Optimize Your Digital Transformation Strategy: Unleash Success with Build, Buy, or Partner Approaches

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Your Digital transformation strategy would consist of a technical roadmap, people awareness and training, onboarding and working with your stakeholders.

The Key component of Digital Transformation Strategy is a technical roadmap, tools and technologies. while developing tools and technical roadmap you will hit a question, whether to build a particular piece of technology in-house or Buy or Simply partner with an external company.

In this edition we will cover how to make a build Vs buy Vs partner decisions. what are the key considerations? To make your Build, Buy Vs Partner Decision, you should have a Vision and roadmap defined, check out my earlier edition, "Vision to Reality: Build a Digital Transformation Roadmap"

Lets first understand what do you mean by each of these terms-

Build:

Majority of the companies this is the first obvious decision as a part of technical roadmap. When you need a specific technical capability companies choose to hire software engineers, developers in-house for developing this capability. Reasons could be several, however this is one of the path which is most favourite to Technical leadership.

Buy:

Buying involves acquiring pre-existing software, applications, or digital solutions from third-party vendors or SaaS providers. These solutions are typically developed to address common business and digital needs and are offered as commercial products or services. Companies can purchase licenses or subscriptions to access and use the software, and implementation usually involves configuring the purchased solution to fit the organization's requirements. Typically subscriptions are one of the most cost effective ways for

Partner:

Partnering in the context of digital transformation refers to collaborating with external companies, consultants, or service providers that specialize in delivering digital solutions. Instead of relying solely on in-house capabilities, partnering allows organizations to leverage the expertise and resources of external entities to drive their digital transformation initiatives.

Here are the key Elements for making your next Build Vs Buy Vs Partner Analysis:

1. Competitive Advantage:

This is one of the key considerations while making build buy and partner decisions. If the capability you are looking for, is going to provide long term competitive advantage for your business. With this the considerations dramatically shift from buy and partner to build. As when you are building the core piece of technology in-house, you may be able to maintain that edge over competitions. Some of the companies do go and partner with other competition (with some exclusivity clause) to ensure the technology is only available for your business. One such example in this case would be building chat-GPT inhouse, vs partnering with Google or Amazon?

2. Urgency:

How would you categorize urgency for this capability? How soon do you need this capability?

Would not having this capability result in significant losses in current business or lost opportunity? Do you know if there are similar (SaaS ) services out there in the market? Would this be suitable?

Do you know if there are companies who you could partner with? what is their maturity level?

If you were to build this solution in-house, how much time, and money it will take?

3. Capabilities:

Capabilities form a crucial piece of puzzle. Having an inhouse technical and Human resources is a great asset, at the same time liability.

• Does your organization have an internal set of resourced who could help you build this capability inhouse?
• Does your organization have technical knowhow to develop this capability?

4. First Mover Advantage?

The business you are looking for or transformation you are looking for, does it have a first mover advantage to capture the market?

Let's Consider care of Jio in India. When Jio launched their 4G services in Dec 2015, Indian market was not yet ready with 4G devices. There were a very few and super premium handsets available to take advantage of 4G services. Hence with this Jio chose to start launch their own 4G phone brand called LYF smartphones.

Later Jio partnered with Google for developing an operating system based on Android for Affordable smartphones.

Jio also partnered with several other handset makers like - Vivo, Xiaomi, Samsung, Oppo, and more, for Jio sim locked phones.

Hence when you look in hindsight to capture a 4G market, Jio took an approach of Build first and Partner to be able to capture the market share.

5. Are there good solutions established externally?

While you are looking for building a new capabilities, an external market study and benchmarking is essential. Look for in the space if there are similar solutions available externally. Now a days there are some great examples of external capabilities and tool-sets available which are SaaS based.

These capabilities could enable your visibility and dashboard for supply chain, Analytics, CDP and email automation, CRM, etc.

These SaaS platforms could come up with perpetual licenses or subscription based approaches.

6. Do you have enough Budgets and funding available ?

This is one of the most critical consideration. While you consider evaluation for your build, buy Vs partnership model, budgets is one of the most important consideration.

Typically for build and buy you could need significant capital investments and upfront costs.

Where as subscription model could help you avoid that upfront cost and have a monthly/ quarterly payout modes of payment.

Partnerships are often difficult to broker, and there could be uncertainties till the last moment. Besides you have to be sure of legal angles in these partnerships.

These are few important considerations, however there are a few companies who are leveraging vertical integration of their product portfolio and building everything in house.

Apple:

Let's Consider Apple, they started with their vertical integration decades back. This is one of the first companies which makes its own hardware and software, this gives them unique advantage over competition.

Apple had partnerships for chips with Intel, over last 2-3 years they have slowly replaced all the chips with their own Silicon "M" series for laptops, ipads.

Heres' how Apple is integrated vertically-

Design -> Chip and hardware manufacturing -> Softwares and OS -> Appstore ecosystem -> Payment Ecosystem -> Cloud and storage infrastructure and service offering -> Apple branded Accessories

Through this end 2 end ecosystem and complete ownership Apple is able to derive significant competitive advantage by means of unified customer experience, speed and efficiency.

Source: How Vertical integration boosts Security in Apple Products

Tesla:

Tesla is another classic example of Vertical integration and Build approach. They have substantially optimized the costs and created value for customers.

Battery Production: Tesla vertically integrates the production of battery cells, modules, and packs through its Gigafactory facilities. This includes sourcing raw materials, cell manufacturing, and assembly of battery packs.

Electric Motor Manufacturing: Tesla manufactures its electric motors in-house.

Vehicle Assembly: Tesla performs vehicle assembly at its own factories, such as the Fremont Factory in California and Gigafactories in other locations. 

Power Electronics: Tesla designs and manufactures power electronics components, including inverters, onboard chargers, and other control systems used in their vehicles.

Software and Firmware: Tesla develops and maintains its own software and firmware for vehicle systems, including the Autopilot feature (self driving software) and over-the-air updates. This allows them to control and optimize the performance of their vehicles and is one of the key differentiators of Tesla cars.

Supercharger Network: Tesla operates and expands its own Supercharger network, which provides high-speed charging infrastructure for its electric vehicles. 

Sales and Distribution: Tesla adopts a vertically integrated approach to sales and distribution by selling vehicles directly to customers through its own stores and website.

Source: Tesla’s Vertical Integration Strategy and Examples

Additional References and Reading:

1. Forbes - Should You Build, Partner Or Buy?

2. Pragmatic Institute- Buy, Build or Partner: A Primer

I am also thinking about developing a Build Vs Buy Vs Partner Framework in a form of Simple Google Form, please leave your email id if you would like to have the same.

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Amit Kurhekar is a Digital Transformation Expert with over two decades of experience in Fintech and CPG.

He regularly writes on the topics of #DigitalTransformation #industry40 #ai #digitalbusinesstransformation