Product managers facing the make versus buy decision for their organization have a lot to consider. Biases abound. In this article, the innovation architect Doug Collins shares what was on the minds of senior product management leaders on this topic when they convened, recently.
Their top 10 factors follow below.
The Make versus Buy versus Other Decision
This January I enjoyed thoroughly the chance to facilitate a session on navigating the make versus buy decision at Frost & Sullivan’s New Product Innovation and Development summit. The summit attracts senior product managers and researchers.
That is, how might we decide whether to make, buy, or otherwise secure the rights to capabilities that might help our organization more fully realize its business objectives?
Twenty or so senior product managers participated: people who had navigated the decision on their own. They represented a variety of firms serving a variety of industries:
- Consumer Packaged Goods
- Data Processing
- Insurance
- Software
- Automotive
- Chemicals
We crowdsourced the session. By crowdsourced, I mean each participant, first on their own, responded to the question of…
What obstacle, were we to reduce or eliminate it, might lead to real breakthroughs on the make/buy/other decision?
Participants then voted and commented on the ideas that their peers contributed. The engagement helped us to identify the most compelling ideas, overall.
The dialogue that flowed from the questions that participants submitted was productive.
Sidebar on facilitation: when you convene a group of intelligent, articulate people, you respect their presence by leading with the critical question or questions. Crowd sourcing accomplishes the goal.
One of the useful byproducts of the crowd sourcing approach to facilitation is that the group is left with the list of ideas, or questions in this case, to reference.
I share the highlights here because (a) the ideas, in their diversity, offer broad insight on the critical question and (b) the ideas, taken together, offer a nice “cheat sheet” or mental checklist for anyone in R&D or product management noodling on this same question on behalf of their organization. The ideas are in the order of most to least compelling, as adjudged by the session participants. The ideas come in the form of questions, which the group explored through dialogue during the session.
Idea #1: Is this a differentiating capability that provides competitive advantage?
Participants observed that navigating the make versus buy decision, particularly in larger organizations, was a time-consuming activity, loaded with ambiguity in terms of, for example, how the ultimate decision would be made.
In that light, participants affirmed to one another through their stories that having a clear notion of value (“If we do X, we get Y”) was the path to sanity. The make versus buy decision becomes a means to define and affirm strategic intent.
Participants shared a number of anecdotes where the organization did not enjoy this understanding.
The downside was that, over time, this lack of clarity made the organization increasingly risk averse: navigating the next make versus buy decision became that much harder, for fear of making another wrong choice.
Idea #2: How important is speed to market?
Participants noted speed—time to market—as the next most compelling question to pose, internally. To what extent does the organization find itself playing catch up?
Participants shared stories of cases where the organization needed to react quickly to a competitor’s move, making the buy, or acquire, option more attractive. Fear of loss can overcome the natural bias towards making, internally. Context matters. As one participant observed, “We need to know if we are acquiring for a near-term bolt-on or for something that will stay in our technology stack the next ten years.”
Idea #3: How might we eliminate resource bottlenecks to realize the potential of our business model?
Participants commiserated with one another that, in most cases, there was not enough time in the day and available hands on deck to execute on the organization’s plans in a timely fashion.
As one participant observed, “all our plans are now based on a platform strategy, where our partners are motivated to participate in and add value to our offer. We spend a lot of time thinking about the quid pro quo.”
In this case, the option is “other”: partnership becomes the preferred choice.
Idea #4: Do we have the in-house expertise to develop the capability?
Interestingly, a number of the participants told me they attended the Frost & Sullivan event because Frost does a good job attracting a diverse audience: diversity by industry segment and by enabling capabilities. Participants sensed that the next big thing would come from outside their immediate industry. With that, I sensed a certain amount of soul searching on how organizations that traditionally have not participated in the digital economy would do so in the future.
Is what they know how to make going to be relevant and sufficient tomorrow? The answer, which I gleaned from the dialogue, seemed to be a reluctant “no.” How might the organization accommodate accelerating change? The make versus buy versus other decision becomes increasingly central to strategy.
Idea #5: How might we eliminate analysis paralysis?
Participants elaborated, “If we could empower teams to follow a specific process that does not involve round after round of questions from our executives, then we could move faster.”
The question generated perhaps the most interesting dialogue of the session. Specifically, participants debated the advantages and disadvantages of supporting a formal, rigorous process for the make versus buy decision.
On the one hand, having an agreed upon assessment and decision making process relieves participants from some of the ambiguity in whether the organization moves forward or not with a partnership or acquisition. What are the rules of the game? (See idea #1)
On the other hand, the process itself may embed certain biases towards either make or buy—may foster a culture of risk aversion—such that the process impedes success. Participants, for example, explored the extent to which any model could capture the expertise and know how the organization would need to derive the full value from the new partnership or acquisition. This observation spoke to the “art” of a politically charged decision: are we capable of putting the new acquisition or partnership or capability to good use? Over confidence in the face of ambiguity leads to failure.
Closing Thoughts
Our dialogue covered a lot of interesting ground. If I were to summarize the session, I might observe the tension that exists between the art and the science of the make versus buy decision.
The “science” can be seen in the usual places: financial projections and contractual terms as outputs of a repeatable process.
The “art” comes from navigating the unknowable. Will the decision matter to the organization’s bottom line? Do we know how to be good stewards of our decision? What do we really know versus what do we need to learn? What is our true sense of our risk aversion?
I list the top 10 ideas, posed in the form of questions, below, in the hopes that they come to serve as a useful checklist for your own efforts on make versus buy:
- Idea #1: Is this a differentiating capability that provides competitive advantage?
- Idea #2: How important is speed to market?
- Idea #3: How might we eliminate resource bottlenecks to realize the potential of our business model?
- Idea #4: Do we have the in-house expertise to develop the capability?
- Idea #5: How might we eliminate analysis paralysis?
- Idea #6: How can we best structure our partnership/collaboration activities to protect our core IP?
- Idea #7: does this fall within a core competency of our company (internal or external to the division)
- Idea #8: Is your organization building its BPB model based on past successes and a comfort zone? New disruptive winning innovation might get passed up if the model cannot accommodate new industry inputs.
- Idea #9: Is this a short term, single use technology, or a long-term platform?
- Idea #10: Internal make capability has an advantage in influence on decision and on framing needs in a way that tends to make it hard to get to partner.
Article first appeared on Innovation Architecture.
