There are certain conceptions and commonly held beliefs on the market about whether a business needs its own custom ERP or is better off with an off-the-shelf product. People think that a custom solution is a costly thing that requires long time to build. The perception is that getting that custom solution up and running is a bumpy road and hard to support — the opposite of an off-the-shelf solution, which people tend to think businesses can install within days or weeks and start leveraging right away to drive growth.
We figured out that the best approach to deciding whether your business is better off building or buying and then implementing an ERP is what we call the “Process First” approach. You have to define your business processes before working on an underlying software. After all, implementing an ERP is not about software, but it is really about understanding, defining and optimizing your processes and then use software to implement this design. This process design informs our software design decisions. Once you’ve defined your business processes and identified your software needs, then you can start to look at whether an off-the-shelf solution will meet those needs or whether you’re better off customizing. A custom-built solution will allow you to meet every process need and nuance, because when you custom build software, you start from a clean slate, and you have the ability to optimize every process without compromising on anything. You can’t do that with a commercial-off-the-shelf ERP, because it is already designed. And while the existing design may meet most needs, ready-made solutions come with both conceptual and technological limitations:
1. You really need a separate “process tier” in your ERP, and it has to be, in technical terms, decoupled from underlying software components. This process tier controls not only your ERP, but also all other systems in your organization, and it orchestrates how those systems communicate with one another. Most off-the-shelf ERPs, however, tightly bundle their software with business logic and corresponding process design.
2. The more you customize your off-the-shelf ERP, the more it costs. And at some level of customization, it actually becomes cost prohibitive and technologically cumbersome to customize. Basically, if your organization is using a commercial ERP, you’re incentivized to innovate less, because the more you innovate in your process design, the more risky and cumbersome it becomes. Off-the-shelf ERPs are basically attempts to commoditize your business model by implying that all businesses in the same industry will use the same process design. The choice to build versus buy is a strategic business decision that boils down to one question for each organization: do you want to innovate and design your business processes for yourself or use the same set of processes (with limited customization opportunities) that ERP vendors have designed for every other business?
We would like to share our own story in this post — not so much as developers but from our own experience running a business. We have a few hundred employees, and the sophistication of our business processes is a reflection of the complexity of our industry. As with any business, our organizational complexity is growing quickly.
A couple of years ago, we were a small firm with a handful of workers, and things were much simpler at that time. Everybody was visible, working in close proximity to one another and to management, so there was no need for extensive reporting or data entry. The hierarchy and workflows were linear and simple. I remember this time well and feel slightly sad that it has gone. We kept records mostly in Excel and a few other online systems.
But even in the beginning, we knew we would have to start building a solution to support our growth and retain and improve quality of our services before we could become a bigger organization.
When we started acquiring bigger customers, however, we realized that time was coming sooner than we’d anticipated. The new customers demanded a far more structured approach, including more detailed reporting and constant performance tracking. The complexity of our communication and reporting needs grew dramatically, and as our team grew to accommodate our growing business, our employees required a completely different level of attention and accountability to stay effective. The old ways no longer worked.
In the very beginning, we used a network of third-party systems including Saleforce. But we quickly realized that these systems were solving the problems of millions of customers instead of being laser-focused on providing the best tool for our own employees, without extra complexities involved. Using multiple systems also require integrations — every organization needs a “single point of truth.” Eventually, these integrations became so complex that we needed even more solutions to connect our disparate systems. Now, a clean custom ERP implementation effectively removes many of these layers and allows an organization to invest into their innovative processes instead of spending time, energy, and resources ensuring multiple systems function in sync.
At some point we realized that, being a custom software development company in Austin, it was ridiculous that we hadn’t rectified our software-related challenges. We’d created numerous software systems for our clients, but our internal operations suffered because of the same deficiencies we helped those clients to overcome. It was important for us realize this early enough in our business’s life that it was relatively simple to make the shift. Often, large organizations are so dependent on their already deployed systems that it becomes increasingly complex to replace them with something else, no matter how inefficient they truly are.
As a custom software development company, we knew that fully covering the needs of a growing organization with hundreds of employees wouldn’t be easy, especially given the general complexities of legacy software migration: we would have to migrate our entire team to the new system without interrupting business. On the other hand, we knew that investing in the effectiveness of our internal processes would not only make our team more productive and help us increase our revenue, but it would also help us fulfill our promises to customers to deliver quality software. At some point, we had not only accumulated considerable experience with the systems we used internally, but we had also gained knowledge of the challenges our clients faced and the ways we resolved them. So, we used this knowledge to solve our own software systems problems with a clean-slate solution.
We called our internal system DaVinci as a tribute to the famous Italian Renaissance-era inventor and engineer. It was designed from the ground up with the end goals of replicating all the most useful features of the systems that we used, removing all known redundancies, matching our current business processes exactly, and considering future needs arising from further company growth. The cornerstones of the system were that it be usable for a person without specific engineering background and that the process knowledge could be retained in the system itself rather than dependent on an employee or team to remember it.
It has been a long story — about twelve months thus far — and it is not over yet, but we’ve already seen a significant difference in our operations as a result of creating our own system. We increased our efficiency by replacing the messy workflows with a clear, crisp system that management has full control over, and we also dramatically improved visibility into everything happening in the company at any moment in time.
But what about the cost? While a custom system may require considerable upfront investments, you should look at your business in the long run, as we did. The subscription fees you pay in perpetuity for an off-the-shelf system, which will only increase as your business grows, will quickly exceed the investments required for a custom system, and they will never end. We calculated that by eliminating subscription fees, we could make up for all our investments in DaVinci within four and a half years. Not to mention the costs saved due to more efficient processes. Optimizations in time reports, performance reports, task tracking, financials, and many other areas helped us to reduce our overhead by more than 25 percent, and that savings will continue to grow as we tweak the remaining parts of the equation and add the last modules to the system. The best part is that we now have our own Algothic ERP. We have total control over it, we can change and adjust it however we need to, we pay no licensing fees, and we are not tied to the inefficiencies of the third-party systems we used before.
So, what does all this mean for your business? Long story short, a company that is considering whether or not to build its own ERP should consider one critical question, just like we did before we started building DaVinci:
Are you planning to innovate in how your processes are designed to gain a competitive advantage in your industry?
Do you see the potential for your company to grow in terms of the number of employees, volume and complexity of projects, quantity of workflows, and so on? If so, you’ll find that off-the-shelf solutions that serve your business today will limit your growth in the future. To gain and maintain that competitive advantage as you scale, you’ll need the freedom to innovate that can only come with a fully customized ERP.
If your business is beginning to face the same growth challenges we did, it’s time to consider hiring a dedicated software development team and building your own “Da Vinci.” A custom ERP may be exactly what you need to keep your businesses operating and growing at maximum capacity.
