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How to Decide Whether to Build In-House, Buy an Existing Solution or Partner With Another Company

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How to Decide Whether to Build In-House, Buy an Existing Solution or Partner With Another Company

When should a company build, buy or partner? Here’s what you need to know.

The challenge of when a company needs to develop a capability it doesn’t currently possess poses a management question. The analysis starts with a financial comparison. Management calculates the cost of developing internally, compares it with the price of purchasing an existing solution and selects the option with the more attractive projected return.

The analysis, however, runs the risk of reducing a strategic decision to a procurement exercise. In practice, companies can choose to build the capability themselves, buy it through a product, platform or acquisition, or partner with another organization that already possesses it.

I’ve encountered versions of this problem across banking, fintech, technology, construction and financial services, including technology modernization and system conversions, M&A work and the development and pricing of financial products.

The details and economics widely vary, but the strategic question underneath is consistent. Companies should assess what they actually need and then work towards the best answer to fulfill that need based on a larger strategic vision.

Building internally makes sense when a capability is sufficiently important to competitive differentiation that management wants to control how it evolves. 

This can apply to technology, intellectual property , operating processes or specialized expertise. If a capability determines why a customer chooses the company over competitors, then an outside provider may limit the ability of the company to differentiate. Internal development allows the company to shape the capability around its strategy rather than shaping its strategy around what the market offers.


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