Many of the decisions business managers face center on the employment of three finite resources: people, time and money. Business owners and managers are always trying to determine the best combination of these three key ingredients when making their “secret sauce” a.k.a. their competitive advantage. Managers know that all the capital in the world can be squandered without the right tools and talent. The same can be said for tools and talent if you lack the time to invest in a project. Would you prefer to occupy a building hastily constructed, or one where each brick was laid with care and precision?
In the classic management book, Good to Great, James C. Collins presents his theory about why some companies make the transition from being good to becoming great companies, able to stand the test of time. If you haven’t read the book, you should; in the meantime, spoiler alert: Collins concludes that by focusing narrowly the finite recourse of a company on its key competency, the company is more likely to make the leap from “good to great”.
The decision about whether to build or buy a business capability strikes at the heart of Collins’ book. What might the Collins think of a management decision that diverts resources away from the company’s core capability in order to build a tool ultimately intended to support its core capability?
Collins might pause and think for a moment. He might whip out a sheet of paper and begin to evaluate a weighted distribution of the limited resources at the disposal of the management team. How much capital is immediately available? What are short term interest rates? Does the company have the people with the right skills to build what the management team needs and are those people currently idle? Or will the company need to hire individuals already trained with the requisite skills? How long will it take to build desired capability and does the company have that kind of time? Equally as important: Collins would evaluate the opportunity cost of investing limited resources: what else could the company be doing with the people, money and time it is diverting away from its core competency?
In the end, Collins may support an investment in building the tool, but I suspect he would remain steadfast on his belief that diverting a company’s resources away from its core competency is the death knell for a company trying to carve out market share, differentiate from competitors and go from good to great. Why build a solution from scratch when instead management could focus on building a team and a culture that supports its core mission? Why not buy a tool, at the expense of one resource, rather than build the tool at the expense of all three?
There are pros and cons for both building and buying a business capability. Whether it is IT support, a manufacturing capability, or the development of a specialty software Collins could justify building and buying. But when it comes to building an advanced application capable of creating compliance workflows in the digital environment, the reasons for leaving that to the experts far outweigh the reasons for trying to tackle that challenge yourself. Click below to talk to an expert.