February 15, 2006
The Homegrown App Trap
By Evan Schuman, Ziff Davis Internet
The IT director at bath products retailer Crabtree & Evelyn wants to move away from the homegrown applications that run point-of-sale and back-office systems, but he says he's trapped.
The multimillion-dollar cost of moving to off-the-shelf apps would easily outweigh the cost of sticking with apps that work quite adequately.
The privately held retailer is certainly not alone. When any company makes the decision to craft its own software for key strategic functions, the decision has to be viewed as serious and long term.
Once a company opts for the homegrown approach—and all of the advantages and headaches that come along with that decision—it can be extremely difficult and expensive to make the off-the-shelf move later on.
That move is made all the more difficult when the company tries making that move when it is in the midsize revenue range of a company such as Crabtree & Evelyn, said the firm's IT Director, Steve Kempain.
The problem is not the current cost or functionality, but the tremendous personnel efforts needed to maintain and support such an extensive system.
With homegrown apps, there's no vendor-paid-for help desk, no legions of programmers trained in those applications and no group of millions of other users who will test the initial versions and endure the pain of discovery.
"A lot of individuals in the company do not understand what we do and what we support," Kempain said.
To make the off-the-shelf move with a major POS (point of sale)/back-office software company such as Oracle or SAP would cost millions of dollars in additional licensing fees and would deliver a product that is likely much less capable and tailored to Crabtree's business than what they already have, he said.
"The vendors that are contacting us don't do everything that we do," Kempain said. "There's not a system out there that does everything we need."
Crabtree's situation might be more attractive than its executives realize, said Gartner Research vice president Jeff Comport.
"Is the grass always greener on the other side of the fence?" Comport asked, adding that most of the companies he talks with are in the opposite position as Crabtree. Those companies are locked into packages from major software vendors and find the hidden costs, frequent upgrades and lowest-common-denominator functionality to be frustrating.
"Many organizations are realizing that it's not just a question of 'Buy versus Build,' but that it needs to be a blend," Comport said.
Added Gartner Research Director Brian Prentice: "It's not as black and white as build versus buy anymore. It really is starting to look more like 'build and integrate' along with 'buy and extend.'"
Comport said this is all happening against a backdrop of corporate IT execs resisting more and more the standard assumptions from major software houses. "We're seeing lots of people who are really questioning doing upgrades," he said.
Comport argues that the very qualities that prompted companies like Crabtree to initially opt for a custom approach are the same ones that suggest those companies should consider sticking with their homegrown apps.
"If they're used to having things exactly the way they want them, with specifically the functions they want," they should seriously consider maintaining their homegrown approaches, he said. Not only will the transition to off-the-shelf applications be expensive and less accommodating, but requiring even a small portion of custom adjustments will force companies "to pay for it dearly. It's a matter of compromising on the amount of business agility."
A popular compromise in the buy-versus-build argument is using a Web-based application, which happens to be the approach Crabtree is using for e-commerce.
Although he said Web-based approaches have their merits, Gartner's Comport questioned whether they would address the primary IT problems: "Who runs your data center—or having someone else run your application for you—neither of these take away your implementation costs."
Paula Rosenblum, retail research vice president for the Aberdeen Group, sees the buy-versus-build issue quite differently. She argues that the off-the-shelf approach is almost always a better option.
"The value of a package is that you get the business intelligence from the other retailers using it," she said. "The question is, What business are you in? Are you in the systems development business or the product business? Generally, you're always better off with a packaged solution."
The decision to go with homegrown applications for the 250-store Crabtree chain (which is also a manufacturer and whose products are sold at more than 8,000 retail locations) was made back in the late 1970s.
"We're an AS/400 shop with in-house written software," said Catie Briscoe, Crabtree's director of e-commerce. Analysts point to the IBM AS/400 base as another reason for a relative shortage of viable off-the-shelf alternatives.
"We started very small. The IT director here at the time was equipped to write his own POS code. The back-office system wasn't written until the '90s," Briscoe said.
"We have opted to continue our current systems and enhance them. To change to an off-the-shelf back-office system right now would be too lengthy and costly an endeavor."
Was it the right call? "From a startup environment, it probably saved us a lot of money," Briscoe said, adding that "maybe it would have been better to have gone to an off-the-shelf system."
Kempain said the argument to corporate top brass for a switch was weakened by the fact that "the systems that we have on it are running perfectly fine."
Why then does Kempain want to move off? "What we lack in our systems is what a lot of in-house-written packages lack: a large training base," he said. "Training in-house becomes an issue especially as attrition happens."
A healthy chunk of the chain's future revenue will likely be Web-based, whether it's from e-commerce direct sales or from buy-online-and-pick-up-in-store situations. For that reason, Crabtree is expanding its e-commerce system and has opted for a Web pay-as-you-go approach from Venda.
Venda CEO Jeffrey Max said a Web application can work well for a chain Crabtree's size because the typical licensing approach of an Oracle or SAP tends to be too high.
"When they get to $800 million or a billion, paying those kinds of license fees won't hurt so much," Max said.
Briscoe's main concern is just better understanding her customers, so if some Web CRM magic will do that, she's happy.
"If someone comes into our store, we don't know who she is. We have no idea about our customers," she said. "We've certainly got enough data now that we understand the age of our customers, but this is the first time—I'm afraid to say—that we know who our offline customer and our online customer is."