AI now makes it possible to build this kind of software in-house, offering a 2nd choice, though it'll only be as good as the standards of the teams using it. Only time can tell.
Bespoke software can be orders of magnitude less complex. There are many reasons companies choose to use vendor solutions, but for large organizations it’s usually not “we literally can’t hire enough engineers to build it.”
There are so many counter examples.
Not in government. For payroll/HR, we're talking about hundreds of pages of legislative mandates, union bargaining rules, Title 5 statutory compliance, and FISMA/NIST regs. Just customizing something like PeopleSoft to fit is a large task in itself, let alone trying to implement bespoke software using an engineering pool that isn't even large enough to modernize the software it currently owns.
Bespoke sounds nice and works well in startups but that's not the context we're discussing. Check out Phoenix Pay: https://en.wikipedia.org/wiki/Phoenix_pay_system and understand the US is even more complex.
>Just customizing something like PeopleSoft to fit is a large task in itself, let alone trying to implement bespoke software
Customizing large enterprise software is more like writing bespoke software than it is what most people think of when you use the word customization. You end up paying enormous vendor margins on top of the costs for something that is effectively bespoke software.
There is so much bespoke software out there that is at least as complex as government payroll software.