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Buy or construct? How to make the best choice during a recession

An issue dedicated to VB, of which this is a part, is available for purchase. For the entire series, go here: The Chief Information Officer’s Plan for 2023.

We are officially in a recession. Major layoffs have been reported by many major technology companies recently, including Alphabet, Meta, and Amazon.

Mark Zuckerberg stated, “In this new climate, we need to become more capital efficient,” when explaining the decision to lay off 11,000 workers in November 2022. We’ve reduced expenses everywhere we could, from salaries and benefits to rent and utilities.

However, businesses of all stripes are adapting to the unpredictability by doubling down on efficiency, productivity, and resilience. They are reducing expenses, reducing headcount, and focusing on the most important tasks.

With so much emphasis on cutting costs, concerns concerning technological investments are timely. While some predict that IT spending will suffer alongside the rest of the economy, others argue that it will be immune to the downturn because technology is fundamental to the success of any enterprise and top managers may choose to increase allocations to digital business initiatives in order to spur expansion. The market research firm Gartner, for example, predicts that by 2023, spending on information technology will have increased by 5.1%, reaching $4.6 trillion.

John-David Lovelock, distinguished VP analyst at Gartner, says that while economic uncertainty “will (only) change the context for technology investments,” increasing spending in some areas and accelerating declines in others, it is not expected to materially impact the overall level of enterprise technology spending.

The way in which groups deal with the process of updating their technology infrastructures will also evolve.

This is the main problem.

CIOs and IT heads have had to decide whether to design or buy solutions to suit their functional demands for as long as commercial software has been available. Early adopters of new technologies have often had to do more on their own before a complete ecosystem formed to support the innovation, therefore the pendulum has often swung between the two.

However, the two have become increasingly inseparable as technological progress has accelerated. Artificial intelligence (AI) has improved to the point where low-code and no-code alternatives are making it possible for more people to make changes to their workplace’s systems, and open-source solutions are becoming more dependable and feature-complete as components for more settings.

Nonetheless, it’s not always easy to decide, and the current economic climate just makes things more complicated because everyone is trying to cut costs everywhere they can.

Currently, if a business wants to have full ownership and control over its solution, it must create, instal, support, and maintain the software on its own. This comes with a number of benefits, but also a number of drawbacks. This takes up a lot of time and energy.

The CIO has complete authority over all data and features in the building. But development is expensive and fraught with the possibility of starting from scratch. Matt McLarty, global field CTO and VP of digital transformation office at Salesforce MuleSoft, told VentureBeat that the time and effort required to prepare the deployment, hosting, and maintenance of a system can much outweigh the time and energy spent on its initial creation.

In contrast, outsourcing the process of updating the stack entirely by purchasing a solution that already exists on the market and has been battle-tested. In comparison, this is both quicker to implement and cheaper to run. NexOptic’s vice president of artificial intelligence technology claims that organisations spend ten times as much in the first two years of an acquisition project before seeing any cost savings. They would have less say over the solution’s features (making modifications would be more troublesome) and would have to manage interoperability issues between different parts.

The advantages of ‘purchase’ are that the adjustments to your stack will be more rapid, if not instantaneous. You skip over the “design” stage. It just takes five minutes to set up and run, plus there is an established support staff. However, Gordon told VentureBeat, “the downside is you don’t own the ‘build.'”

How to Determine Whether to Purchase or Construct

Teams shouldn’t base their choices entirely on cost, even though purchasing is cheaper and may be the better option given the economy.

Experts agree that a focus on value generation or return on investment is essential for success. Consider how essential this competence is to the success of the current project in relation to the organization’s or the client’s overall goals. If “extremely,” then the capability must be built first because of its importance to the company product or model.

Should a bank invest in creating software hosting infrastructure that can compete with the largest cloud service providers? McLarty urged businesses to “develop around the capabilities that generate, deliver, and capture the value that drives your business,” highlighting the need of focusing on those competencies that provide a competitive edge. Even in the present day, firms may benefit from investing in the development of new core skills by devoting personnel, time, and money to the task.

Uber and Lyft are two excellent examples. Both profited from creating custom routing recommendation systems to accommodate features that were not accessible in commercially available software.

However, if the concerned capacity does not appear to be extremely significant to the core company in the large perspective, it should be viewed as a commodity and treated as such – i.e., purchased and controlled by a third party.