Authored by John Mezger
In Part 1, we focused on custom software as something that bears value that can be harvested for the business, rather than a burden to be borne. How do we parse this rather metaphorical thought exercise into something more tangible? By talking about proximity.
Understanding the proximity of your software product to core value-generating activities is crucial to determining whether to go with a custom or off-the-shelf solution. When consulting clients on application development, the three key questions we ask are:
- How close will your software be to the core business?
- Where can you expect to derive business value?
- How do you realize this business value today?
Considering these questions together helps you understand of the immediate and long-term impact that software has on your business, and equips you to make the most informed decision.
How close will your custom software be to the business?
If software is how you will drive new business while improving your core function, then anything directly touching that functionality is close to the business…right? What we have found is that bad software decisions can affect many more areas of the business.
Let’s put it in more concrete terms: Say you are an insurance company that has traditionally viewed software systems as a function of back-office work—any changes to a policyholder information or details about products are handled in-house by employees. Because these processes are not viewed as close to core business function, it might seem sensical to take advantage of the numerous off-the-shelf products that can help internal operations teams manage them.
However, consider the customer or end user in today’s digital economy: what value does having to fill out a form and wait days or weeks for an update to the account provide? Does that best fulfill the insurance company’s mission to provide the best possible product at the best possible price with the best possible service? Customers, internal and external, demand flexibility in how they interact with systems: choice and the ability to self-serve are becoming table stakes. The legacy way of doing things runs counter to where the market is going not only in commerce, but the software that drives it.
Our insurance company could integrate a web-based front end with a COTS application to gather the information it needs from its customers. However, there’s a risk that certain pieces of information required by certain states or other governing bodies may be left out in this integration, or key opportunities to suggest new products/features to prospective customers will go unrealized.
The consumerization of IT has bred an audience that expects a seamless, digital experience when it transacts in this space. That is where real value lies, and that value is what dictates proximity.
Where can you expect to derive business value?
Well-designed and well-built software allows enterprises to realize business value in new areas. Increasingly, value is found beyond traditional touchpoints like e-commerce platforms and inventory management systems.
Expanding on the example above concerning self-service in the insurance space, let’s says that an existing customer is interested in making sure that his or her children all receive benefits from a life insurance policy. Normally, after a form is submitted, the beneficiary is updated by an internal, manual process. What if instead, the process was automated? The increase in efficiency could be game-changing. Further, what if the enterprise could suggest that the benefit be paid into an alternative product, and that product could be a number of options that drive value for both the customer and enterprise? Custom software could power this: whether through a custom-designed user portal, automated assistant, or automated retargeting campaigns. Software offers the opportunity to provide service and derive value from existing relationships in new ways, for a new generation of clients. This opportunity is not available if the definition of business value stops at the line where the actual product ends and administration begins.
The realm of business value has never had wider boundaries than it does today: more and more, customer experiences are tied to the core differentiation of your business, and that differentiation is at the heart of your value proposition. So how does the juxtaposition between current and future state inform where you draw the line on core business function, and thus influence your decision on building software for your specific needs versus purchasing an off-the-shelf product?
How do you realize this business value today?
Considering current and future state means balancing the needs of the now while giving due attention to the features and products that will fuel growth tomorrow. The key is optimizing your time-to-market today while building flexibility for the future. A common misconception is that an off-the-shelf product will enable faster adoption. This theory works when discussing basic, business-agnostic functions, but any system driving value requires functionality specific to the needs of that business.
As the boundaries of what defines core business value expand, and as software becomes central to driving differentiation, the limitations of off-the-shelf solutions begin to show themselves, especially as functionality develops beyond day one of deployment.
As enterprises across virtually every vertical have found, basic back-end operations have been brought to the front-of-house by the demands of the digital marketplace. This can be a hurdle to a traditional enterprise if it uses off-the-shelf products to try and bridge the gaps. Instead of viewing this operational change as an obstacle to overcome, use it as an opportunity to drive differentiation. By asking the right questions and thoroughly understanding the opportunities before you, you can create a truly differentiated experience for existing customers and gain traction with a new generation of potential loyalists.
So now come the practical questions: How do you calculate the final cost of building this custom software system? How do you counter the lower adoption costs of an off-the-shelf solution? What we will show you is that the cost is actually lower when real production value is quantified. Stay tuned for Part 3.