Enterprises have always wanted to build their own applications, but it was easier to buy. This is no longer true. Expect to soon see a trend toward 20 percent of enterprises creating their own business applications from scratch.
Build vs. buy is again moving to the forefront of IT decision making; however, this time, build will have some real possibilities for the right types of enterprises. Those with a process focus, a strong IS department with application development skills and unique business models will find build to be an attractive alternative. For the rest, buy will still be the strategy of choice; however, the growing number of enterprises that will be building their own solutions will cause vendors to notice. This will change business applications for the better during the next three years.
By 2008, 20 percent of all new business applications will be "homegrown," as opposed to commercially available solutions (0.8 probability).
By 2008, 20 percent of enterprises will write some components of business applications including ERP, CRM or SCM themselves (0.8 probability).
Gartner research consistently shows that about 25 percent to 30 percent of enterprises would prefer to build their own business applications, as opposed to buying best-of-breed solutions or an integrated suite. Nonetheless, with only a few exceptions in functional areas such as call centers, very few actually move forward with this plan. Traditionally, enterprises have given several reasons for this dichotomy:
- They thought that buying applications enabled them to be up and running faster, or at least that's how it seemed. In reality, buying applications made it easier to plan a timetable. Vendors could be held accountable for implementation time frames, and additional resources such as systems integrators (SIs) could be used to manage to particular dates. This degree of control is difficult with "homegrown" applications.
- They thought it was cheaper to buy an application than to write one; however, this depends on how you measure. Many enterprises didn't really know what the true total cost of ownership (TCO) of a packaged application was, so this position was often difficult to quantify. At the same time, enterprises don't know what it took to develop an application, so budgeting became easier when a price for a packaged application was quoted by the vendor and could be planned for.
- They thought that writing their own applications was a better fit for their business models, but maintaining them was a significant problem. Hence, by buying the application they shifted the risk, making their vendors responsible for keeping up with the market. This is an important issue when standards are still murky and evolving.
However, in the past 12 to 18 months, thinking on this issue has changed. As Gartner talks to clients, a trend toward writing in-house, custom business applications is clearly emerging, even though many areas such as enterprise resource planning (ERP) and customer relationship management (CRM) are quite mature, and adequate solutions abound. This change in mindset has several causes:
- It provides a reason to have an IS organization. In this age of outsourcing, writing a business-critical application in-house gives the IS group a reason for existence. Outsoucing becomes more difficult, and the IS organization becomes more indispensable. Although such thinking may not reflect good "business" reasoning, it is a political reality nonetheless.
- Object-oriented methodologies and offshore programming make it easier and often cheaper to develop, rather than buy. Enterprises are able to use programming tools and buy additional programming resources that give them more flexibility and reduce costs. This doesn't contradict the design on the part of IS groups to be viewed as necessities the ability to provide project management to the development of the application enables the IS department to be viewed as critical, while taking advantage of the new economics of outsourcing.
- Enterprises feel they can more easily adapt to unique business models and the idiosyncrasies of their own organizations with custom applications. Many enterprises feel that packaged applications take too much of a "one size fits all" approach. This causes many enterprises, (particularly Type A businesses) to feel the need to create their own applications from the ground up. They often view a solution designed to fit their own unique set of factors as more likely to provide real business advantage. This thinking is not new; what's new is that, with many application areas (such as CRM) becoming ubiquitous, there is more need to find ways to create real differentiation.
- Many enterprises feel that packaged applications are too cumbersome, bloated and expensive. And, even at a high cost, they may still feel that some functionality they need is missing. As many vendors, including Oracle, IBM and SAP, begin to expand their offerings to include such areas as the database, the application stack, the operating system and the integration layers, enterprises are concerned that these solutions are too big, and that buying one would give a single vendor too much control. Many enterprises want to take charge themselves and control their own IT destinies.
- In many cases, enterprises realize that buying a packaged application means buying the expertise of the vendor. They're learning that they may have a sufficient (or even a better) internal knowledge base, and they don't need to buy the vendor's expertise.
Hence, although Gartner research shows the same 25 percent to 30 percent of enterprises looking to write their own applications, what's changing is the growing percentage that actually follow up on this desire. This trend can be expected to grow more prevalent. By 2008, 20 percent of enterprises will write some components of business applications including ERP, CRM or supply chain management (SCM) themselves (0.8 probability).
Although this trend does not represent the death knell for packaged applications, it will change the landscape. Gartner expects vendors to react in the following ways:
- By developing more component software, which can fit more easily with other solutions, including the homegrown software
- By placing more emphasis on standards, such as Web services, to support integration to a multivendor environment
- By verticalizing more of the solutions they develop by industry to take away some of the uniqueness argument for custom-written applications
- By increasingly emphasizing process automation to negate some of the advantages of customer-developed solutions
- By creating vendor ecosystems, in which vendors will embrace homegrown and packaged solutions that fit into their environments and follow their "rules" (SAP's X-Apps is an example of this trend)
How will ERP II technology and architectures evolve?
What is CRM, how will it evolve, and what drivers are emerging to force its adoption?
How will SCP and SCE support current and emerging business models, and key enterprise business initiatives?
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