Custom-Made Software vs. SaaS: A Portfolio Decision-Making Guide for CIOs and CEOs

06.06.24 04:28 PM
In my last blog, I argued that custom software can be cost-effective in the long run. However, many of you pointed out that the decision to go for custom software isn't solely about ROI. You’re right. It's more complex and involves various factors that can influence the decision. Having been in the room for these discussions, I understand the intricacies involved. So, in this blog, I propose a three-step decision-making guide for CIOs and CEOs that takes into account key strategic, operational, and organizational considerations when evaluating replacing existing solutions or exploring new ones to enable their organization's strategies and/or digital transformation. I hope it helps to frame these types of decisions and avoid the common “Man with a Hammer” or the “We are unique” biases that sometimes affect decision-makers and their advisors.

A 3-Step Balanced Decision-Making Framework


Breaking down the decision into three steps helps accelerate our progress in distilling the solution space for this very complex decision. Here’s a structured approach:


Step 1: Strategic vs. Custom


Evaluate and contrast the Strategic Importance of the solution versus the Need for Customization required by it.

1. Strategic Importance: How important is this Solution for the long-term success of the organization? Typically, HIGH strategic importance Solutions include mission-critical systems with various objectives like client-facing use, sales-enablers, operational necessities, compliance, and security.

2. Customization Need: What are the needs of the business? What is the level of customization needed? High customization indicates specific requirements unique to your processes, while low customization aligns with standard “run of the mill” processes.

Using these factors, place each solutions in a 2x2 matrix with Strategic Importance (Low to High) on the Y-axis and Customization Need (Low to High) on the X-axis. See figure 1. This matrix will help determine if a solution should be custom-built, SaaS, or either. If the customization need is low, SaaS is likely the right choice. However, if customization is required and the system is highly strategic, further evaluation is needed. If a system falls into the quadrant of high customization but low strategic importance, reconsider the need for customization.


Step 2: Fast vs. Durable


Evaluate the initiatives classified in Step 1 along two dimensions: “Fast” or Required Implementation Speed and “Durable” or Sustainability requirements.


1. Implementation Speed: Assess the urgency and timeline for implementing the solution. Agile methodologies can help, but consider if the organization can shape the solution’s roadmap and incorporate future changes quickly.

2. Sustainability: This combines organizational culture, IT maturity, and support and maintenance. Evaluate if your organization promotes innovation, can manage customized solutions, and effectively handle vendor relationships.


Using another 2x2 matrix, contrast Implementation Speed with Sustainability (Figure 2). In a volatile environment where your organization can handle change, a custom solution might be ideal. Conversely, if managing change is difficult, SaaS could be more suitable.


Step 3: Total Cost of Ownership and ROI


After evaluating the solutions in Steps 1 and 2, calculate the long-term costs and ROI. Refer to my previous blog for detailed factors to consider in this step.



 By structuring the decision into these three steps, CIOs and CEOs can classify solution requirements and make informed decisions. This framework helps ensure a balanced approach when deciding between Custom Application Development and SaaS. Importantly, this framework needs adjustments when considering POCs and some MVPs. Stay tuned for a next post...