Even as many companies continue to buy software applications off the shelf rather than developing them in-house, custom-built applications are still very much part of the IT landscape, according to a report by McKinsey & Co., a consulting firm. The advantages of buying packaged applications, from Microsoft, Oracle, SAP and other vendors, are compelling, as are using applications that vendors create, host and make available over the Internet, like SalesForce.com.
But many companies still spend well over half their applications budgets on custom software, the McKinsey report says, because it helps to enhance, support, and operate customised systems. "Even when a company uses off-the-shelf applications, it frequently customises them, typically by adding modules that provide a distinctive capability. A high-tech company, for example, installed a suite of packaged enterprise-resource-planning applications but also built a customised cash-management application to supplement the ERP product’s plain-vanilla finance functionality. Unfortunately, even a little customisation here and there quickly adds up," the report by Sam Marwaha, Samir Patil, and Ranjit Tinaikar says.
When customising, companies must revise systems to meet new business needs. This can be difficult and costly, and upgrades to customised applications usually cost more than those to packaged software. In such a fluid situation, the three McKinsey consultants say, some companies have found a way to capture the benefits of packaged software in a customised-applications environment. "They have adopted the approach of software vendors, which package and sell applications aimed at the common needs of many customers rather than of individuals, by writing an application once and then selling it many times. In this way, pioneering banks and media and pharmaceutical companies have reduced the complexity and cost of managing applications and speeded up the deployment of new or updated ones," the report says. A company can define the management of common elements among applications as standardised "products" designed to provide for the needs of many applications rather than one. Similarly, it can assemble new, custom-built applications from common, internally built modules of functionality and then reuse services developed by its teams to undertake common tasks such as authenticating users or accessing attributes of customers or products. "Like software vendors, such a company writes the code once but uses it frequently — a tactic made possible by creating application interfaces that incorporate broadly accepted standards such as those from the Web Services Interoperability Organisation," the report says.