buy build or partner: choosing the right inovation strategy

Common Sense into Common Practice

Build. Buy. Partner.Choosing the right innovation strategy

What you’re trying to solve

How to innovate?

Create competitive differentiation

Fill gap in product technology

Offer a complete solution

What you’re trying to solve

BUILD vs. BUY vs. PARTNER provides a convenient framework for assessing the options available to you when pursuing a Business Development opportunity.

BUILD ~ BUY ~ PARTNER

Commitment Tradeoffs

Build

Going down the “Build” path requires an investment of:

Do you have the resources to pursue this opportunity in-house?

Is it the best use of your company’s time, money, and people?

Will pursuing this opportunity cannibalize from other higher priorities?

Can “building” your way to this opportunity allow you to realize its value faster / better / less expensively?

Time Energy

Buy

Knowing when a “Buy” decision makes the most sense for a given opportunity comes down to an assessment of your company’s core competencies and priorities.

Buy

ASSESSMENT OF COMPETENCIES & PRIORITIES

Is this opportunity out-of-scope for what you do best?

Would utilizing another company’s solution enable you to retain your focus on higher priorities?

Do you trust that the solution someone else can provide will be good enough for your needs?

Partner

Partnerships can often be the best, fastest, cheapest way to create value for customers and enter new markets.

But it’s also important to recognize the inherent compromise of a partnership…

Partner

PARTNERSHIP COMPROMISES

Any deal struck between two companies requires one or more parties to give up some amount of two precious commodities – money and control.

Understanding the balance of these pros and cons can determine whether a partnership is, in fact, the best path.

The Fourth Option

Determining Factors

Is it a novel problem?

How many people do we have?

What level of expertise do we have?

How much time do we have?

Does the rest of the team understand?

Do you have in-house skills to support a custom solution?

Does an off-the-shelf solution really fit your needs?

More Factors

Validate the need for technology Managers need to focus on validating

that a business need exists.

Identify architectural requirements It is extremely important to identify

any architectural requirements or standards that a solution must support before determining if an off-the-shelf or custom solution is the best choice.

Identify core business requirements A core business requirement is one that

must be supported by the solution to continue. If a requirement can be only partially met or not addressed by a solution, it is not a core requirement.

Examine existing solutions Businesses will often implement

solutions only to discover that another system within the organization could have supported the solution with little to no modification.

Build — Pros☐✓

Most product control

Own the IP

Best opportunity for profit

Build — Cons☐

Longest time to market

Risk in market shifts

High development costs

Highest switching costs

✓

The Logic of Build

Building custom software can unlock a host of benefits, but companies should only pursue that strategy if:

Better software can provide a competitive advantage relative to your competitors.

You are building a large business that can spread the cost of a proprietary system over a large number of clients.

The Logic of Build

If a product is core to your business, you need the control that comes with owning the intellectual property and determining its future course.

Owning the IP gives the most control and also the most profit opportunity if you have the time to get to market competitively.

Shorten time to market

Own the IP (maybe)

Buy — Pros☐✓

Acquisition costs

Integration costs

Buy — Cons☐✓

The Logic of Buy

Think Speed, Ownership.

When technology/product is core to your business and you want to own the intellectual property, yet you don’t have the expertise in-house, and time is of the essence, buying makes sense if there are other companies who have already spent the time and resources developing the technology.

The success of the acquisition will rest on your ability to realize all the cost savings and revenue opportunities that looked so appealing on paper

Partner — Pros☐

Shortest Time to Market

Conserves Resources

Try before you Buy

Lowest Switching Costs

Credibility and Access

✓

Partner — Cons☐

Least Control

Integration Costs

Shared Gross Margins

Least Profit Opportunity

✓

The Logic of Partnering

When speed is important and the technology enhances your product, rather than being core to your business.

To claim space in a market or establish a competitive positioning while you build or evaluate a buy.

To reduce risk – especially if industry standards are in flux and you are not a standard setter.

When market leaders are not clear and it is risky to make an acquisition bet.

When you may have to join with “competitors” to satisfy customer buying preferences and to reduce customer risk.

Build Buy Partner Decision Scale

FACTORS

Time to Market RiskLeadership Core to Business


Build

FACTORS



Buy

FACTORS



Partner

FACTORS

Time to Market Risk AversionLeadership Core to Business

Build~Buy~Partner Scale

Partner

Buy

Build

Risk LevelSpeed of

Expansion Required

ResourceAvailability Similarity

Change in the

Environment

Slow

Moderate

FastHigh to

Moderate

Low toModerate

Low

High toModerate

SameHigh Slow

High Similarity

Moderateto Low Different

Moderate

Extensive

Rule of Thumb #1

Don’t enter into strategic partnerships that you do not think will not have a lasting evolution.

Don’t partner … and then compete later.

Rule of Thumb #2

Companies that use both acquisitions and alliances… grow faster than rivals do.

Rule of Thumb #3

Collaboration internally and externally with customers and partners is essential for innovative leadership going forward.

Thank you!