Blueprint

Build vs Buy : a framework for decision

The crucial Build vs. Buy decision for CPOs

The decision of whether to build or buy software solutions has become increasingly complex in today’s dynamic business environment. CPOs face the challenge of balancing speed, cost, customization, and control while aligning technology investments with strategic objectives. This report examines the evolving landscape of the build vs. buy decision, exploring historical context, industry trends, key pain points, and emerging hybrid approaches. By analyzing real-world case studies and providing a structured decision-making framework, this report equips CPOs with the tools and insights needed to navigate this critical decision effectively and maximize ROI.

tl;dr

The build vs. buy decision is a strategic imperative for CPOs in today’s rapidly evolving technological landscape. A structured approach, considering both immediate and long-term implications, is crucial for maximizing ROI and aligning software solutions with business strategy. The GSO framework (Grow, Scale, Optimize), combined with a thorough evaluation of cost, internal capabilities, time-to-market, and vendor lock-in, provides a robust foundation for decision-making.

DimensionBuildBuyHybrid
SpeedSlowerFasterModerate
CostPotentially higher upfront, lower long-termLower upfront, potentially higher long-termModerate
CustomizationHighLow to ModerateModerate to High
ControlHighLowModerate
ScalabilityHigh, dependent on designLow, dependent on vendorModerate to High
Vendor Lock-inNonePotential RiskLow to Moderate
Core Competency DevelopmentPotential for growthLimitedPotential for targeted growth

Moving forward, CPOs should prioritize the following:

  1. Establish clear evaluation criteria: Define specific metrics aligned with business objectives to assess build vs. buy options.
  2. Conduct thorough due diligence: Evaluate both internal capabilities and external vendor offerings, considering both quantitative and qualitative factors.
  3. Embrace hybrid approaches: Explore opportunities to combine build and buy strategies to leverage the strengths of each approach.
  4. Foster collaboration: Engage stakeholders from across the organization to ensure alignment and gather diverse perspectives.
  5. Continuously re-evaluate: The build vs. buy decision is not static. Regularly reassess existing solutions and adapt strategies as business needs evolve. The rise of low-code/no-code platforms and the increasing availability of specialized SaaS offerings further emphasize the need for ongoing evaluation and strategic flexibility.

Historical context and industry trends

The “build vs. buy” decision for software has evolved from a simple cost comparison to a complex strategic consideration encompassing factors like time-to-market, scalability, security, and vendor lock-in. Historically, the decision revolved around whether an organization had the in-house expertise and resources to develop software from scratch. Pre-cloud era, building was often the only option for specialized needs, despite the high upfront costs and long development timelines. The emergence of Software-as-a-Service (SaaS) and cloud computing significantly shifted this landscape.

The rise of SaaS and cloud computing

The proliferation of SaaS offerings provided readily available, scalable solutions for common business needs like CRM (e.g., Salesforce), ERP, and e-commerce (e.g., Shopify). This reduced the need for extensive in-house development for non-differentiating functionalities. Cloud platforms like AWS and Azure further lowered the barrier to entry for building custom software by providing on-demand infrastructure and managed services. This enabled startups and smaller companies to access enterprise-grade resources without significant capital expenditure. However, this also introduced new complexities like vendor management, security in the cloud, and integration challenges.

Key pain points and blockers

Organizations face several key pain points when navigating the build vs. buy decision:

  • Accurately estimating TCO: Calculating the total cost of ownership for both build and buy options is challenging. Building involves upfront development costs, ongoing maintenance, and potential refactoring expenses. Buying entails subscription fees, integration costs, and potential customization expenses.
  • Assessing long-term scalability: Predicting future needs and ensuring the chosen solution can scale accordingly is difficult. Building offers greater control over scalability but requires careful planning and architecture. Buying relies on the vendor’s roadmap and may involve limitations or additional costs for scaling.
  • Managing vendor lock-in: Relying on a vendor for critical software can create dependencies that limit flexibility and increase switching costs. Organizations must carefully evaluate vendor contracts, SLAs, and exit strategies.
  • Ensuring data security and compliance: Whether building or buying, organizations are responsible for protecting sensitive data and complying with relevant regulations. This requires robust security measures, data governance policies, and ongoing monitoring.
  • Balancing speed and customization: Buying offers faster time-to-market but may compromise on customization. Building allows for tailored solutions but requires longer development cycles. Organizations must prioritize based on their specific needs and market dynamics. For example, Netflix initially used a third-party CDN but ultimately built its own (Open Connect) to address specific scalability and performance requirements for video streaming.

The emergence of hybrid approaches

To address these challenges, many organizations are adopting hybrid approaches. This might involve buying a commercial platform and customizing it to meet specific needs, or building core functionalities in-house while leveraging SaaS for supporting functions. Low-code/no-code platforms are also gaining traction, enabling faster development of custom applications with reduced coding effort. These platforms offer a middle ground between building and buying, allowing organizations to balance speed, customization, and cost.

Case studies and outcomes

CPOs must prioritize strategic alignment, total cost of ownership (TCO), and internal capabilities when evaluating build vs. buy decisions. A hybrid approach often provides the most effective path to maximizing value and minimizing risk.

Procurement analytics : Mondelēz international’s transition to Sievo

Mondelēz International, a global snack food leader, offers a compelling case study in procurement analytics. Initially, Mondelēz developed an in-house analytics solution. However, as their needs evolved, they transitioned to Sievo, a purpose-built procurement analytics platform. This shift, detailed in a December 2024 webinar (“Navigating the Build vs Buy Decision in Procurement Analytics with Hackett Group and Mondelez,” Sievo), demonstrates the dynamic nature of build vs. buy decisions. While the initial build phase allowed for customized functionality, maintaining and scaling the in-house solution proved challenging. Sievo provided a more robust, scalable platform with specialized features, including CO2 analytics and diversity analytics, aligning with Mondelēz’s broader sustainability goals. This transition allowed Mondelēz to refocus internal resources on core business functions while leveraging Sievo’s expertise in procurement analytics. While specific metrics were not available in the source material, the case study highlights the importance of long-term strategic planning and the potential benefits of transitioning from a build to a buy approach when circumstances warrant.

Key considerations

  • Alignment with business strategy: Does the solution directly support core business objectives or is it a supporting function? Building solutions aligned with core differentiators often yields greater long-term value. (Source: Architectural Principles: Build vs. Buy - AKF Partners)
  • Total Cost of Ownership (TCO): Evaluate not just initial development costs, but also ongoing maintenance, licensing fees, integration expenses, and potential vendor lock-in. (Source: Build vs Buy Software: The Definitive Framework for 2025 - HatchWorks)
  • Internal capabilities: Does the organization possess the necessary technical expertise and resources to build and maintain a custom solution? If not, buying or a hybrid approach may be more suitable. (Source: Procurement actions for CPOs in 2024 - McKinsey & Company)
  • Time to market: Buying generally offers faster deployment, but building can provide greater long-term flexibility and customization. Prioritize speed if market timing is critical. (Source: Build Vs. Buy: Top Six Considerations For Your Tech Solution - Forbes)
  • Scalability and flexibility: Ensure the chosen solution can adapt to future business growth and evolving needs. Building often provides greater scalability and customization options. (Source: Build vs Buy: A Decision Framework for Business Software in 2024 - LinkedIn)

Framework proposition

A structured approach to the build vs. buy decision is crucial for maximizing ROI and aligning software solutions with business strategy. Here is a framework proposition to navigate this complex decision effectively.

GSO framework and key dimensions

The first step is to identify the primary objective using the GSO (Grow, Scale, Optimize) framework. This clarifies the core purpose of the software solution. A 2x2 matrix can be used to prioritize among these objectives. Next, evaluate the following key dimensions, standardizing costs to a common metric (e.g., cost per dollar of revenue):

  • Cost to Build: Include immediate and long-term expenses.
  • Cost to Maintain: Consider the ongoing resources and budget required.
  • Cost to Buy: Factor in one-time and recurring subscription costs, plus integration and management resources.
  • Core Expertise: Assess the necessary expertise for building and maintaining the system.
  • Business Criticality and Market Offering Maturity: Determine the system’s importance to core product functionality and the availability of mature market offerings.

Decision-making process

  1. Define the problem: Clearly articulate the business need or challenge.
  2. Research market offerings: Investigate existing solutions and their capabilities.
  3. Assess internal capabilities: Evaluate in-house expertise and resources.
  4. Consider Time-To-Market: Balance speed with long-term needs.
  5. Evaluate flexibility and customization: Determine the level of customization required.
  6. Think long-term: Consider scalability and future maintenance needs.
  7. Calculate Total Cost of Ownership (TCO): Analyze the total cost over time for both build and buy options.
  8. Consider regulatory and compliance: Address industry-specific requirements.
  9. Evaluate vendor lock-in: Assess the potential risks and costs associated with vendor dependency.
  10. Run a pilot or Proof of Concept: Test the chosen approach before full commitment.

Case study #2: Fraud prevention system

A company evaluating a fraud prevention system would likely prioritize “Optimize” within the GSO framework. Building such a system requires significant investment and specialized expertise (potentially 50+ experts). Given the high business criticality and the availability of mature market offerings, buying a solution is often more strategic. Buying provides access to broader data networks, improved fraud detection, and economies of scale. This allows faster adaptation to new fraud trends and reduces the burden on internal resources.

Sources