Pulling out the checkbook

Most IT execs say they evaluate commercial software first, particularly when time-to-market and money are top priorities. The rule of thumb, PricewaterhouseCoopers' Lutchen says, is to buy applications to the maximum extent possible to cut costs -- freeing up resources for whatever really needs to be built in-house.

When evaluating whether to buy or build, it's critical to thoroughly understand total costs during the software lifecycle -- typically seven or eight years. This step is important, Lutchen says, because 70 percent of software costs occur after implementation. A rigorous lifecycle analysis that realistically estimates ongoing maintenance by in-house developers often tips the balance in favour of buying.

Even in core areas that touch an enterprise's customers, products, or services -- and even when an IT shop has a cultural bias toward inventing software in-house -- buying can still win the day. Visa, for instance, has a build-centric IT organization, partly due to security, reliability, and privacy concerns, but also because of the global financial network's enormous scale. "The sheer volume of information makes it often impractical to outsource projects effectively to smaller organizations," says David Allen, a consultant who served as Visa's CTO (through Visa's technology arm Inovant) for three years.

Nevertheless, when Visa was looking to offer greater support to its member banks and merchants with such applications as profitability-usage analysis, it streamlined its approach to data collection, dissemination, and reporting, integrating vendor-based solutions versus its more typical building approach (Visa promotes PMI certification across the board, and uses both classical methodologies and iterative styles in development). Visa purchased applications for information processing from Ab Initio and for reporting and analysis from Microstrategy because the functionality could be delivered much more quickly with lower lifecycle costs than building.

In areas such as infrastructure and tools, Allen pushed Visa to the buy side. "They work, and there is no competitive advantage to build," he says. "Those systems are built at a scale because you're leveraging the technology across many companies."

Moreover, the open source movement has been a boon for Visa in areas such as development, operations, databases, and programming languages.

"The combination of low-cost tools and having the source code available can be like getting the best of both worlds [of buying and building]," Allen says. "We have gotten as good if not better in deploying new services on open source as on commercially available software like Windows."