Custom Software vs Off-the-Shelf Tools

When it comes to selecting the right software solution for your company’s needs, the choice between Custom versus Generic (Off the Shelf) is often overlooked by many organizations. Availability of resources, like budget, impacts not only the IT budget for your organization but ultimately impacts your overall success as well as how quickly your organization can scale and differentiate itself over time.

The final decision regarding which to use usually gets oversimplified.

Once you say “Custom Software” most people assume that the cost is high due to the time it takes to develop and implement a custom-built solution; on the other hand, when you say “Off the Shelf” many people assume that the costs will be much lower because of the availability of so many competitors and the lower development times based on a common set of requirements.

Although this is generally a correct assumption for most users when discussing these types of toolsets, both have unique advantages as well as disadvantages that should be considered and weighed before making your final decision. Depending on the way in which the business operates today and the long term goals and vision, Custom would likely be a better fit for your organization in the future than Off the Shelf would.

In this guide, we have broken down and highlighted some of the key areas of difference between Custom Software and Off the Shelf Toolsets from a cost perspective, scalability, integration capabilities and long-term return on investment (ROI).

Off-the-Shelf Software is defined as any type of Commercially Available Pre-Built software tool set.

The main types of Off the Shelf software tools are designed to be used for common business models/benefits with similar objectives; therefore it is classified by utilizing a common set of workflows and Use Cases.

Typical examples of Off the Shelf software include the following:

Customer Relationship Management (CRM) system/software
Accounting/Finance system/software
Human Resource (HR) System
Payroll System

In the early days of a startup, many entrepreneurs turn to off-the-shelf software because of its speed, affordability, vendor maintenance, support, and documentation in relation to their existing business processes.

In contrast, in the event that a company operates differently than the way that it is developed based on business needs, the solution(s) can be developed specifically for the organization’s unique situation.

Some common examples of custom software include: internal business operations systems (BSOs), customer relationship management (CRM), business resource planning (BRM), and business process automation.

When comparing custom software and off-the-shelf software, the key differences between the two are listed below:

1. Compatibility vs. Customization

Many off-the-shelf software packages will support the majority of companies in the employing of established business processes. As businesses develop to the point of where their particular markets become more complicated, they find that they use less and less of the tools that fit with their specific processes. Examples of this may include unique pricing structures, complicated approvals and/or reports, custom integrations with other solutions, etc. Many businesses have resorted to the use of spreadsheets, multiple applications to complete tasks, and more manual interventions.

As businesses have developed, they have continued to compress the time it takes to build the complexity generated by off-the-shelf software solutions, while using the same general framework of their established business process.

2. Immediate Implementation vs. Long-Term Benefits

Off-the-shelf software typically allows for a fast implementation time and can be implemented rapidly. Custom software generally takes longer to develop and create; however, in the end, the long-term benefits of the custom software package tend to outweigh the original low-cost options provided by an off-the-shelf software solution.

When Using Off-the-Shelf Tools You:

• Have to wait on vendors for roadmaps.
• Only have access to defined, pre-set features.
• Longer execution using workarounds.

When Developing Custom Software You:

• Are able to modify when the business needs it.
• Are able to build new features from the design stage.
• Do not slow down your processes once the team aligns with the system.

The short-term speed advantage of off-the-shelf tools is typically outweighed by the long-term speed advantage associated with custom software development.

3. Cost = The Part That Most Teams Fail to Calculate Accurately

Most cost estimates are based only on the initial spend, which is a seriously flawed point-of-view.

Cost Structure for Off-the-Shelf Tools:

• Monthly or annual subscription fees.
• User based prices as the team grows.
• Add-on features available at additional cost.
• Add-on integrations only available at an additional cost.
• Major fees associated with transitioning to another tool when the current one is no longer a good fit.

Recurring costs accumulate over time, especially with growing teams.

Cost Structure for Custom Software is:

• Higher initial development costs,
• Ongoing maintenance, and
• Hosting and infrastructure costs.

However:

• There are no per-user fees
• You set the priorities in terms of the features.
• The system grows with you and you will not pay additional fees for licensing as the business grows.

In the case of mid-sized and enterprise companies, custom software provides significant cost savings over a 3- to 5-year period.

4. Integrations and Flow of Data

While some tools may advertise that there are integrations with the tools, there are typically:

• Integrations limited to popular platforms,
• Shallow or one direction,
• Not customizable.

When developing custom software you have:

• A deeper integration with your internal systems,
• The ability to directly access the data models of the systems, and
• An opportunity to create flexible workflows across the different platforms.

Additionally, if your company is using multiple systems and relies heavily on synchronizing data between the systems, custom software will be more reliable and provide you with better control of your data.

Off-the-Shelf Tools Scale off of Vendor Limitations. As you grow, it may be challenging to enhance on your performance; customizing your software should enable you to increase your productivity and responsiveness by using systems that meet your growth needs.

Custom Software is Custom Built to Scale Based on:

• Your Infrastructure Choices
• Your Performance Requirements
• Your Security Standards

For businesses with high growth, being limited by operational bottlenecks can quickly limit revenue.

6. Competitive Advantage

All competing businesses purchase similar tools off-the-shelf.

Custom software can represent:

• Unique workflows
• Proprietary processes
• Operational Efficiency
• Data Insights

When software becomes part of how you compete and not only how you operate, it will provide you with a competitive advantage.

When Is Off-the-Shelf Software the Right Choice?

• Workflows are standard
• Immediate Need
• Validation of Business Model
• Budget is Limited
• Software is Not a Core Competitor

For many early-stage companies, off-the-shelf tools are often sufficient.

It is a mistake to think that they will scale forever.

When Custom Software Is the Right Fit

Custom Software is more beneficial in the following situations:

• Processes are Unique
• Manual WIs Are Increasing
• Data Is All Over the Place
• Subscriptions Are Rapidly Increasing in Price
• Need More Control and Flexibility

These are the times when general-purpose tools usually hinder growth instead of enabling growth.

The Hybrid Version Documentation Most Teams Miss

The majority of high-performance organizations do not utilize one of these models exclusively.

They use off-the-shelf tools to address the commoditized areas of their business, build custom software in the areas of differentiation, and transition away from the off-the-shelf tools as their business becomes more complex.

This hybrid model balances

Frequently Misunderstood Facts Regarding Customized Applications

Myth Number One – Customized Applications Are Designed Solely for Large Businesses

The majority of mid-sized businesses actually realise the greatest benefit from customized applications because they have outgrown standardised tools and consequently require agility.

Myth Number Two – Customized Applications Require Too Much Time to Develop

The reason poorly planned projects require too long is that they are poorly planned. Projects with clearly defined goals that are organized into phases can be built within weeks of implementing the first phase of the project.

Myth Number Three – Ongoing Support Costs Are Always High

The ongoing support costs are only too high if the software is designed without sufficient architectural support, appropriate documentation and without appropriate ownership of the software.

How to Determine If You Are Ready to Implement Customized Software – A Basic Decision Making Process

Consider the Following Questions:

Is my company adapting itself to fit the needs of my software, or is my software adapting to fit the needs of my company?
Are I finding more and more instances each quarter where I am forced to find a way around a limitations of an application?
Is my business limited in its ability to make decisions or react quickly enough due to software limitations?
Has the cost of SaaS applications increase at a rate far in excess of the return on investment realised from the subscription fees paid?
If I had the ability to develop and control the system myself, could I leverage my investment for as long as I have control over the system?

If you answered “yes” to more than two questions, it is time to start considering if you should implement custom software.

Final Summary

The question is not whether you should implement custom software versus off-the-shelf software; the question is, is the application stack that you currently have helping you achieve your growth goals, or is it potentially blocking your business from reaching your growth goals? Initially, off-the-shelf software will be a great accelerant. When your business is no longer “generic,” it will become essential to have customized applications. The smartest teams will identify when it is no longer feasible for them to continue paying for limitations they will not be able to overcome and begin to build a leverage position.

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