Buy vs. Build: Weighing the Decision for IT Platforms and Solutions

When an organisation faces the need for a new platform or solution, one of the most critical decisions is whether to buy an existing product or build one in-house. This choice is often complex, requiring a thorough assessment of multiple factors. In this blog post, we will explore the reasoning and considerations behind the "buy versus build" decision, drawing on academic views and real-world examples. We will also discuss the pros and cons of each approach and the types of assessments organisations can conduct to make an informed decision. At Fifty Four Degrees North we have a lot of experience in both off the shelf and in house built solutions across the IT sphere from CRM, Sales enablement tools, Digital tools, product tools, data solutions to IOT physical device capability. We know through this experience the considerations and have summarised some of these in this blog post.

Understanding the Buy vs. Build Dilemma

The decision to buy or build is fundamentally about resource allocation and strategic alignment. When considering this choice, organisations must assess their unique needs, capabilities, and long-term goals. The decision often hinges on factors such as cost, time, control, flexibility, and risk.

Buying an existing solution involves purchasing a ready-made product or platform from a third-party vendor. This approach typically offers a quicker implementation process and access to vendor support. However, it may involve trade-offs in terms of customisation and control.

Building a solution in-house, on the other hand, allows an organisation to create a product tailored to its specific needs. This approach can offer greater control and flexibility but often requires more time, money, and internal resources.

Academic Perspectives on Buy vs. Build

Academics have studied the buy versus build decision extensively, often framing it within the broader context of transaction cost economics and strategic management.

Transaction Cost Economics (TCE) suggests that the decision to buy or build depends on the comparative costs of contracting externally versus managing internally. Ronald Coase's work, for instance, emphasises the costs associated with negotiating, monitoring, and enforcing contracts when dealing with external vendors. If these transaction costs are high, building in-house may be more advantageous.

Strategic Management theories, particularly the Resource-Based View (RBV), focus on an organisation's internal capabilities. According to RBV, organisations should build solutions when they have unique capabilities or resources that can provide a competitive advantage. Conversely, if the required capabilities are not core to the organisation’s strategy, buying may be more cost-effective and efficient.

Software Engineering literature often discusses the trade-offs between buying and building in terms of software quality, maintainability, and scalability. For example, Barry Boehm's "Build vs. Buy: A Spiral Model Approach" highlights the importance of iterative evaluation, where organisations can incrementally assess whether to buy or build as they better understand their needs and the available options.

Pros and Cons of Buying

Pros:

1. Faster Deployment: Buying an off-the-shelf solution allows organisations to implement the system quickly, which can be critical when time-to-market is a priority.

2. Lower Initial Costs: Purchasing an existing solution often involves lower upfront costs compared to building one from scratch, as development and testing have already been completed by the vendor.

3. Vendor Support: Buying typically comes with access to vendor support, updates, and maintenance, which can reduce the burden on internal IT teams.

4. Proven Reliability: Established products often come with a track record of success, reducing the risk of unforeseen issues.

Cons:

1. Limited Customisation: Off-the-shelf solutions may not fully meet the organisation’s unique requirements, leading to compromises or the need for additional customisation.

2. Vendor Dependency: Relying on an external vendor can create dependency, especially if the vendor controls critical updates or future developments.

3. Licensing Costs: Ongoing licensing fees can accumulate, potentially leading to higher long-term costs compared to a one-time development investment.

4. Integration Challenges: Integrating a purchased solution with existing systems can be complex, particularly if the solution is not designed with interoperability in mind.

Pros and Cons of Building

Pros:

1. Customisation: Building a solution allows for a tailor-made product that aligns perfectly with the organisation’s specific needs and processes.

2. Control: Organisations have full control over the development process, updates, and future enhancements, ensuring that the solution evolves with the business.

3. Competitive Advantage: A custom-built solution can offer unique features that provide a competitive edge in the market.

4. Long-Term Cost Efficiency: While the initial investment is higher, a custom solution may reduce long-term costs by eliminating licensing fees and reducing dependency on external vendors.

Cons:

1. Higher Upfront Costs: Developing a solution in-house requires significant investment in time, money, and human resources, which can be a barrier for smaller organisations.

2. Longer Development Time: Building a solution from scratch is a time-consuming process, which may delay the project’s time-to-market.

3. Maintenance Burden: Once the solution is built, the organisation is responsible for ongoing maintenance, updates, and bug fixes, which requires continuous resource allocation.

4. Risk of Failure: There is a higher risk of project failure with custom-built solutions, especially if the organisation lacks the necessary expertise or project management skills.

   
   

Assessment Strategies for Decision-Making

To make an informed buy versus build decision, organisations should conduct a thorough assessment that considers both qualitative and quantitative factors. Below are key assessment strategies:

1. Cost-Benefit Analysis (CBA): A CBA involves comparing the total costs of buying versus building, including initial costs, ongoing expenses, and potential savings. This analysis should also factor in opportunity costs, such as the time and resources that could be allocated to other projects if a solution is purchased rather than built.

   
   

2. Strategic Alignment Assessment: This assessment evaluates how well the solution aligns with the organisation’s long-term goals and core competencies. If the solution is critical to the organisation’s strategic objectives, building in-house might be preferred.

   
   

3. Risk Assessment: Organisations should assess the risks associated with each option, including technical risks, vendor risks, and market risks. This includes evaluating the stability and reputation of potential vendors, the likelihood of project delays or failures, and the potential impact on business operations.

   
   

4. Scalability and Flexibility Analysis: This analysis examines the solution's ability to scale with the organisation’s growth and adapt to future needs. Custom-built solutions often offer greater flexibility, but off-the-shelf products might provide quicker scalability through established frameworks.

   
   

5. Vendor Evaluation: For the buy option, organisations should conduct a thorough evaluation of potential vendors, considering factors such as vendor experience, product roadmap, customer support, and user reviews. This helps mitigate the risks associated with vendor dependency.

   
   

6. Proof of Concept (PoC) and Prototyping: Before committing to either option, organisations can develop a proof of concept or prototype to test feasibility and gather feedback. This iterative approach allows for better decision-making based on real-world insights.

   
   

7. Technical Debt Assessment: Building a solution in-house may accumulate technical debt over time, particularly if the development process is rushed or lacks proper documentation. Organisations should assess the potential for technical debt and plan for its management.

   
   

The decision to buy or build a platform or solution is a significant one, with far-reaching implications for an organisation’s operations, strategy, and financial health. By carefully considering the pros and cons of each approach and conducting thorough assessments, organisations can make a choice that aligns with their unique needs and long-term goals.

Ultimately, the best decision will depend on a variety of factors, including the organisation’s resources, expertise, and strategic priorities. Whether buying or building, the key is to approach the decision with a clear understanding of the trade-offs involved and a commitment to aligning the choice with the organisation’s overall mission and vision.

This decision-making process not only impacts the immediate project but also sets the foundation for how the organisation will adapt to future challenges and opportunities in the rapidly evolving technological landscape.