27 Mar Should You Build or Buy Software Solutions?
As oil & gas technology professionals, we often find ourselves in discussions on whether oil and gas companies should build software in-house or buy third-party solutions. Outlined below are many of the pros and cons that entities should consider.
In-House Solution Benefits
- Building in-house software can create a proprietary advantage vs. peers in an industry increasingly trending towards a manufacturing approach with fewer differentiators.
- Can position your organization as an industry leader on efficiency, which can translate into a very real cost of capital advantage. However, this advantage can be short-lived if the benefits of the investment are not reflected in results or if the benefits are not long term in nature.
- Don’t need to spend time bringing a third-party up to speed on operational complexities and unique considerations. The interconnected nature of oil and gas operations can make it difficult for industry outsiders to provide practical insights.
- All solutions are stored on existing systems and designed to accommodate internal IT approaches and constraints.
Third-Party Solution Benefits
- Users receive a data advantage, regardless of size. Third party solutions make generalized learnings from pooled client data, while in-house solutions are only as good as their data set. Small and medium size organizations often don’t have enough data to generate useful insights and develop effective AI models.
- Product innovation occurs proactively rather than reactively. Third-party providers build their solutions by leveraging experience with industry peers. This means they often already have solutions when problems arise for clients. In contrast, in-house software innovation often only occurs in response to recent problems (companies in this market don’t have enough money to pay to solve problems they don’t yet have).
- Able to provide solutions at a lower cost, as the cost of a development team is spread across several clients. It is difficult to build software in-house economically because of the challenge of attracting top experts, and the need to retain them for your solution to be effective.
Mark Le Dain currently runs strategy for Validere and previously worked as an energy investment banker. Mark has significant experience advising energy and infrastructure companies, successfully completing over $18 billion of M&A transactions and $5 billion of capital markets transactions.
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