To Build or Buy Compensation Planning Software – That Is the Question

When it comes to compensation planning, companies face a significant decision. This age-old build vs. buy dilemma is central to how companies approach talent management. Rolling out compensation plan software can provide a more custom-made approach.

Off-the-shelf packages offer quick execution, but they enforce their particular workflows. With so many factors to consider, identifying the right strategic path can be challenging. This article explores the key factors in the decision to build versus buy compensation software to help inform this critical choice.

The Pros and Cons of Building In-House Compensation Planning Software

Building compensation planning software allows for full customization and control. However, it comes with pros and cons that you need to consider.

Pros

1. Complete customization

Companies can create a system tailored to their specific needs and processes. They can design everything, from the user interface to the algorithms, based on their preferences.

2. Full control

Companies have control over all data, features, access, and intellectual property. There are no third-party vendors accessing or controlling sensitive employee data.

Cons

1. High costs

Developing compensation planning software requires a major investment in time, money, and resources. Companies need to hire experienced developers and project managers to design, build, and maintain the system.

2. Ongoing maintenance

Software needs regular updates, security patches, and bug fixes to function properly. The team will need to maintain, improve, and support the compensation planning system long after the initial launch.

3. Lack of experience

The company lacks the specialized knowledge they need to create compensation planning software from scratch. There is a steep learning curve and many obstacles can arise.

In short, building in-house compensation software offers complete control and customization. But the high costs, ongoing maintenance, lack of experience, and cost are big disadvantages to consider. The decision comes down to the company’s priorities, resources, and risk tolerance.

The Benefits of Buying Off-the-Shelf Compensation Planning Software

Off-the-shelf compensation planning software offers some advantages over building an in-house system.

• Save time and money.

Developing custom software requires investing heavily in development and testing. Purchasing a ready-made solution lets companies get up and running quickly without the cost and effort of building from scratch.

• Tap into expertise.

Compensation software vendors have teams of experts focused on developing and improving their products. They stay on top of best practices, compliance issues, and trends, so you do not have to. They build their knowledge and experience into the software.

• Reduce risk.

There are many technical and functional challenges involved in creating compensation planning software. Off-the-shelf solutions have already addressed these issues. Companies can avoid the risks of cost overruns, security problems, and software that does not meet their needs.

• Stay up-to-date.

Reputable vendors regularly release updates to their software. They integrate the latest features, functions, and technologies. With custom-built software, the burden is on the company to continually invest in upgrades to stay current.

Building in-house software may seem appealing. But buying an off-the-shelf compensation planning tool could be a smarter choice. Companies enjoy the benefits of saved time, reduced costs, shared expertise, lower risk, and automatic upgrades. This makes it the option that allows them to focus on using technology to achieve key business goals rather than on creating the technology itself.

Key Factors to Consider When Deciding Whether to Build or Buy Compensation Planning Software

When deciding whether to build or buy compensation planning software, there are several key factors to consider. These include:

• Cost

Building custom software requires an upfront investment to develop it. Purchasing an off-the-shelf solution has lower upfront costs. But subscription or licensing fees for purchased software can add up over time. Companies must assess the total cost of ownership for both options over 3-5 years. This determines what makes the most financial sense for their needs and budget.

• Customization

For companies with complex compensation needs or who want full control over system design, building custom software may be appealing. Purchased solutions offer limited ability to customize the system to unique needs and processes.

Some vendors do allow for a degree of configuration and integration with other systems. Companies must assess how much customization they need to properly support their compensation programs and data.

• Timeframe

Creating custom compensation planning software can take 6-18 months. The time required depends on the complexity of the system and the available resources. Purchasing a solution can take just 3-6 months to execute. For companies under time pressure to get a system in place, a purchased solution provides the speediest option.

• Internal Resources

Building custom software requires dedicated IT resources and employees to create and maintain the system. Not all companies have the expertise or workforce to take on such a complex project. For these companies, purchasing software that vendors maintain may be more feasible and realistic.

In summary, companies must weigh factors like cost, customization needs, timeframes, and internal resources when determining whether to build or buy compensation planning software. An ideal solution balances these factors to meet both short-term and long-term business goals.

Conclusion

A homegrown system may offer more customization, while vendor solutions can get companies up and running faster. The decision often comes down to the company's specific needs, budget, and timeline. Either way, it is crucial to take the time to define these needs and research the available options thoroughly.

With the right approach, companies can find a compensation planning solution that aligns with their goals and sets the team up for success. The journey to improved compensation management begins by making the most sensible build-versus-buy decision for the company's unique situation.