History: Since time immemorial, humans have invented ways to do things and then outsourced the same after recognizing its benefits.
After the inception of the concept of ICM (some 10-15 years back), most companies opted to build their own ICM as it looked like a viable option. The reason being very clear- they could design a system as per their specific needs. However, some of these companies were not prescient enough to determine if the same system would work with changing compensation plans, compliances, and technologies.
As technologies evolved, these companies started wondering if they should keep pouring money in order to update and maintain the system or should they just buy the service from the vendors that explicitly build these systems so that they don’t have to worry about accommodating all the new changes.
Let’s evaluate the pros and cons of building a Compensation system vs buying a compensation solution.
Pros of Buying a Compensation System (i.e. Cons of building a Compensation system)
The vendor or SaaS platform that you are buying from bears the cost of building, licensing, and maintenance, and in return they charge a subscription fee. These vendors can pull this because of their large customer base which in turn enables them to get the same services for a cheaper price.
It is convenient to assume that once a system is built, it would just incur a one-time cost and hence it should be the way to go. However, a survey done by Lutchen shows that 70% of software costs occur after implementation.
2. Time involved:
The complex architecture of ICM/SPM systems makes it arduous to build and oftentimes the internal team responsible for building the same are unable to get it done before or by the deadline. Vendors usually have a signed agreement that mandates them to get the work done before or by the deadline. Since these vendors are primarily into this trade and it’s their forte, they usually are able to estimate a realistic timeline.
Nucleus Research estimates software build time can be reduced by as much as 85 percent when using a platform for building analytics dashboards over a homegrown build using UI components.
A ballpark timeline when buying is 3 – 9 months to market from your decision while build-time usually ranges from 9 – 18 months until you get your platform up and running.
3. Future-proof/ Upgrades:
In the wake of the pandemic, industries such as Life Sciences saw a major shift in the design of the incentives plans. This demanded a flexible system that can incorporate the new changes.
SaaS Vendors were able to accommodate these changes because of their flexible systems but homegrown systems struggled with the same because of their lack of anticipation of such events. Buying opens up the door to future-proof and upgraded systems.
SaaS vendors have a dedicated support team to help with any issues that are encountered. This can be a bit tricky if it’s done internally since the team that was responsible for the build can possibly be working on a project that is due, further stalling the ICM process.
5. Auditors/ Report friendly:
Auditors often frown upon the homegrown system because of its unstructured reports. Since SaaS vendors usually work with other organizations, they are more cognizant of the ways in which the reports generated are more auditable.
Regular security updates and patches are performed by SaaS vendors. However, this would require a dedicated team of security personnel if it’s done internally.
7. Industry Best Practices :
Often adopting specialized solutions leads to adoption of best practices in the various processes, which is missed when building the solution internally due to limited knowledge and the time it takes to think through and build each workflow and scenario.
Cons of Buying a Compensation System (i.e Pros of building a Compensation system):
The organization is in control of the whole system. They can make any changes or mold the system as per their own needs.
Building a system is better if the Incentive Compensation plan is very specific and if the organization is not looking to modernize or change its compensation plans anytime sooner. However, this is very unlikely in the current situation but it may hold true for a few organizations.
In short, if your organization has simpler non-changing plans and does not intend to leverage the power of modern technologies, let alone future technologies, then building a system is an appropriate choice for you. However, as I have already posited that such antediluvian thinking may hinder one’s own growth.
A Gartner report shows that “Worldwide IT spending is projected to total $3.9 trillion in 2021, an increase of 6.2% from 2020, according to the latest forecast by Gartner, Inc.” or In 2021, IT spending on enterprise software is expected to amount to around 517 billion U.S. dollars worldwide, a growth of 10.8 percent from the previous year.