Differences, advantages and disadvantages

between in-house development IT systems and

industry standard ERP system.

Hamilton Setende

All rights reserved

Hamilton Setende
2012

Differences, advantages and disadvantages between in-house development IT systems

and industry standard ERP system.

When implementing an ERP system, companies need to decide whether to buy the system or
to build it in-house, both methods have their pros and cons and careful consideration has to
be taken by the people responsible for such decision in order to choose the implementation
route that would best suite them.
In House development
This is the process whereby the company uses their own workers (in-house team) to develop
or implement an IT system that fits the specific needs of the company.

This process allows for the creation of a more customized system that can have an exact fit in
the company. This is because, there is direct contact between the software team and the
people that would be using the system and so they can tailor the system in a way that it could
incorporated some or most of the wishes of the users.

This approach requires that the company possesses a group of or team of programmers,
business analysts etc. that work closely together within the company with a common
reporting line, which makes it easier to coordinate between teams. The individuals in the
team should be experienced in developing and implementing IT system and have a thorough
understanding of the companys business processes and once it is implemented they should
be able to maintain as well as improve the system and adapt it to changing business
requirements.

This approach allows you to have complete control over the functionality and gives you an
in-depth knowledge of how the system works and how they interface with the other business
areas.
Advantage of in-house development

The company has full ownership of the final product as well as its source code and the
knowledge gained while developing it.

Fits exactly to the business requirements of the company

There is a relationship between the development team and the user base which helps
in communication and expectation delivery.

It gives you full control over the system and its functionality

Allows you to differentiate from your competitors (as the system is developed for
your specific needs.

Can provide the business with a greater competitive advantage that a bought solution.

Disadvantage

It can be costly to maintain and improve the system to continuously meet business
needs.

It requires more IT personnel which in turn lead to High overhead cost.

High switching costs: it is more expensive to change to newer technology.

It is time consuming to develop an in-house IT system as opposed to buying it

High development and maintenance costs (Although it may seem less expensive, inhouse development can actually become more expensive as time goes, as there are a
lot of things that go into the process, such as analyzing requirements, gathering,
programming, designing, implementing, testing, user training and maintenance).

If the company decides to sell the system, it may suffer from a lack of portability, as it
the system maybe too tightly built into the identity of the company,

Buy an ERP system

In this case instead of having an ERP system custom made in-house, a company decides to
buy an ERP software package or system from a vendor.
Unlike the in-house development which is designed with flexibility in mind and fits exactly
into the business need of the company, a brought system can be inflexible as it is designed to
be sold to various other companies and so it provides you with the same functionalities as
everyone.
When buying an ERP system, a company is required to pay licensing fees for the software
package as well as installation and training for the staff.

One of the main advantages of buying an ERP system, is that unlike the in-house
development that can take a long time to be developed and implemented, when buying an
ERP system, it is already built and ready to be installed, with the only time investment being
the training process for users.
One other difference between the two methods is that when you buy an ERP system, you are
not required to do any maintenance work as the vendor is responsible for conducting all the
maintenance and updates of the system.
Advantage of Buying an ERP solution

Proven existing solution and ready to be used

You are provided with expert support and training

The vendor spends many hours developing testing and researching the system (this
results in less bugs, better functional system).

No need for constant maintenance

Implements industry best practices.

Proven track record

Cost effective

Disadvantage of Buying

The company has to rely on the vendor for technical support when issues come up.

The software Vendor retains the rights to code.

System functionality is determined by the vendor.

When choosing which solution to undertake, a company as to take into consideration the
advantages and disadvantages of both and other factors.
Some of the questions a company could ask when deciding which solution to take are:
(Burleson, 2001)
1. Is your company willing to change the way it does business to accommodate the
software?

Buying: When you buy an ERP system, in some cases you would be required to
change the business practices of the company in order to accommodate the ERP
system, this can be expensive and may require practices to be changed whenever
an update is made. It is more expensive to customize the vendor ERP system to
your business practices

In-House: When an IT system is built from scratch, it is designed to fit the

company exactly, which does not require for any change of the business practices
as it is built to cater for those exact practices.

2. Do you anticipate many changes as business grows?

Buying: Businesses are not static and with time they grow and their business
requirements evolve and with that, changes to the ERP system are needed.
A bought ERP package solution is easier to change and grow with the
business.

In-House: although an ERP package is easier to adapt to business changes,

there might not be that many radical changes in the business and so a custom
built solution in this case is better suited.

3. Do business functions provide a competitive advantage?

Before deciding on which solution to take, it is necessary to identify which areas etc.,
give the company a competitive advantage.

Buying: A vendor ERP system can be better suited in a case where the
company does not have a clear business advantage as it is ready made and can
be used right away without much work to be done.

In-house: A custom built IT system can be advantageous in case of an

existence of a competitive advantage that it can bring. A custom built system
can possess certain functionalities that could not be available in the vendor
systems that could provide the company with competitive advantage.

So as it can be see, both solutions have their advantages, an in-house IT solution can be
customized to fit the exact needs of the company, but it requires extensive maintenance and

development time which carry high costs, while when buying a vendor solution, you benefit
from expert support and training from the vendor but the down side could be that, this
systems are built to be used by various companies and as much as it could be customized, it
may not fit the exact needs of the organization and so it would require a change in business
process of the company or a compromise of some aspects of the software.

There is also the fact that in-house development requires a lot of development overhead,
example: software for develop, hardware, testing team etc. there is also a need to have a team
that is responsible for maintenance and support, all of this can result in high overhead
expenses for the company.

In the case of a ready-made off the shelf software, it can be less costly as the costs of
development have already been assumed by the vendor, so choosing this option gives the
advantage of not needing to spend on development which the money can be used towards
other company resources or projects.

Another advantage of buying an ERP system, it that it may already have a good track record
in the industry, as it may have been successfully implanted in other organizations which
provides a level of assurance about the quality of the software, while the in-house software
has not been tested and has no proven track record.

But on the down side, ready-made software can become obsolete when new upgrades are
developed and this forces companies to upgrade or they may be unsupported by the vendor.
Another point to be considered about ready-made software is incompatibility; the company
may have certain existing programs that may not be compatible with the ERP system that
they buy.

So in order to make the right choice when choosing which solution to choose, the company
needs to evaluate the advantages of solutions as well as their disadvantages and how it could
suite to the specific needs of their business.

Reference

1. Burleson, D. (2001, August 6). Retrieved january 14, 2013, from Techrepublic:
http//www.techrepublic.com/article/selecting-an-erp-system-build-or-buy/1040167
2. Reeves, C. (n.d.). ERP build or buy. Retrieved january 16, 2013, from Gaebler
Resources for Entrepereneurs: http://gaebler.com/ERP-Build-or-Buy.htm
3. ComputerWire Plc. (2002). ERP buy Versus Build. Computer finance, 5.
4. Nitman software. (2010). In-house application vs packaged products. Retrieved
january 15, 2013, from Nitman: http://www.nitman.co.in/docs/in-house-applicationvs-pakaged-product.pdf