Organizations are constantly seeking ways to gain a competitive edge. One avenue that some companies explore is the development of in-house technological platforms. While this approach may seem appealing at first glance, there are associated pitfalls that have to be carefully considered. We pragmatically explore why in-house platforms can undermine your business strategy, through its resource diversion, limited scalability, lack of expertise and innovation, increased risk and responsibility, and the opportunity cost of choosing this path.

Resource diversion and increased costs

This is demonstrated in the case of a retail company looking to improve its operations by building an in-house inventory management system. At first, it may appear to be a cost-effective choice. However, on closer examination, the upfront costs can be substantial. Hiring a specialized IT team, purchasing server hardware, and investing in software development all demand significant financial resources and careful strategic financial planning to avoid costly overruns that leave the project’s survival on a knife’s edge.

Over time, maintaining and updating the in-house system can escalate costs further. These ongoing expenses divert funds that could have been allocated for other core initiatives such as store expansions or marketing campaigns. The face value draw of cost savings can be deceptive, as the financial burden of an in-house platform often outweighs the benefits, without careful scoping and planning. 

Limited scalability and flexibility

Organizations often decide to develop an in-house customer relationship management (CRM) system to manage their expanding customer base. Initially, this might seem like a strategic move, allowing for customization to suit their unique needs.

However, the limitations of their in-house CRM become apparent. It struggles to handle the increasing volumes of customer data, leading to inefficiencies and potential data management issues. Furthermore, the system may lack the advanced features and integrations offered by established CRMs like Salesforce or HubSpot.

This lack of scalability and flexibility can potentially limit the company’s ability to adapt to changing market dynamics and expand its operations seamlessly. Instead of focusing on growth, they find themselves grappling with the constraints of their in-house system.

Lack of expertise and innovation

Another common pitfall of relying on in-house platforms is the lack of internal expertise and innovation. Let’s take the example of a manufacturing firm that decides to develop its own supply chain tracking system. While this might seem like a way to have complete control over their processes, it comes at a cost.

Unlike specialized solutions like SAP or Oracle, which have dedicated teams continuously innovating and adapting to industry changes, the in-house system may stagnate. It becomes outdated, lacking essential features such as real-time tracking or advanced analytics. Without the specialized knowledge and experience that external providers bring, the company misses out on the benefits of cutting-edge technology.

Increased risk and responsibility

Developing and maintaining in-house platforms also bring about increased risk and responsibility. Consider a finance company that opts to build its transaction processing platform. In doing so, they assume full responsibility for ensuring compliance with stringent financial regulations, data security standards (like PCI DSS), and guaranteeing high uptime.

Any failure in these areas, whether due to a lack of expertise or inadequate oversight, can result in significant financial loss or legal repercussions. The burden of maintaining and securing the platform falls squarely on the company’s shoulders. This added responsibility can divert valuable time and resources away from core business activities.

Opportunity cost and competitive disadvantage

Perhaps one of the most significant downsides of in-house platforms is the opportunity cost they impose. Consider a media company that decides to create its in-house video streaming platform. While they focus on building and maintaining this platform, competitors like Netflix or Hulu, who leverage advanced cloud-based platforms such as AWS or Google Cloud, continue to innovate in content delivery and personalization.

These industry giants harness cutting-edge technologies like AI to enhance the user experience, offering tailored content recommendations and seamless streaming. Meanwhile, the media company struggles to keep up, missing out on the benefits of these advanced technologies.

The opportunity cost of choosing to develop an in-house platform can be substantial. By diverting resources and attention away from innovation and customer-centric strategies, companies risk falling behind in a highly competitive market.

Final thoughts

While the idea of in-house platforms may seem appealing, it is essential to weigh the potential drawbacks carefully. The resource diversion and increased costs, limited scalability and flexibility, lack of expertise and innovation, increased risk and responsibility, and the opportunity cost of choosing this path can all undermine your business strategy. In today’s dynamic business environment, it is often more advantageous to leverage external solutions and focus on core competencies to maintain a competitive edge and foster growth.

Alexander Procter

January 4, 2024

4 Min