In most cases, we find ourselves helping firms talk their team into letting go of their toxic relationship with spreadsheets, and embracing automation. But sometimes we encounter the opposite problem, a leader who is so passionate about automation that they want to build it entirely in house to be their special sauce.
Directionally it’s the right idea, that teams need to embrace the sustained efficiencies automation permits. But building those automation solutions internally can lead you into new time sucks and frustrations. While spreadsheets can accumulate all sorts of errors and hidden flaws. Software can do that and add to it code that doesn’t quite work right, or doesn’t account for edge cases. In the end you end up replacing the inefficiencies of spreadsheets, with the inefficiency of software that’s not quite there.
Let’s look at how it works with compensation data.
Where we are now
In today’s digital age, managing compensation data is a critical task for any organization. Building in-house systems often appears to be the optimal solution to address the unique requirements of an organization, particularly in private markets, since every firm has slightly different deferred compensation programs (e.g., carried interest plans).
How does that go wrong. First, building a system from scratch is a time-consuming and expensive process. It requires a dedicated team of developers, designers, and testers. Second, the system needs to be maintained and updated regularly. This requires additional long-term team dedication and high-cost resources. Third, the in-house system may lack the features and functionalities that software companies offer, as they source their new features from their wide client base.
Leveraging Software-as-a-Service (“SaaS”) tools allow organizations to benefit from existing capabilities and future enhancements that software companies add to their platforms. Software companies provide regular updates and maintenance to their products which can be challenging with homegrown solutions. Many software vendors have a wide client base and can source feedback from various stakeholders to continually improve their system.
As noted by Gartner in “Buy, Don’t Build, Your HRMS: Why Commercial Off-The-Shelf Is Best”, it was found that companies who purchased commercial off-the-shelf software packages reported higher levels of satisfaction compared to those who built in-house systems. Specifically, 80% of companies who purchased software reported being satisfied with their system, while only 55% of companies who built in-house systems reported being satisfied. Similar findings were noted by West Monroe in “Buying vs. Building Enterprise Software” survey, where West Monroe found that 72% of companies who purchased software reported being satisfied with their system, while only 39% of companies who built in-house systems reported being satisfied.
While building in-house systems or using Excel spreadsheets may seem like cost-effective options in the short term, they face long-term challenges. Buying existing software packages for managing compensation data provides a more comprehensive and reliable system, which ultimately results in more efficient and effective management of compensation data.