Strategies for Acquiring IT Applications

Organizations must analyze the need for applications and then justify each application in terms of cost and benefits. The need for information systems is usually related to organizational planning and to the analysis of its performance vis-à-vis its competitors. The cost-benefit justification must look at the wisdom of investing in a specific IT application versus spending the funds on alternative projects. If a company has successfully justified an IT investment, it must then decide how to pursue it. Companies have several options for acquiring IT applications. Six common options are to (1) buy the applications, (2) lease them, (3) use open-source software, (4) use software-as-a-service, (5) outsource them, and (6) develop them in-house.

Buy the Applications (Off-the-Shelf Approach)
The standard features required by IT applications can be found in many commercial software packages. Buying an existing package can be a cost-effective and time-saving strategy compared with developing the application in-house. Nevertheless, a company should carefully consider and plan the buy option to ensure that the selected package contains all of the features necessary to address the company’s current and future needs. Otherwise these packages can quickly become obsolete. Before a company can perform this process, it must decide which features a selected package must have to be suitable. In reality, a single software package can rarely satisfy all of an organization’s needs. For this reason a company sometimes must purchase multiple packages to fulfill different needs. It then must integrate these packages with one another as well as with its existing software. The buy option is especially attractive if the software vendor allows the company to modify the technology to meet its needs. However, this option may not be attractive in cases where customization is the only method of providing the necessary flexibility to address the company’s needs. It also is not the best strategy when the software is either very expensive or is likely to become obsolete in a short time.

Lease the Applications
Compared with the buy option and the option to develop applications in-house, the “lease” option can save a company both time and money. Of course, leased packages (like purchased packages) may not exactly fit the company’s application requirements. However, vendor software generally includes the features that are most commonly needed by organizations in a given industry. Again, the company will decide which features are necessary. It is common for interested companies to apply the 80/20 rule when evaluating vendor software. Put simply, if the software meets 80 percent of the company’s needs, then the company should seriously consider changing its business processes so it can utilize the remaining 20 percent. Many times this is a better long-term solution than modifying the vendor software. Otherwise, the company will have to customize the software every time the vendor releases an updated version.
Leasing can be especially attractive to small-to-medium-sized enterprises (SMEs) that cannot
afford major investments in IT software. Large companies may also prefer to lease packages in order to test potential IT solutions before committing to heavy investments. Also, a company with a shortage of IT personnel with appropriate skills for developing custom IT applications may choose to lease instead of developing software in-house. Even those companies that employ in-house experts may not be able to afford the long wait for strategic applications to be developed in-house. Therefore, they lease (or buy) applications from external resources to establish a quicker presence in the market. Leasing can be done in one of three ways. The first way is to lease the application from a software developer and install it on the company’s premises. The vendor can help with the installation and frequently will offer to contract for the support and maintenance of the system. Many conventional applications are leased this way. The second way is to use an application service provider (ASP). The third way is to utilize software-as-a-service.
An application service provider is an agent or a vendor who assembles the software needed by enterprises and packages the software with services such as development, operations, and maintenance. The customer then accesses these applications via the Internet.
Software-as-a-Service (SaaS) is a method of delivering software in which a vendor hosts the applications and provides them as a service to customers over a network, typically the Internet. Customers do not own the software, rather, they pay for using it. SaaS makes it unnecessary for customers to install and run the application on their own computers. Therefore, SaaS customers save the expense (money, time, IT staff) of buying, operating, and maintaining the software. For example, Salesforce (www.salesforce. com), a well-known SaaS provider for customer relationship management software solutions, provides these advantages for its customers.

Use Open-Source Software
Organizations can use open-source software to develop applications in-house. Organizations obtain a license to employ an open-source software product and either use it as is, or customize it, to develop applications.

Small or medium-sized companies with few IT staff and limited budgets are best served by outside contractors. Acquiring IT applications from outside contractors or external organizations is called outsourcing. Large companies may also choose this strategy in certain circumstances. For example, they might want to experiment with new IT technologies without making a substantial up-front investment. They also might use outsourcing to protect their internal networks and to gain access to outside experts. One disadvantage of outsourcing is that a company’s valuable corporate data may be under the control of the outsourcing vendor.

Develop the Applications In-House
A third development strategy is to build applications in-house. Although this approach is usually more time-consuming and more costly than buying or leasing, it often results in a better fit with the organization’s specific requirements. In-house development can make use of various methodologies. The basic, backbone methodology is the systems development life cycle (SDLC).

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