In 2011, entrepreneur and investor Marc Andreessen wrote that, “Software is eating the world.” He spoke about software companies consuming progressively larger chunks of the value chain in multiple industries: direct marketing with Google, recruiting with LinkedIn, telecoms with Skype — since bought by Microsoft, entertainment with Netflix generating content and Disney buying Pixar. He also emphasized that historically “physical” industries were also being eaten by software: logistics, oil and gas, retail, etc. He was right in 2011; and software is still eating the world in 2023.

As a result, clients often ask how they can effectively leverage technology for their operations.

My name is Nick Padon, and I work within our Energy and Natural Resources Practice, as well as our Digital team at Oliver Wyman. Prior to Oliver Wyman, I worked as a mechanical engineer in the oil and gas industry in the US, Canada, and the UK, and after spending time in corporate strategy, I found that consulting allows me to leverage my analytical engineering skills to decompose and simplify problems for clients to help them solve their most horrific technology challenges. This is what motivates me.

At Oliver Wyman, I help companies build enterprise software from scratch, evaluate “buy” options for non-core business software, and integrate licensed software into existing on-prem or cloud infrastructure. Many businesses have put software at the heart of their operations by building home-grown solutions or buying off-the-shelf components and knitting them together. How should companies make these build versus buy choices today? And why do so many companies grapple, unsuccessfully, with harnessing built or bought technology to improve their bottom lines?

Conventional wisdom is: “Build software that’s a key differentiator for your business; buy everything else.” Conventional wisdom is a good starting point – but there are three components that are often poorly framed when evaluating this decision, especially if companies identify key differentiators that they’d like to build: people, opportunity costs, and culture. These are key considerations when making build versus buy decisions.

First, are your people fit for the job? Both build and buy cases require people with real technical skills. Given that 90% of startups fail, does your company have the team with the necessary skills to build a scalable, secure, testable, and maintainable platform for the next 3-5 years? Are you the 10%? When working with clients, teams consistently overrate their ability to deliver and maintain software from scratch; and, if they’re going to build, they need rock-solid technical competency and business outcome expectations in place before they embark on major projects. Even if buying, businesses need technical skills to integrate, test, and consume the data from SaaS providers. Who owns the data integration strategy? How will these individuals incorporate purchased software to be usable by and useful for the rest of the organization? Even the buy case requires significant technical skills within client organizations, which cannot be overlooked.

Second, what are your opportunity costs? Building software is expensive, and large corporate digital teams are notorious for delivering fewer features beyond schedule and over budget. If you think it’s going to take six months to go to market with an internally built solution, how much money are you leaving on the table during that development cycle? What if getting your product to market takes eight or 12 or 24 months? If you forgo a build, where else could you put the money to work in your business to provide a different return? Clients need help framing these tradeoffs clearly and comprehensively.

Lastly, how does your culture enable success? Unfortunately, many digital teams have adversarial relationships with business operations. Is your organization different? If you’re going to build, how exactly will the team operate to reach a target business outcome? In our experience with clients, whether they’re building or buying, doing the upfront work to foster creative and cohesive teams, or pods or sustainable partnerships, that are singly focused on business outcomes has a massive payoff but is often overlooked. Linked to building teams, is your organization geared to incentivize and celebrate the successes and, more importantly, work through the failures that large build projects entail? If not, using a default of “buy” with thoughtful and narrow integrations may be a better bet.

When advising clients, my recommendation is, “Buy absolutely everything unless you can make an overwhelming case for building with your people, with a hard look at your opportunity costs, and with a frank evaluation of your culture.”

I’m Nick Padon, and this has been my take on navigating a software-eating world.

This transcript has been edited for clarity