Build or buy – the software conundrum

By 30/05/2017 October 8th, 2018 HR Software, Software, Technology

Many businesses who are achieving excessive growth start to look at processes and procedures, and technology to aid their business is usually one of the first ideas that comes to mind but often last on the list of priorities due to cost.

Investing in technology that can provide immediate benefit but further long term solutions and return on investment is often overlooked for a simpler solution that can ‘do the job’ now; often built in-house  and not fit for the future but provide an immediate solution.

The build or buy debate, is one troubling finance departments. Outsource and commit to a regular cost or in-source and have a relatively cheaper cost? That is the question. Many companies do not have the in-house development capability beyond an excel spreadsheet, or the resource to employ a dedicated resource to develop and manage, but as organisations are growing the temptation to hire in-house development and build bespoke software such as a CRM, accounts system or indeed HR software is a becoming strong argument in the board room.

To build or buy?

The first question to ask when considering build or buy is “would developing that technology actually give you a competitive advantage?” Let’s say, for example, you’re a car retailer – would spending resources and money building HR software improve your bottom line versus spending the same time and money on advertising and marketing? Building an amazing HR system is unlikely to be a factor which helps you differentiate yourself against your competition nor is it likely to help you provide a better service to your customers and make people want to buy their next car from you.

Can you develop what you need and what you want?

The most immediate challenge facing companies in this situation is, ironically, where to begin. How do you begin to scope out what your current HR software requirements are and are likely to be for the next 5 years? HR will have a pretty clear view of what functionality they will need currently whilst IT will know how to write software but that is a long way away from being able to spec up requirements. For example, HR might say we need a way of recording sickness and holidays and IT will be more than capable of delivering it. However, will HR have specified each type of leave has different rules and what those rules are? How about considering the need to perform return to work interviews? What about notifications and alerts? Workflows? Reporting and analytics? Permissions? The list goes on.

Planning, scoping, requirement analysis and objectives takes time, cost money and can often be difficult to agree terms of delivery between internal departments.

Assuming you have been able to come up with a project brief, a full scoping document outlining the requirements of the HR department, the next challenge is do you have the required skills in house? Yes you have a developer or a team of developers but if all your developers are backend developers and you need front end then there might be a mismatch. Alternatively, if all your developers are used to developing in Ruby and you need to use something else, will they be able to work in that something else and would they need time and potentially training to be able to cross skill? Will IT have the dedicated resource to fully deliver your requirements, or will the in-house development team have conflicting priorities? We understand the internal pressures of organisations, and more often than not ecommerce and financial development takes preference (as sales generators over cost savers usually do) – yet the organisation is usually fully committed to their employees.

Cost

Often one of the main reasons to look at building in house is to try and save money. If you already employ developers and are paying their salary anyway then getting them to build something rather than paying someone else often seems to make a lot of sense. But does it really?

Are you taking those developers off other work which would give you a competitive advantage in the marketplace? Maybe you are a software development house in which case are you taking developers off paying, customer facing work? Maybe they are free this month but then work comes in for next month – of course, you will want to prioritise customer work so what then happens to the HR project?

If we stop and look at the simple matter of costs – conservatively a good developer could build a relatively simple HR system within 3 months. Depending on where you look online, software developers can earn anywhere from £30,000 to £100,000 per annum but let’s settle for a happy median of £40,000. On top of salary you also have National Insurance plus other benefits and associated costs so assume 20% for that which gives a monthly cost of £4,000.

In addition, to the development time you are going to need to factor in testing and documentation time. You also will need to allow for hardware and software costs plus day to day management of the hardware such as maintenance, patching, security software, backups and so on. Assuming a reasonable spec server costs £4,000 and allowing £1,000 for management costs this is another cost to be included.

Of course, you could provision hardware in the cloud such as in AWS or reuse an existing server or use a portion of an already virtualised server but, ultimately, there is still a cost to be factored in especially as most hardware will need replacing after a period of time.

And finally, if you in-source development, do you have the experience in-house to understand future requirements? Will your development deliver in two, three, five years or will it do the job now but worry about the future when the time comes? Does your in-house development have the experience to foresee add-ons you will require, further development if and when legislation changes?

Security and who needs to see who gets paid what?

Hardly a week’s goes by now without some sort of high profile security breach being in the news. Often these breaches are the result of malicious hacker’s intent on causing maximum damage or extorting the most money possible from their targets. This, whilst it may seem unlikely, should be a consideration. Do you have the skills, knowledge and expertise to write secure software and to host it in such a way that it makes it as hard as possible for hackers and other criminals to gain illegal access?

Whilst it is critical to focus on the malicious outsider, you also should not take your eye off the need to protect against the malicious insider or, indeed, the inadvertent actor where someone unwittingly aids an attackers be that through falling for a phishing scheme or compromising their password. Whilst outsider threats may represent the largest single threat source considering both malicious internal and inadvertent actor are both internal they actually represent a greater risk as can be seen from this info-graphic from IBM 2015 Cyber Security Intelligence Index.

 

Additionally, most Data Protection legislation is quite straight forward when dealing with data breaches – did you take reasonable steps to protect the data? Did the person who had access to the system need to have access to that system? What was your justification for giving them the access they had? Further, do you want to have someone in IT able to see the IT Directors salary or access their performance history? With or without a breach, can you justify giving an employee that level of access?

Of course, you could choose to leave out the IT Director’s salary or, indeed exclude all salary information or all Directors’ information but then you are totally defeating the purpose of having an HR system. All your HR data is no longer in one place so you are back to having information in lots of places with no single repository and, often, many of those places are not exactly secure such as on a spreadsheet on shared drive or on your laptop.

Finally, on security it would be remiss not to mention the upcoming General Data Protection Regulations which are due in June 2018. Many of the principles around data access and so on are unchanged under GDPR but, at its simplest level, one the major differences is in the area of penalties – today the largest fine the Information Commissioners Office can levy for data breaches is £500,000 but, under GDPR, this will increase to 4% of global turnover or €20 million!

The future

As mentioned earlier, it is challenging to be able to know what your needs are today let alone tomorrow or next year. When you build yourself, you may well have enough resource to be able to complete the project but what happens when your needs change? There could be new legislation which needs to be factored in or simply something you forgot about. Maybe you have found some bugs or things that don’t quite work as you expected. How can you be sure that these changing needs will be met?

As a final thought, often when software gets developed in-house it is done by one person or a very small team – what happens when that person leaves the company? Are you confident that the system is documented and the code written in such a way that a new developer can some in and pick up where their predecessor left off?

Does it ever make sense to build your own?

We develop and sell HR software so, of course, you are going to expect us to say it never makes sense to build your own but, actually, that is not the case. There is one specific scenario where it may make a lot more sense to build your own HR software rather than buying and that is when your requirements are very complex.

This could be because you need a system which is infinitely customisable or where you need integration with multiple internal or external systems.

In this case, off the shelf HR software (especially cloud HR software) may not be right for you. There could be argument for looking at on premise HR software in this case as it often offers many more options around customisation etc. but, generally speaking; when you buy off the shelf you have to compromise in some way. In most cases you get high quality, secure, future proof software at a lower cost but sometimes the cost in terms of compromises may just be too much which is the only time build your own makes any real sense.

Closing thoughts

Generally speaking, it does not make sense for most organisations to build their own HR software any more than it would to build their own accounting or CRM system.

Whilst building your own may feel like a step forward from using Excel spreadsheets the many limitations very quickly come to the fore and you often end up feeling just as frustrated and restricted as you did previously.

Whilst the cost may appear to be less, building your own often has many hidden costs both in terms of financial cost but also opportunity cost due to a lack of clear understanding of where your business might be tomorrow.

That said, it is important to ensure that any software you buy is flexible enough to be able to meet your main requirements today but also is able to adapt to your changing needs tomorrow even if you do not yet know what they are.

Jason Dowzell

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