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Buy Build or Partner: Choosing the right inovation Strategy

Innovating a product is one of the most difficult things product managers face. Knowing how to innovate can make that even more difficult. Do you buy? Do you build it? Or do you Partner?

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Buy Build or Partner: Choosing the right inovation Strategy

  1. 1. Common Sense into Common Practice Build. Buy. Partner. Choosing the right innovation strategy
  2. 2. What you’re trying to solve How to innovate?  Create competitive differentiation  Fill gap in product technology  Offer a complete solution
  3. 3. 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.
  4. 4. BUILD ~ ~
  5. 5. 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
  6. 6. ~ BUY ~
  7. 7. 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.
  8. 8. 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?
  9. 9. ~ ~ PARTNER
  10. 10. 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…
  11. 11. 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.
  12. 12. The Fourth Option
  13. 13. 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?
  14. 14. 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.
  15. 15. Build — ☐ Pros✓  Most product control  Own the IP  Best opportunity for profit
  16. 16. Build — ☐ Cons  Longest time to market  Risk in market shifts  High development costs  Highest switching costs ✓
  17. 17. 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.
  18. 18. 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.
  19. 19.  Shorten time to market  Own the IP (maybe) Buy — ☐ Pros✓
  20. 20.  Acquisition costs  Integration costs Buy — ☐ Cons✓
  21. 21. 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
  22. 22. Partner — ☐ Pros  Shortest Time to Market  Conserves Resources  Try before you Buy  Lowest Switching Costs  Credibility and Access ✓
  23. 23. Partner — ☐ Cons  Least Control  Integration Costs  Shared Gross Margins  Least Profit Opportunity ✓
  24. 24. 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.
  25. 25. Build Buy Partner Decision Scale FACTORS Time to Market RiskLeadership Core to Business
  26. 26. Build Buy Partner Decision Scale Build FACTORS Time to Market RiskLeadership Core to Business
  27. 27. Build Buy Partner Decision Scale Buy FACTORS Time to Market RiskLeadership Core to Business
  28. 28. Build Buy Partner Decision Scale Partner FACTORS Time to Market Risk AversionLeadership Core to Business
  29. 29. Build~Buy~Partner Scale Partner Buy Build Risk Level Speed of Expansion Required Resource Availability Similarity Change in the Environment Slow Moderate Fast High to Moderate Low to Moderate Low High to Moderate SameHigh Slow High Similarity Moderate to Low Different Moderate Extensive
  30. 30. 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.
  31. 31. Rule of Thumb #2 Companies that use both acquisitions and alliances… grow faster than rivals do.
  32. 32. Rule of Thumb #3 Collaboration internally and externally with customers and partners is essential for innovative leadership going forward.
  33. 33. Thank you!

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