Vanilla ERP Systems vs. Software Customization: Which is the Better Digital Strategy?

Written By: Eric Kimberling
Date: May 10, 2023

One of the significant challenges in digital transformation or software implementation is deciding between implementing standard off-the-shelf software or customizing the software to meet specific requirements. The question is, how can you determine which path is best for your organization?

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When assisting clients in their digital transformations, one of the most significant questions and points of contention we encounter is whether to use the software as it is or customize it to suit specific needs. While most organizations tend to prioritize standardization and utilize standard functionality, they eventually realize that it is not always feasible to rely solely on out-of-the-box solutions. More often than not, some level of customization, third-party bolt-ons, or modifications to the software is necessary. Today, I would like to discuss the different models, including a middle ground approach, and help you determine the best course of action for your organization. Additionally, I want to take this opportunity to share the risks and trade-offs associated with each path.

Overview of the Differences

Let's discuss the differences between standard and custom software. There are two categories: standard software and custom software. When we say custom software, we mean customizing existing off-the-shelf software. Software as a service (SaaS) is another category that influences customization. Now let's talk about the differences between these categories.

Standard software is off-the-shelf software that is used exactly as it was built. However, you have the ability to configure it. Configuring the software is important because most organizations can't use the software as-is. You have to decide how to set up the software and how information will flow. Vendors provide pre-configured solutions based on industry or functional "best practices" to make it easier to take advantage of standard ways that different functions and industries work.

Customization starts with standardization, but the source code is tailored and changed. You're changing the code to provide a different functionality.

Software as a service (SaaS) is multi-tenant cloud software. There's limited customization available because other organizations are using the same version of the software. You can't make changes to your software without potentially changing it for everyone else.

Low code/no code is a movement where organizations create ways for users to customize the software without changing the source code. This allows users to tailor the system more than they would with standard off-the-shelf software without creating additional risks.

Now let's discuss the pros and cons of each approach.

Advantages and Disadvantages of Standard Software

The advantages of standard software include the fact that customization does not risk breaking the software. Changing the source code and the way the software is intended to be used can be risky. Therefore, using standard software is a positive thing as it avoids these risks.

Another advantage of standard software is that it saves time and money, at least initially and as it relates to the technology. However, there are some negatives to consider. One of these is the difficulty with change management, which can create issues in forcing people to change to fit the software rather than changing the software to fit the organization's needs. This may be the right answer in the long term, but it is a risk that needs to be considered.

Another potential downside of standard software is a lack of functional fit. No system can be everything to everyone, and using standard off-the-shelf software means using software that tries to be everything to everyone, but may not fit an organization's specific needs. This lack of fit can create problems during implementation.

In summary, standard software has advantages such as avoiding the risks associated with customization and saving time and money. However, it also has potential downsides such as difficulty with change management and a lack of functional fit that need to be considered.

Advantages and Disadvantages of Custom Software

Now let's discuss customization and its advantages. Some people may believe that there are no advantages to customization, but that is not entirely true. One advantage of customization is that it enables a better fit for your organization, especially if your standard software cannot do what you need it to do. This way, you can have better functional fit. Additionally, you can address the problem of forcing people and operations to change if the technology needs to change to fit your business. This way, you are addressing some of the change management issues, although not all of them.

However, the downside risk of customization is that you create technical complexity, which can risk breaking the system. You are changing the way the software is written, putting more onus on you and your organization to maintain it, and potentially adding to your duration and cost, especially on the technical side. This is because you are adding an extra layer of complexity and an extra step in the process of customizing the software. You have to assess whether the additional time and cost, as well as the risk of the technical side of things, is worth it.

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Defining the Best Technology Strategy

The question now is whether to standardize and use off-the-shelf software as it was built, or to customize it. It's not an all-or-nothing proposition; you're probably somewhere on the spectrum between no customization and complete customization. The question is where you fall on that spectrum. It depends on what you're trying to achieve as an organization. If your digital strategy is to create distinct competitive advantages, customization might be the right answer because a competitive advantage is something that you do differently and better than anyone else, which is probably not available in standard commercial off-the-shelf software. On the other hand, if you're trying to minimize technical complexity, drive down costs, and standardize your operations across a global enterprise, standardization might be the better option. However, if you choose to use standard off-the-shelf software without customization, you're likely to encounter more usage and fit issues, which will affect how long your project takes, how much it costs, and what the risks are.

There are other options available if you decide that customization is not the right choice for you. For example, you could use third-party systems to address any gaps in the standard software that you're rolling out. Another alternative is to find a platform that allows you to have low-code or no-code solutions, allowing you to dance in the gray area without having to customize too much. This way, you still get the benefits without the risks associated with customization. Ultimately, the best path forward depends on your particular situation and strategy.

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I hope this provides guidance and direction on how to determine the best path for your organization. These are the decision points that organizations must go through to determine the best fit for their needs. If you are looking to strategize an upcoming transformation or are looking at selecting an ERP system, we would love to have a brainstorming session with you. Please contact me if you have any questions eric.kimberling@thirdstage-consulting.com

Be sure to download the newly released 2023 Digital Transformation Report to garner additional industry insight and project best practices.

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Eric Kimberling

Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.

Author:
Eric Kimberling
Eric is known globally as a thought leader in the ERP consulting space. He has helped hundreds of high-profile enterprises worldwide with their technology initiatives, including Nucor Steel, Fisher and Paykel Healthcare, Kodak, Coors, Boeing, and Duke Energy. He has helped manage ERP implementations and reengineer global supply chains across the world.
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