When Developing Smart Solutions, Should You Build, Buy, or Partner?

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When-Developing-Smart-Solutions-Should-You-Build-Buy-or-Partner

The Internet of Things (IoT) enables vendors to create an entirely new line of “smart” solutions for its existing and new markets. While the decision to go “smart” is straightforward, the decision of how to go “smart” is less obvious.

Vendors are faced with three strategic options – build it themselves, buy and integrate technology, or partner with another organization and go to market together. This article discusses some of the key considerations managers must examine in order to make the decision that is most appropriate for them.

Going “Smart” is a Strategic Decision

For many vendors, IoT means adding a technology layer to products that never had any before. Even for tech savvy vendors, IoT presents a whole new set of technologies that they are less familiar with. Equally important, IoT is not just technology, but includes data, security, user experience, and business/business model elements.

Figure One shows an IoT product management framework developed by Daniel Elizalde of TechProductManagement. A company going “smart” has a lot of decisions to make, of which technology is just one component.

Figure 1. IoT Product Management Framework. Source: TechProductManagement.

The framework shows that the “build, buy, partner” decision is multi-dimensional. There are six decision areas, spread across components from the edge to the user applications. Each represents a different “build, buy, partner” decision point, and each takes the company down a different path (Table One).

In today’s fragmented and dynamic IoT ecosystem, many companies will need to “build, buy, partner” simultaneously. For example, cybersecurity is a specialized field that many vendors cannot address on their own, and must buy or license for their solution. The actual proportion of “build, buy, partner” each vendor does varies based on their specific situations.

DescriptionProsCons
BuildCreate the solution yourself with the resources you own, control or contract to.
  • Maximum control of functionality and development
  • IP ownership and protection
  • Longer time to market
  • Additional resources and capital requirements
  • Management oversight
  • Development risk
BuyProcure all or part of the components from a third party. Includes licensing technology, acquiring a company (all or part) for its technology.
  • Faster time to market
  • Effective resource use
  • Minimized execution risk
  • Loss of control – functionality, product roadmap alignment
  • Loss of agility and responsiveness
PartnerAlly with a complementary solution or service provider to integrate and offer a joint solution.
  • Pursue an opportunity that neither could do alone
  • Faster time to market
  • Access to specialized knowledge and skills
  • Loss of control – dependence on partners
  • More management complexity
  • Integration complexity

Table One. Build, buy and partner options.

Management Considerations

Executives and managers must base their decision along three dimensions – execution, strategy, and transformation.

The first dimension focuses on the company’s ability to execute successfully. Managers must audit and assess their capabilities and resources to answer the following questions:

  • Do I have the necessary skills in-house to successfully develop, test, support, and operate an IoT enabled “smart” solution and business (Figure One)?
  • Do I have the right human, capital, financial, and management resources to do this? Is this the best use of my resources relative to other initiatives and projects?
  • What am I willing to commit, sacrifice, and re-prioritize to see this through? Am I willing to redeploy top management and company resources? How long am I willing to do this?
  • How much budget and resources am I willing to commit?
  • Is there anyone that can do it better than me? Does it make sense for me to do it? What am I willing to do and not do?
  • What infrastructure (processes, policies, systems) do I have, or need to build, maintain, support, and operate these new solutions?

The second dimension relates to the company’s current and future strategic needs. These are company specific as it relates to its current situation, its customer and channel, and its position within the industry. Key considerations to be addressed include:

  • How does going “smart” align with the company’s vision and strategy? Which parts align and which doesn’t? Does the vision and strategy need to be updated to reflect the realities of going “smart”?
  • How important is time to market? Do I need or want to be a first mover? How long will it take to execute with the resources that I have?
  • Am I trying to reach existing or new markets? Do I understand their needs well enough that I can execute on meeting it?
  • Do I have any critical proprietary technology, processes, and other intellectual property that I need to protect?
  • What are the risks? How much risk am I willing to tolerate? What are the costs of those risks? How much risk can I mitigate with my current capabilities?
  • How much control do I want or need to go “smart”? What areas do I want to control myself and how? What are the costs of control, and can I afford it?
  • What is your real value to customers and your channel? Why do they buy from you, and why do they come back? What do you do well?

The third dimension is the company’s ability to manage transformation. Going “smart” doesn’t stop with the technology. The entire organization, its operations, policies, systems, and business models must transform to support and operate the “smart” business. Furthermore, resellers and service channels, and suppliers and partners, are also impacted.

  • What is your corporate culture and how well does it support change? Do you have the right people to manage and sustain this change? Are you nimble and agile?
  • What degree of disruption is there be to internal processes, channels, organization readiness, and business models? How agile are your current capabilities?
  • How prepared are you to operate a “smart” business? Do you have the skills and infrastructure required? Can you support a recurring revenue business model? How willing are you to invest in order to develop and sustain these capabilities?

What Should You Do Next?

Each company is unique, and its situation will dictate its response to these dimensions. There is no one “right” universal answer. Equally important, what’s right today may not be right tomorrow. Companies that want to go “smart” should start by looking inward first and doing the following:

  1. Establish a current baseline. Audit and catalog current and planned offerings, strategy, human resources and skill sets, channel and suppliers, internal operations and policies, and culture.
  2. Evaluate the IoT product management stack (Figure One) against your baseline using the three “smart” dimensions. The list of questions listed are starter questions, but answering those will lead to more questions to be addressed.
  3. Evaluate and assess your company’s future state capabilities against the baseline using the three “smart” dimensions. Understand where the gaps are, and the extent of those gaps.
  4. Identify your risk tolerance level. Going “smart” is not without risk, especially if you have never done it before. The key is to identify what and how much risk you are willing to take. Once you do so, you can develop a risk management plan and incorporate the appropriate tactics to manage it.
  5. Update your business vision and strategy as applicable.
  6. Develop your “build, buy, or partner” decision and strategy. This strategy must align to the broader business vision and strategy.