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In-House Innovation

Given the direction things are going, you might think that the internally developed application is an endangered species. A lot of technology is fast becoming a commodity, with low-cost computers and off-the-shelf software making it possible to buy an end-to-end IT infrastructure. When software development is required, a growing number of companies turn to offshore contractors. And if a company does put software developers to work, many of them aren't using state-of-the-art tools. "Your average developer spends less money on tools than they do on lattes," laments Java creator James Gosling, a VP and Sun Fellow at Sun Microsystems.

Building applications without programming is a hotbed of activity, Sun Microsystems VP Gosling says. Those trends, however, are misleading. Custom code is alive and well and serving a vital role at many companies. Proprietary software, crafted by engineers who are close to a company's inner workings and systems, continues to be the secret sauce that gives many businesses an edge. Whether it's to make business processes faster and more efficient, deliver new services, improve customer support, or innovate in other ways, the software that makes big things possible is often unique, and intentionally so. "The stuff that gives you competitive advantage--that's the stuff you need to own and develop in-house," says Jeff Brandmaier, senior VP and CIO at H&R Block Inc.

Best known for its tax-preparation services, H&R Block would like more customers to use its mortgage-financing and brokerage services. To facilitate that, the company developed middleware that integrates its online and walk-in financial services in new ways. Internally developed software, for example, simplifies the process of creating a brokerage account for a customer of H&R Block's tax service and can then direct an electronic tax refund into the new account. H&R Block is looking at utility computing--an example of the commoditization trend--as a way of adding flexibility to its IT infrastructure. But it doesn't plan to reduce internal application development. If anything, "we probably have opportunities to get much better" at it, Brandmaier says.

IT budget cuts, server consolidation, and layoffs not withstanding, software development still serves a strategic role at many companies. The projects range from a handful of Java developers writing applications on goals, assists, and points for the National Hockey League to Dell's homegrown just-in-time ordering system. Morgan Stanley is developing "systems that increase client connectivity, improve business intelligence, or otherwise provide a business advantage," says Guy Chiarello, chief technology officer of Morgan Stanley and CIO of the company's Institutional Securities business. The Wall Street firm buys more commercial applications than it did in the past--a result of the maturing software industry--but that lets it focus internal resources on innovative, customer-facing apps, he says.

The do-it-yourself approach isn't cheap. The median salary for a software developer is $70,000 this year, while median pay for an application-development manager is $93,000, according to InformationWeek Research's National IT Salary Survey. Multiply that by dozens or hundreds of personnel and the costs can quickly rise into the millions of dollars for months-long projects. But it's work that, in many cases, simply couldn't be purchased anywhere else.

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