Strategic Software Development

I’ve been thinking a lot about software
development and strategic business strategies recently, in part
because of some business work I’ve been doing recently and in part
because the reason why the software program exists has a strong
relation with how the system is designed.

‘We Are All Software Companies Now‘ is a post I read last week suggesting that all businesses are software businesses these days, even HP,
Tesla, Rackspace and Apple. Well that’s not quite right, as I’ve
noted before about Apple all one has to do is look at their financial
statements to know that Apple is a hardware company, selling iPhones,
iPods and Macs. Apple is no more a software company than it is a
technology retail chain outlet.

But of course Apple does both because
it has determined that having retail stores and software engineers
are critical functions that allow themselves to effectively preform
in bringing the best personal computing experience to consumers
around the world.¹

That is in many cases a business might
determine that their own development of software for a key business activity will enable the organization to achieve its
long-term objectives.

To determine if a business function
might be of strategic importance, let’s consider two different types
of businesses and how they relate to a specific type of business
software.

Spacely Sprockets is specialized widget
maker, but unlike Apple, only sells its sprockets wholesale to
retailers who then sell a range of individualized widgets from
various manufacturers to public consumers. ACME is just such as
retailer.

Both Spacely Sprockets and ACME have
warehouses. Both companies have shipping requirements. Both companies
are using a software solution to manage and track products from
origin to destination, from creation to final sale. Spacely uses an
“boxed” enterprise resource planning (ERP) solution from a highly
regarded business software vendor. ACME, on the other-hand, uses a
customized, self-developed and managed ERP solution.

What exactly are these two ERP systems
doing for these companies? In general ERP systems are about removing
barriers to data that can become trapped in department
specific solutions. That is ERP systems are about eliminating
standalone computer systems in finance, marketing and manufacturing,
and integrating them into a single unified system.

For Spacely Sprockets this means a
solution that tracks wholesale sales and overall market penetration,
production volume, warehouse inventory and shipping costs. The
software vendor Spacely has contracted sells a solution built on
software modules for each department; marketing and sales, production
and shipping. Each department can choose from a set of predefined
workflows optimized for their need. At the same time the modules
share a common communication infrastructure enabling access to any
required piece of data for the company’s Operations department.

Thus Spacely can focus on their
business, building the best widget for their market. At the same time
reducing the overall cost of their operation and leveraging the
expertise of other similar business models via their software
vendor’s solution. The reduction of operating costs can either be
passed on to the consumer in lower product cost or to Spacely’s
shareholders in higher profit margins.

For ACME their business also involves
sourcing products, procurement and logistics management. They too are
in need of integrating resource management solution within their
company.

However, their decision to build their
own ERP stems from the fact that their continued success in business
is built on their ability to properly managing the procurement and
logistics of numinous products, including Spacely’s widgets. AMCE has
years of in-house knowledge and expertise that just cannot be
replicated in any “off-the-self” ERP solution.

ACME’s strategic business objective is
to continue applying and refining their hard-won supply-chain
knowledge to their operation. In doing so they too can reduce their
operating costs in relation to their competition and can either pass
on the savings to their customers or to their shareholders in
higher profit margins.

Of course in the abstract, this seems
extremely straight-forward. In reality, business conditions change
all the time. One day the hard-won knowledge your business has fought
for is gold, the next it might become a liability.

And just because a business elects one
option over the other doesn’t mean the software concerns end there.
Nope, besides deciding to build a custom solution or not, a business
has to consider; do they go with a close-source solution or an open
source solution? If they do decide to develop a custom solution, do
they try to develop the software knowledge and solution in-house or
outsource?