A Guide to Making the Right Choice.
Too long to read? Try our AI-generated Summary instead.
The digital revolution has irrevocably altered the competitive landscape for businesses of all types. No longer just an option, digital transformation is now a business imperative. All modern businesses are under pressure to provide a faster, cheaper and more intuitive service to their customers. They also have to be more reliable, and they have to run highly efficient operations behind the scenes. In the modern world, all of this depends on having the right digital technologies.
Modern businesses often face a general question and a dilemma: Can a company simply use a Commercial Off-The-Shelf (COTS) software product? Or is it better to take the time to build a custom-designed piece of software? We explore and answer this question in this article.
Choosing Between COTS and Custom Software
An early choice that businesses have to make is what kind of digital technology to use. Businesses often turn to COTS software solutions to address their challenges. These offer a fast and easy to implement solution with very little initial investment. The appeal is obvious, and the alternative of creating custom software from scratch is often off putting.
Indeed, if a business can easily implement an effective COTS solution and it will be profitable in the long term, it will make a good choice. In simple use cases, or where off-the-shelf software does work effectively, there isn’t any need to invest time in developing custom software. Some businesses may also be able to put up with certain limitations.
In many cases, however, it will prove wise to consider whether it’s worth stopping and investing time to build custom software.
Start by Evaluating the Type of System You Are Building
In many cases, it’s advisable to use either custom software or COTS software according to the type of system you’re building.
Systems of Record | Systems of Differentiation | Systems of Innovation | Systems for Specific Internal Processes |
These are the foundational applications that manage core business processes and data. They are typically focused on maintaining consistency and compliance. Examples include ERP (Enterprise Resource Planning) systems and financial management systems. These systems are essential for day-to-day operations but are not always a source of competitive advantage. | These systems support unique business processes or workflows that differentiate an organization from its competitors. They are more flexible and customizable than Systems of Record. Examples might include customer relationship management (CRM) systems supply chain management systems. These systems help companies execute on their unique value propositions and can drive business competitiveness. | These are applications or technologies that enable an organization to explore new business models, launch new products, or enter new markets. Examples might include advanced analytics platforms, AI-driven solutions, or mobile apps that provide new customer experiences. These systems are critical for staying ahead in rapidly changing industries and are often the source of disruptive innovation. | These are specialized applications designed to enable custom processes, and to deliver efficiency, accuracy, and compliance in specific areas of operation. These systems primarily exist to streamline internal workflows and enhance productivity in their respective domains. |
It’s usually best to buy COTS and consider customizing. | These can be bought, but it often makes better sense to build custom software. | Custom software should be built from scratch. | Highly specific software should be built from scratch. |
The Limitations of COTS Solutions
Commercial off-the-shelf (COTS) solutions have short-term advantages. In the long run, however, they often don’t work as well as custom software.
COTS products are particularly ineffective for businesses that have unique requirements or that need to be adaptable. They can also be more expensive in the long run and may not integrate cleanly, giving rise to hidden costs.
The overall disadvantage, however, is that COTS solutions don’t provide any of the cutting-edge competitive grit that custom software solutions do. A recent study by Forrester found that 60% of companies are dissatisfied with their current COTS applications due to limitations in delivering functionality to serve competitive, specific business functions.
The inherent constraints of COTS models often include:
Never a Perfect Fit
COTS solutions are designed for broad application, and this often results in suboptimal functionality where the software doesn’t fit with specific business processes. A manufacturing company with unique production processes might find that a generic ERP COTS solution won’t adequately handle its requirements, for example. This can lead to inefficiencies and missed chances to save costs.
Competitiveness and Differentiation Issues
The overall problem with COTS products is that they’re not the best choice when it comes to business competitiveness. The businesses that have the most innovative and effective software systems will be the most competitive and the most disruptive in their industries - and this can only be achieved with custom solutions.
Lack of Control
With COTS, the provider dictates the software's evolution, and this limits an organization's ability to adapt to new business requirements. This is particularly a problem for businesses in fast-paced industries. It can be a problem for all businesses, however. If industry regulations change, for example, a COTS provider might not prioritize updates that align with a specific industry's needs. This leaves businesses at risk.
Unpredictable Costs
COTS products are cheaper in the short term. Long-term costs, however, are uncertain. In many cases, commercial off-the-shelf products become more expensive in the long run as a business develops and increases its reliance on the software. The total cost of ownership (TCO) for COTS products often escalates rapidly as a business grows its customer base and as user numbers grow. It is also not uncommon for upgrades to become full-scale redeployment of the COTS.
Compliance Hurdles
With COTS solutions, companies may have limited control over their compliance procedures and may find it challenging to tailor the software to meet specific regulatory requirements. This can make COTS less suitable for organizations that need to stringently manage compliance. A pharmaceutical company developing a new drug formula might prefer a customized platform that offers greater control over compliance processes and ensures that all regulatory standards are met while protecting confidential data, for example.
Benefits of Custom Software
Custom software offers a more effective and customizable approach to digital transformation. It may require, an initial time and financial investment, but with custom software, a business can create a solution that aligns precisely with its objectives. This helps a business to run more efficiently immediately and also gives it a competitive edge in the future. Most businesses can also achieve a higher return on investment with custom software.
With custom software, businesses can:
Achieve Unmatched Business Alignment
Custom software is meticulously engineered to mirror specific business processes, ensuring optimal efficiency. A logistics company, for example, can develop a custom transportation management system that perfectly matches its unique routing and scheduling requirements. With this software driving business performance, significant cost savings will be realized.
Adapt to Changes Quickly
Organizations retain full control over their software's development, enabling rapid adaptation to market changes. A fintech company can quickly introduce new financial products or services by modifying its custom software platform, gaining a first-mover advantage, for example.
A Higher Return on Investment
While the initial development costs might be higher, custom software can lead to long-term cost savings due to increased efficiency resulting from a fit-for-purpose approach, reduced operational expenditure, and capabiliies for custom reports that can drive improved decision-making. A manufacturing company can optimize its supply chain with a custom-built inventory management system, resulting in significant cost reductions, for example. The company also maintains control over costs with no increases occurring as reliance on the software increases.
Customize Security Policies and User Role Definitions
Custom software can be used to implement stringent security measures to safeguard sensitive data and intellectual property. It can also be purposresly built with specific users and roles as these apply to an organization. A government agency handling classified information can build a custom software application with advanced encryption and access controls to protect national security.
Deploy Anywhere, Move Freely
Custom solutions can still be deployed in the Cloud and thus easily expanded or contracted to accommodate growth or fluctuations in demand. These same solutions can also be transferred on-premises, gaining back access and control.
Optimize Performance
Dedicated infrastructure and resources can be allocated to maximize performance. If a high-frequency trading firm requires ultra-low latency for its trading algorithms, for example, this can only be achieved in a custom-built, high-performance computing environment.
Increase Differentiation and Competitiveness
The overall benefit to custom software is that it makes a business more competitive. Businesses can make sure they have the most efficient and supportive software available, and they can also quickly adapt it to take advantage of opportunities or to react to changes. Businesses with their own custom software are less likely to be caught out by changes in their markets, and will be the leading, disruptive players in their industries.
TDVG's Hybrid Approach
At TDVG, we use a hybrid approach that allows us to deliver custom solutions tailored to the specific needs of our clients. We can build from scratch or leverage our ready-made micro-applications, which act as application accelerators - and can be heavily customized as required.
By utilizing modern low-code technologies and frameworks, we achieve design, development, and operational synergies, enabling us to deliver software solutions efficiently and effectively in this hybrid manner. Essentially, TDVG can deliver the best of both worlds!
Conclusion
Successfully navigating the digital transformation means taking a strategic approach. If you clearly define your business goals, accurately assess your current capabilities and invest in technologies that support future business development, the digital transformation can work in your favor.
If off-the-shelf solutions might not be the best long-term option for your company, it’s worth taking a closer look at custom software options, or hybrid options. By partnering with experienced software development experts, you can create solutions that improve efficiency, encourage innovation and drive business growth.
Are you ready to transform your business? Let's discuss your specific needs and explore how custom software can help you achieve your goals.
Contacts us
Want to learn more? Reach out!