Build vs. Buy: The Drama Continues

Almost a decade after the “Y2K” debacle, the “Build vs. Buy” debate is still alive and well. But are we any closer to a resolution? I think we are.

If a solution can provide a competitive advantage, feel free to “build it.” But if you are upgrading supporting systems, packaged solutions will do the trick.

While the controversy surely goes back a ways, the build or buy argument seemed to emerge while preparing to ward off the “Millennium Bug.” Prior to 2000, analysts predicted that many homegrown systems were programmed to represent a year by its last two digits.

The consensus was that when the century rolled to 2000, systems would assume the year was 1900, and all related solutions would shut down. Many companies spent the better part of two years remediating systems with packaged solutions or homegrown band-aids to avoid a halt to business on Jan. 1, 2000.

While few retailers reported major issues that morning (or in the weeks after), many companies began committing to more packaged solutions in hopes of gaining more efficiency, integration and streamlined data flow.

Fast-forward almost nine years later to September 2008. Point solutions are very prevalent, but some chains are still creating their own systems. Unlike those built during the 1980s and 1990s, today’s homegrown systems are built on open standards and use more flexible programming. But new factors are affecting the build vs. buy debate.

The economy continues to weaken, consumer confidence is down and retailers’ margins are shrinking. Realizing that IT is the catalyst needed to rebuild the shopping experience and grow consumer loyalty during this spending slump, the good news is that retailers are not halting IT projects.

But the bad news is that these factors are taking their toll and further straining IT budgets. Now more than ever, companies must make the most cost-effective decisions when choosing new applications.

So what is the most important factor impacting the decision to build vs. buy? While a pretty high level of in-house expertise is a prerequisite for homegrown systems, there is another factor. Companies need to determine if it will give their chain a competitive advantage.

For example, when AutoZone wanted to add a parts-lookup solution, it decided to develop it in-house. “It was something that would set us apart from others, and we didn’t want to rely on an ‘average’ solution,” Ken Brame, the retailer’s former CIO said during the recent Technology & Operations Store Summit (TOPSS) sponsored by Chain Store Age and Retail Technology Quarterly. 

If a company needs to upgrade a standard operation, such as human resources or financials, for example, retailers shouldn’t shy away from a best-of-breed solution.

Clearly, every situation is different and no project should be entered into lightly. If you are having trouble deciding which road to take, remember the following:

• Calculate the cost for both scenarios;
• Evaluate the time required to deliver the solution;
• Assess the risk that will be taken on in-house, or by a third-party partner; and
• Make sure your associates are on board with the decision—from the IT team and user group, up to top-level executives.

The key is choosing the direction that can provide the best return on investment in the quickest time frame possible. By following these tips, the project is sure to be a success—and success always makes it easier to move on to the next project!