Maximizing the Value of Packaged Software Customization: A Nonlinear Model and Simulation

Organizations that purchase packaged application software – for example, an Enterprise Resource Planning system – must make choices about customization. Packaged software vendors and practitioners recommend that organizations customize software as little as possible, and instead adapt their processes to meet the “best practices” of the software. However, organizations continue to exceed their budgets on implementing and maintaining customized software. This suggests that either these organizations are making poor decisions, or that the conventional wisdom about customization is incorrect. In this paper the author models the primary factors in the customization decision, most notably the “fit” between desired processes and the procedures inherent in the packaged software. The author then consider costs related to development, maintenance, and technical corrections due to poor integration and performance; and benefits related to increased fit, technical corrections, and user acceptance. This paper extends prior work by (1) modelling nonlinear relationships between the amount of time spent on custom development and the resulting benefits, (2) modelling nonlinear relationships between development costs and maintenance costs, and (3) modelling corrective development as a function of development related to fit and user acceptance. The author uses simulation techniques to illustrate the conditions under which customization is likely to provide value to the organization, as well as conditions under which customization should be avoided.