Off-the-Shelf Software Is Built for the Median Firm. When Does Custom CRE Software Pay?

Off-the-shelf CRE software is treated as neutral: a tool that does the job and leaves strategy to the firm. It is not neutral. A packaged product is designed around the workflow its average customer runs, because that is where the vendor's revenue sits. Whatever a firm does differently from that average, the product either ignores or pushes back toward the middle. The case for custom CRE software is not that packaged tools are bad. It is that they are built for the median firm, and a firm's edge is, by definition, the part of its process that is not median.

Key Takeaways

• Packaged software is optimized for the workflow most of its customers share. Features that only a small share of customers need rarely reach the roadmap.

• A firm's edge lives in the steps where it works differently from peers. Those are the steps a median-designed product is least likely to support.

• Unsupported steps do not disappear. They move into spreadsheets, email and memory, outside the system of record.

• Michael Porter warned in 1996 that when rivals adopt the same best practices from the same third parties, their activities become generic. Shared software is one path to that convergence.

• The useful question is not build or buy. It is which steps carry the firm's edge, and whether the tool fits those steps without a workaround.

Why is off-the-shelf CRE software built for the median firm?

Off-the-shelf CRE software is built for the median firm because a vendor spreads one product across many customers. Each feature is weighed by how many paying accounts want it. Requests shared by most customers get built first. Requests unique to one firm's method lose that contest, even when they matter most to that firm.

This is not a criticism of vendors. It is the economics of a product sold to many buyers. A vendor with hundreds of customers cannot maintain hundreds of workflows, so it picks one that most customers can accept and builds configuration around the edges. The result is a product that fits the center of the market well and the tails of the market poorly.

The same pattern shows up outside real estate. Panorama Consulting's 2018 ERP Report found that 37 percent of organizations customized between 26 and 50 percent of their ERP application. These are companies that bought packaged software and then paid to change a large share of it, because the standard version did not match how they ran.

Where does a CRE firm's edge live?

A CRE firm's edge lives in the steps where it works differently from its competitors: how it screens deals, how it adjusts a seller's figures, how it weights risk, and which exceptions it catches that others miss. If every firm ran these steps the same way, they would produce no advantage, only parity.

Porter made this argument in "What Is Strategy?" (Harvard Business Review, 1996). He separated operational effectiveness, doing the same activities better, from strategic positioning, doing different activities or doing them differently. His warning was specific: the more rivals benchmark and outsource to the same third parties, the more generic their activities become.

Software sits inside that warning. When two acquisition shops run their screening through the same product with the same default fields, they are running the same activity. One may be faster, but speed at a shared task is operational effectiveness, and it tends to be competed away.

The edge is usually small in surface area and large in value. A firm might agree with the market on ninety percent of its process. The remaining steps, such as its buy box logic or its view on which tenants deserve credit, are where its returns come from.

What happens to the steps packaged software does not fit?

The steps packaged software does not fit move outside it. Analysts export data to a spreadsheet, apply the firm's rules by hand, and paste results back or keep them in a separate file. The system of record then holds the median version of the work, while the firm's real method lives in files nobody audits.

This is the hidden cost of a poor fit. The firm still pays for the software, and it also pays for the workaround. Worse, the workaround sits on the most important steps, because those are the steps the product did not support.

Spreadsheets are a fragile home for critical logic. Raymond Panko's review of field audits, What We Know About Spreadsheet Errors (University of Hawaii), found errors in the large majority of operational spreadsheets examined. A firm's differentiating step, moved into a spreadsheet, gains flexibility and loses review.

Worked example: the cost of one unsupported step

Assume an acquisitions team screens 40 offering memorandums a week. Its packaged tool extracts the standard fields well, but it cannot apply the firm's own tenant credit weighting, so an analyst exports each deal and applies the rule in a spreadsheet. Assume that takes 20 minutes per deal.

The inputs are assumptions, but the structure holds at any figure. The workaround time scales with deal volume, sits on the step that defines the firm's judgment, and produces output the system of record never sees. About 693 hours is a third of a 2,080-hour analyst year (40 hours times 52 weeks) spent re-creating the firm's edge by hand, every year, in a file with no audit trail.

When does custom CRE software make sense?

Custom CRE software makes sense when a step carries the firm's edge, packaged tools cannot express it without a workaround, and the step repeats often enough that the workaround cost compounds. If any of the three conditions fails, buying the standard product and accepting its defaults is usually the better trade.

The mistake runs in both directions. Some firms build commodity layers they should have bought, walking into the delivery risk of any software project. Others buy a product for everything and let it flatten the one process that made them different. The prior question on this blog, whether to build a data platform, reaches the same line from the other side: own the layer that encodes judgment, buy the rest.

"Buy the median, build the edge" is a better rule than build or buy, because it assigns each step to the tool that fits it.

A last check: custom software does not rescue weak judgment. Automating a bad buy box makes a firm wrong faster. Custom tooling is worth building only around a method that already earns returns when run by hand.

Frequently Asked Questions

Is off-the-shelf CRE software a bad choice?

No. Packaged software is usually the right choice for steps every firm shares, such as document storage, standard lease fields and critical dates. It becomes a poor fit only on the steps where a firm deliberately works differently from its peers.

How do I know if a workflow step is part of my firm's edge?

Ask whether a competitor running the same step the same way would lose anything. If the answer is no, the step is shared and packaged software fits. If the step reflects a rule the firm believes others get wrong, it is part of the edge.

Why not configure the packaged product instead of building?

Configuration works when the difference is a setting, such as a field name or a threshold. It fails when the difference is logic the vendor never exposed. Panorama Consulting's 2018 ERP Report found many buyers customizing a quarter to half of their application, a sign configuration often falls short.

What is the risk of keeping firm-specific logic in spreadsheets?

The risk is error without review. Panko's field audits found errors in most operational spreadsheets examined, and a spreadsheet workaround usually sits on the most important step, outside the system that the rest of the team checks.

Conclusion

Off-the-shelf CRE software is built for the median firm, and it does median work well. The problem starts when a firm lets that product define the steps that were supposed to set it apart. For the underwriter, principal or asset manager, the practical test is simple: list the steps where your firm works differently, then check whether your tools support those steps or push them into a spreadsheet. Buy for what you share with the market. Build, or at least protect, what you do not.