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In most large companies today, application software is both custom developed by in-house information
systems (IS) staff and procured from an outside source. In fact, the trend for more than a decade has been for
midsized and larger organizations to purchase (or lease, often from a service provider) application packages
rather than custom develop their own solutions with in-house IS personnel, whenever it is feasible and cost
beneficial to do so. Capital expenditures for implementing purchased or leased software packages are therefore
a large part of the total IS budget. Of course, many small businesses have no, or very few, IS professionals, so
they essentially procure all their software from outside sources. In some cases, the software is not even run on
in-house hardware but rather accessed from an external service using telecommunications, often the Internet.
An often-cited example of this kind of application service provider (ASP)—or “software as a service”
(SaaS)—is Salesforce.com. Recently, such software delivered via the Internet has been grouped under the term
“cloud computing.”
Firms in the software industry have grown across the globe over the past decades, so that today companies can
choose from thousands of products that can be purchased or leased as “off-the-shelf” packaged software to be
deployed in-house or accessed as an external service. The software industry firms that survive attract new and
seasoned IS professionals to be their employees so that they can quickly develop information technology (IT)
solutions to respond to new marketplace needs. Firms that purchase or lease a software package also typically need
to purchase services from the software vendor to help install and maintain the software for their business. Besides
working with the software vendor or software service provider, the purchasing firm’s own system and business
analysts work on project teams with business managers to purchase and install new systems. Some team members
also typically are part of an ongoing support team for the business users after a new purchased or leased system has
been deployed.
Packaged software applications are often built today with standard Windows or Web browser interfaces for
the end user. These types of interfaces are also available for large client/server systems (e.g., the enterprise
resource planning [ERP] and customer relationship management [CRM] packages introduced in Chapter 5).
Some of these enterprise-level systems have industry-specific versions of their packages to facilitate their
implementation. Other software vendors develop packages for a specific industry only, such as sales and
inventory management systems for retailers, commercial loan systems for banks, claim-processing systems for
insurance companies, or health care providers. Yet additional software vendors provide software tools, such as
for statistical analysis and forecasting, report writing, business analytics, and graphical design. Wherever there
is a sizable market for a standard package, a software company is likely to be developing applications to sell to
that market.
For firms that have their own IS department resources, a make-or-buy analysis is undertaken in order to decide
whether to procure a product or service from an outside source or to produce the software or perform the service