Standard software vs. custom software: Once a company has decided to digitise its business processes, the question quickly arises as to which software solution should be used to implement this project. Is (supposedly) expensive and time-consuming in-house development really necessary? We are often asked by prospects and customers alike: "Isn't there an off-the-shelf solution? "Our answer is usually: "Yes" or "It depends". What is important, and for which applications is off-the-shelf or more customised software suitable? The aim of this article is to answer these questions.
Before we start discussing off-the-shelf software versus custom software, and for what purposes and which type of software is more appropriate, we should briefly define the two terms. There are certainly analogies, such as sand in the sea. In this article, we will use the "house builder" comparison - or in other words, prefabricated house vs. architect's house.
The term 'standard software' is very broad and covers everything from simple spreadsheets such as MS Excel to powerful ERP tools from SAP or Oracle. For the purposes of this article, we will focus on the B2B sector and what is known as industry software. This includes software solutions developed explicitly for specific industries (engineering, automotive, construction, retail, etc.). What all categories and sub-categories have in common is that they are standardised, mass-produced products. Similar to prefabricated houses, the solutions cover the needs and requirements of a wide range of people. Although a degree of customisation is possible (just as you can choose different cuts and accessories for a prefabricated house, you can add or remove individual software components), the modules themselves are also standardised. Interfaces to these systems are necessary to enable standard software to communicate with other systems and to be embedded in the existing IT landscape. Adapters for the different connections in a prefabricated house would be comparable here - especially if it is manufactured outside the EU. These interfaces can be included as standard or they can be purchased or developed at extra cost.
Custom software, on the other hand, is, as the name suggests, individually designed and developed for a specific purpose and for a specific company. Because it is designed from scratch, it usually takes much longer to build than standard industry software. It is like building a house: First the customer has to express his wishes and requirements. The architect then draws up designs and discusses them with the client, the builder and the structural engineer. After some back and forth, the end result is a building plan that has been approved by all parties and can then be built, brick by brick. None of these steps are necessary with a prefabricated house, and none are necessary with standard software. And all of these steps carry the risk of overlooking, forgetting or simply planning incorrectly. Risks that are always present, but can be minimised by a structured approach. If you follow best practice, everything will go well, and if you accept the extra time, you'll be rewarded with the house you've always dreamed of. But with a software product that represents exactly the company-specific processes it was designed to map. And written for the users who will be using it. Because the software is developed in-house, it can be planned from the ground up to fit perfectly into the company's IT landscape. Interfaces are then only required for supplementary systems.
Now that we have clarified what is meant by the two types of software, let us now compare them: standard software vs. individual software. In doing so, we consider the following criteria: availability, introduction, interfaces, adjustments and developments, training, updates and releases, costs, accounting, rights of use and ownership, and dependencies.
As mentioned in the previous chapter, standard software is available much faster than custom software. If the complexity is relatively low, the systems can usually be downloaded and used immediately (e.g. MS Excel). More complex solutions, which need to be configured in advance and connected to different systems, require long-term implementation by the vendor or specialised service providers (e.g. ERP systems). Including selection and evaluation, complex systems can take from less than a month to several months before the standard software is available.
Complexity is also important when it comes to bespoke software. However, depending on the number of requirements to be covered, development times can range from several months to several years. However, it is worth investing a lot of time in the conceptual and organisational preparation, as this has a significant impact on the overall development time.
Again, it is a question of complexity. Simple software solutions can be implemented with little training. If the solution is widely used, there is also good documentation and online tutorials. However, the situation is different if you want to use standard software to map very complex and at the same time company-specific processes. As standard software has not been developed exclusively for the business processes it is supposed to represent, the processes usually have to be adapted to themselves. Depending on how far-reaching these adjustments are, implementation is not without change management and extensive training. Such changes and workarounds also affect the usability of standard software - it becomes less intuitive to use. This means that operating the software also requires increased initial training costs. As a result, an implementation can take a long time before all processes have leveled off and the desired efficiency gains are realised.
Individual software, on the other hand, is designed and developed precisely for the processes that it is intended to represent. At process level, no additional training is required — unless the software opens up a completely new business area. Since the role of the user is becoming more and more important these days, the winner is UX design. Even in enterprise solutions, it is becoming increasingly important. The big advantage: Compared to standard solutions, usability can be achieved by Usability testing procedures be optimized for a much more narrowly tailored target group. This not only makes the custom software more intuitive to use, but also significantly reduces subsequent training costs. This makes the implementation very easy and requires little to no additional effort. The desired increases in efficiency are immediate.
As described in the definition, standardised industry software usually requires special interfaces to be implemented in a company's IT landscape. Depending on how common the company's own systems are, these interfaces are either included in the standard software package or can be purchased separately. One of the major advantages of custom software is that the architecture of the solution is adapted to the customer's IT landscape.
Again, the analogy of building a house is apt: A prefabricated house can only be adapted within certain limits to the land on which it is built. An architect's house, on the other hand, is perfectly tailored to the size and development of the site.
In the case of off-the-shelf software, it depends on the vendor's model, any other service providers and, of course, the actual requirements of the business. For example, many off-the-shelf software vendors offer a pool of user voices that software users can use to express their wishes for new features. If there are enough votes in such a user voice pool for one feature or another, it will be developed and made available in the next release, along with general updates and bug fixes. The more customisation that can be done, or if there is a customisation service provider between the vendor and the company, the more customisation that can be done. However, you should be prepared for long waiting times. This may be because of fixed release cycles, or because changes to the much larger, often historically grown, source codes of standard systems simply take more time.
On the one hand, because there is only one customer who formulates new requirements and sizes and schedules updates and releases. On the other hand, the source code itself is already much leaner, or more specifically tailored to the company. The cleaner, more testable and more modular the source code, the easier it is to implement new features or changes and incorporate them into the next release.
This is where the advantages of Clean Code Development, which is just on this Quality features deposit.
At first glance, standard software is usually the cheaper alternative when compared with individual software. However, the same applies here: It depends. In addition to possible extra costs for implementation, adjustments or customer-specific releases — which, as already mentioned, depend heavily on the level of complexity — particular attention must be paid to license costs. The more employees use the solution, the more of them have admin rights and the longer the software will be in operation, the more significant the usage costs will be.
Compared to standard software, custom software is often described as the much more cost-intensive alternative. But it's not that general and simple here either. Of course, standard software saves you the one-time and often large investment in development. However, the product lifetime must also be considered in this context: The longer the software solution is used, the more manageable the development costs become. In addition, the running costs for maintenance, support and, if applicable, cloud hosting after roll-out are in most cases much lower than the licensing costs of the standard solution.
Ultimately, costs must be considered on a case-by-case basis and the two alternatives weighed against each other. Among many other factors, the following variables must be considered: development cost and time, number of users, number of administrators and the potential runtime of the solution.
An issue that often receives less attention is the effectiveness of results from standard software versus custom software. However, it is also worth taking a look at this to put the prejudices of the two types into perspective.
If the use of standard software is a rent-like contractual model with monthly licence costs, these are fully effective as expenses. They therefore reduce net income, which has a negative effect on the annual result, but can be positive for tax purposes.
Costs related to individual software can usually be capitalised in fixed assets if the software has been developed: a) by the company itself or b) with a development partner under a service agreement. In either case, all costs are expensed and increase the net profit for the year.
Standard software has limited ownership and use rights, depending on the contracts. If a company uses the standard solution according to Scheme F, this situation poses little risk. However, the more the standard software has been customised to reflect internal business processes, the more sensitive this issue becomes. This is especially the case when specific business processes represent or support competitive advantages. Then there is a risk that the standard software vendor will quickly sell the customised solution as a new industry version under its own name - right into the hands of the competition.
Customised software, on the other hand, is fully owned by the client company, which has full rights of ownership and use. If you want to gain competitive advantage with and through your software solution, then it is worth considering custom software.
Whether it is customisation, enhancements, release cycles, usage rights or cost models: When it comes to off-the-shelf software, a company is partly, but usually fully, dependent on the software vendor. The extent to which these dependencies are significant depends on the extent to which the software is involved in, and helps to determine, a company's processes and operations. One of the biggest risks is end-of-life - the standard software is no longer developed or even discontinued by the vendor. There are many reasons for this: the vendor may want to move on to a new product line, the product may have been acquired by a competitor, the previous solution may no longer be easily developed, or the company may go bankrupt.
When it comes to bespoke software, the extent to which a customer is dependent on the software vendor is important. Depending on the contract, the source code may be owned by the customer, who can develop it further in-house or with other service providers. However, this depends very much on the quality of the code. If the source code is written in such a cryptic way that only the original developers can work with it, either intentionally or negligently, you are unwittingly creating a form of dependency.
Here, too, work can be done after Clean Code Development Provide security because it ensures extremely readable and comprehensible source code — even for external developers.
Costs and time savings recede into the background as soon as the software represents the core of business activity and supports — or even creates — competitive advantages.
Let us now try to answer the question posed at the beginning: What is custom software better suited for, and what is standard software better suited for?
In principle, "there is no need to constantly reinvent the wheel". In particular, standard cross-industry processes such as payroll, CRM or inventory management can be easily mapped using standard software, as they are very similar regardless of the industry. And when things get more complex and specific, it's worth taking a look at the wide range of industry solutions available. After all, these systems have not just been developed out of thin air, but have been designed with industry-specific audiences, personas and processes in mind. Once you have found a solution that covers all or most of your requirements, and whose implementation and licensing costs are within your budget, there is no need to build it from scratch. Standard software then saves time and resources and is ultimately the more economical and sustainable alternative.
However, cost and time savings fade into the background when software is at the heart of the business, supporting - or even creating - competitive advantage. Too many process adjustments, workarounds and the risk of losing competitive advantage can quickly make off-the-shelf solutions inefficient and even dangerous. More than 20 years of experience in developing bespoke B2B software has shown us that our customers use bespoke software when they have extremely complex applications, or when it has given them a significant competitive advantage. A good example that covers both points is LEWA GmbH's Digital Services - an IIoT platform with an intelligent monitoring solution and customer portal for industrial pumps.
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