In previous blogs I’ve discussed the process for procuring Digital Transformation Service Providers (DXSPs) and also how to begin the task of selecting IoT Application Enablement Providers specifically as part of a procurement exercise, using a framework that equally can be applied to DXSPs in general. In this blog I want to focus on another aspect that is a key part of any procurement exercise: Build vs Buy.
What does Build vs Buy mean? Well, in essence, many components of a digital transformation project can either be built (or developed) on a bespoke basis for a specific adopter need, or project. Alternatively, the same capabilities can often be bought as solution components from companies that specialise in a specific relevant area. Procurement could either be via outright purchase of hardware, or services, or via contracting for the provision of services. A good example of the former might be the purchase of generic field hardware to support an IoT solution, whilst an example of the latter might be the engagement of a partner to provide application enablement platform capabilities for the same solution.
The question is: which approach is best for you, and how do you decide? To begin to answer this question, there are two key dimensions to consider including the degree to which a solution can potentially be a competitive differentiator and also the degree of enterprise integration of a solution.
Considering the potential for a solution to act as a competitive differentiator first, it is clear that some DX solutions can potentially have a significant impact on customer experience and will potentially become key to a company’s ability to compete and win business in the medium term. For these kinds of solution, ‘build’ can often be more appropriate than ‘buy’ since any adopter of this kind of solution will want the ability to specify exactly how a solution works and how functionality is developed in the long term in order to maintain competitive advantage. The last thing that such an adopter would want would be to deploy a solution that is relatively undifferentiated from baseline competitor offerings.
The second key dimension to consider is the degree of enterprise integration that is associated with the deployment of a specific solution. Or, conversely, to what degree is the solution essentially ‘standalone’. At one end of the scale a solution will become deeply integrated into core business processes (for instance AI-enabled accident and claims assessment for an insurance company based on footage from dashcams), whilst at the other end of the scale a solution could be effectively peripheral to the organisation and tactical in nature (for example a smart parking solution on a university campus).
Clearly there is interplay between these two key dimensions, but, as illustrated below, it can often be best to ‘build’ strategic solutions that are key for competitive differentiation and highly integrated into the organisation. Conversely, it can often be most appropriate to ‘buy’ solutions that have little impact on competitive positioning, and which are essentially peripheral to core business areas. Between these two extremes lie multiple combinations and permutations of potentially building, or buying, specific components of an overall solution. Clearly the best overall approach for any specific solution component can only ever be determined on a case-by-case basis, and often the ‘ideal’ approach for an overall solution will be a combination of build and buy.
[Source: Transforma Insights, 2021]
As you can see, there are many considerations to be taken into account when deciding whether to build or buy. One word of caution though: the future of digital transformation lies in platforms, standards (initially de facto, but perhaps ultimately de jure), and de-layering. A procurement bias towards buying in services and solution components from DXSPs that have demonstrated that they are in the game for the long haul would therefore help to ‘futureproof’ any deployed solution. The most mature technology adopters today will carefully manage their portfolio of technology service providers to ensure an efficient technical environment in the long term. The last thing that any technology adopter wants is a vast and disparate portfolio of niche providers supporting a range of effectively stove-pipe applications over the long term.
In our forthcoming webinar ‘How to choose a Digital Transformation Service Provider (DXSP)’ we will discuss the relative strengths of multiple DXSPs. The webinar will help companies understand the best process for selecting a technology partner and will provide insight on companies that are leading in the various aspects of supporting digital transformation, both technological (e.g. AI, distributed ledger, IoT and RPA) and functional (e.g. hardware, software and systems integration). The webinar is based on the extensive research undertaken for our recent 'Digital Transformation Service Provider (DXSP) Peer Benchmarking 2021' report, published in July 2021.