all of your research put together, it’s best to test out your solutions. If you’re building, prototype out the most challenging pieces of your application. If you’re purchasing, test out workflows that will meet your business needs.

Have an expectation of what you want your PoC to accomplish. Once that is completed, revisit your findings and reassess your decision.

Step 6: Assign Ownership and Review the Decision

Once you’ve made your decision, it’s important to have an owner in place. Whether that’s your own team or a vendor that can manage your software. Understand who will be maintaining your solution and how you can continue to grow.

These decisions won’t always stay static. If your company grows or your usage changes, you’ll want to reevaluate your decision.

Common Mistakes in Enterprise Build or Buy Software Decisions

Here are some common mistakes that companies make when making a build or buy decision.

Only looking at year one pricing. You may find a cheap solution, but if you add users and begin utilizing the software, there may be additional costs.

Wanting to build because we have AI. Just because we can build with AI doesn’t mean it’s going to provide your company with benefits.

Not doing your due diligence when purchasing software. Research the products you’re going to buy and ensure it will meet your expectations.

Building your own but not knowing how you will manage it. Once you build an application, you want to make sure you have a team in place to manage your software.

Don’t only focus on vendor lock-in if you buy. You may have vendor lock-in if you decide to build your own. If you use a vendor’s product and rely on it, you’ll want to understand what those lock-ins are.

Try to understand if building will benefit your company. There are pros and cons to building your own and buying software. Just understand what will provide the most value to your company.

How Hexaware Can Help Enterprises Make the Right Choice

There are many factors to consider when making this decision. If your company wants help determining whether it should build or buy. Hexaware can provide assistance with our build vs. buy software decision.

Our Digital Product Engineering Services can help you build and scale your product. Whether you’re looking to improve on your current solution or start from scratch. We can provide engineering services to help.

If your company wants to leverage AI to help with your software, we can provide you with our Artificial Intelligence Services. Helping you understand your AI landscape and how you can utilize AI to your advantage.

Hexaware also created an Enterprise Application Modernization Guide that will allow you to learn more about modernizing your applications.

Partnering with Hexaware can allow you to make informed decisions when choosing to build or buy software.

Final Thoughts

When deciding to build or buy your software, there are many factors to consider. If you decide to buy your software, your team can continue to focus on other aspects of their business. If you build, you have the ability to have a product that fits your company.

There will be instances where buying and building can work together. Your team can buy commercial software and add your own features to it.

AI has made building your own easier, but doesn’t mean it’s the right decision for your business. There will be pros and cons to deciding if you should build or buy. Making an informed decision will allow your company to thrive.