NEW RESEARCH | Software development drives innovation – 3 things to consider

Many companies complement physical products with digital services, for example through apps. Some choose to develop the software in-house, others outsource the work to suppliers. But which option is best?

Software development has been part of business operations for decades and a key part of the digital transformation. In Sweden, one third of companies in the manufacturing and services sectors invest in software development. But what has not been clear so far is how much companies themselves should be involved in the process. If they should be involved at all.

– It is an important strategic decision to consider carefully. And there are pros and cons to both strategies, says Anna Kusetogullari, at Blekinge Institute of Technology.

In her doctoral thesis, she used survey data to test the relationship between software development and the performance of 4 000 Swedish companies. The study also examines whether there is any difference in performance between companies that develop software internally and those that buy finished products from external suppliers.

Benefits of different strategies

Developing and maintaining apps is time-consuming, costs a lot of money and requires good skills. The advantage of in-house software development is that it usually drives innovation.

– It allows to create unique competitive advantages through tailor-made solutions for customers, which cannot be met with standard solutions.

External software development is often considered expensive. At the same time, it can bring some cost benefits, for example by accessing skills that are not available within the company.

– This strategy can be beneficial for companies that want to stay competitive without having to make the large initial investment required to set up an in-house development team, says Anna Kusetogullari.

It is also possible to combine the different strategies, with companies hiring software developers while involving suppliers.

– The benefits are that internal teams learn new techniques and methods for working with new software and complex development processes.

An investment for the future

Software development affects companies’ performance in different ways. First, it is important for innovation as it creates new products and improves business processes.

– It creates direct value and competitive advantages that increase the innovative potential of businesses.

Second, software products are scalable and lack the physical and logistical limitations of traditional products. This allows companies to easily reach out to international markets.

– A third clear finding is that innovative companies tend to do software development in-house. But when they need to develop software that improves internal processes, they tend to outsource the work to external developers.

– Although many believe that it is small innovative companies that drive innovation, it is still large companies that innovate with software. Especially those in high-tech and knowledge-intensive industries, says Anna Kusetogullari.

Contact anna.kusetogullari@bth.se