Mar 1, 2012

Think Before You Re-Invent the Wheel

Back in the Internet’s version of the Age of Steam — around 2002 — retail giant Walmart (which was still officially “Wal Mart” at the time) made a bold move to insource all of its Electronic Data Interchange (EDI) functions. EDI is a critical behind-the-scenes operation that allows huge retail chains to manage their supply chains and logistics.

Reinvented WheelUp until Walmart’s big move, large companies typically outsourced EDI to “value added network” companies like GE Global Exchange Services or Electronic Data Systems (where Ross Perot built much of his fortune). At the time, most tech industry experts voiced the opinion that Walmart was biting off more than it could chew. Everybody used VAN services for EDI. Walmart was trying to reinvent the wheel, the experts said, and it would end up increasing its operating costs and limiting its supply chain’s flexibility.

Fast forward about nine and a half years. Walmart’s EDI and efficient logistics are now legendary in the retail industry — not simply a competitive advantage, but a competitive weapon. They reinvented the wheel, and found something that worked better for their business model. Experts still debate the impression it all makes on the company’s bottom line, but Walmart seems happy enough with it, and they are undeniably a supply chain powerhouse.

I often talk to clients who want to reinvent the wheel. Their ideas are typically on a much smaller scale than Walmart’s (dang!), but some of the driving principles are the same. By rolling a number of separate, but related, business functions into a single mega-super web application, they want to create new efficiencies, then practically sit back and watch while business runs itself.

It sounds good in theory. But the cost-versus-benefits analysis rarely works out. A very large organization like Walmart can turn a small efficiency into real money because of volume. It doesn’t add up nearly so quickly for a small or medium sized business.

How much will a mega-super web application cost, and how much will it save you? Does it make sense to spend, say, $8,000 to integrate accounting functions into your E-commerce engine when you can instead use a $500 plug-in to send the store data over to your $350 dedicated accounting software? Custom application building can be an expensive process. Data interchange between small business applications is generally a snap.

Most of the ideas I hear for mega-super applications involve pretty common small business functions: inventory control, accounting, CRM and e-mail automation. There are very good, and inexpensive, applications already available to handle all of that. The same money would be better spent in connecting all of your applications and figuring out how to better use the data to improve your company’s bottom line.

If the “wheels” roll just fine, why reinvent them?

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