What is a make-or-buy decision?

Make or buy: definition and importance

The question comes from business administration: is a service provided in-house or bought in? In IT there are usually three paths: buy or subscribe to a standard solution, have an external provider develop software custom, or build it with your own team. Hybrid forms add to that, extending standard products with custom modules. Which path fits depends on how specific your requirements are.

The decision shapes costs, speed and dependencies for years. It should therefore not be made on gut feeling or entry price, but on clear criteria weighted for the project at hand. It is worth looking at each area individually instead of deciding across the board for the whole company.

Decision criteria at a glance

Buying is supported by quick availability, proven functions, ongoing development by the vendor and predictable costs. In-house or custom development is supported when a process is a unique selling point, standard solutions do not cover essential requirements or strong dependence on the vendor is to be avoided.

A scoring matrix is useful, in which you weight criteria and rate each option. Total cost of ownership (TCO) is one part of it; data protection, integration into existing systems, in-house know-how and maintainability are others. The result is traceable and can be justified within the team or to financiers.

• Strategic importance: does the process set you apart from competitors?
• Fit: how much would a standard solution need to be customized?
• Total cost over several years (TCO)
• Time to launch and available capacity
• Dependence on the vendor, data ownership and export options

Real-world example: quote calculation in mechanical engineering

A machine builder calculates quotes with Excel spreadsheets that have grown over the years. For customer management, accounting and documents, it already uses standard software, which is uncritical. The calculation with its own bills of materials and pricing rules, however, is its competitive advantage, and no standard product maps it.

The solution is a hybrid: standard programs for routine areas, and a custom-developed calculation application with an interface to the ERP for the core business. That way the company invests in custom development only where it brings real benefit and saves the effort on standard functions. The calculation stays under its own control, while the routine areas are maintained by the vendor.

Common mistakes and imple­menta­tion

Common mistakes are looking only at the purchase price, underestimating maintenance and upkeep of in-house development, customization effort on standard software that ends up exceeding the custom solution, and a missing exit plan. “We have always done it ourselves” or “We buy everything” are not strategies either. Decide anew for each area.

Nano Concepts helps with the evaluation: we review requirements, compare standard solutions with custom development and, where it pays off, build tailor-made software or extensions with clean interfaces. Our packages Starter (from €2,500), Professional (from €8,000) and Enterprise (individual quote) provide a framework.