Make vs Buy Innovation

In my professional life I faced multiple time the key dilemma of who leads an innovation journey:?Making?or?Buying Innovation.??In fact, once the innovation funnel is leading to the selection of specific innovation projects, the decision if developing them internally or leveraging external companies which are already working on pieces, parts or even entire solutions is crucial for the success of the company.

What we learned from our studies is that the “make vs buy decisions” are first of all “economic decisions”: is it more expensive to develop an innovation project with internal resources or to leverage external companies which are already working on parts of the solution? Rationally, our decision, assuming to achieve the same result, should be towards the cheaper option.

But the real world is more complex.?

First of all, beyond the economic decision, the make vs buy is a?strategic decision. Is the company looking to master the technologies which are enabling the implementation of the innovative solutions or such solutions are more tactical???Usually, mastering technologies is a concept associated with situations where companies are creating a sustainable competitive advantage over time thanks to the intellectual properties, not only patents but also trademarks, copyrights and finally, the most critical and important, trade secrets. At the end, the word “mastering” is translated in a long-term innovation journey which is associated to the creation of Innovation Platforms which are represented by the execution of a series of Innovation Projects along different years. At the contrary when the solution is represented by a single Innovation Project, and consequently when time is representing the competitive advantage, then being in the market in the shortest time possible is the real discriminant. In this case nobody wants to lose time in internal discussion on budget approval, resources allocation, projects prioritization and it is better to fish in the market for parts and pieces of the solution, leaving internally just the last mile integration.

But even if this looks like a simple decision, there is a big problem. Bringing parts and pieces from outside to inside is difficult due to the different cultures among the parties and the natural “not invented here” critics which are killing promising solutions.?

The “not invented here” is the result of two main psychological biases: the first is the ego of people who thinks they are smarter of anybody else, the second is the fear of people who thinks that implementing solutions coming from outside the company is putting their job at risk.

On top of that, the CEO are facing internal political wars where usually the Profit Centers (aka Sales, Marketing) are complaining for the higher cost and slowness of the Cost Centers (aka R&D, Production) in developing new innovative solutions and are more in favor to?Buy Innovation?while, at the contrary, the cost centers are pushing back raising the lack of translation by the profit centers of the needs of the market in clear specification and are more in favor to?Make Innovation.

Finally, in moment of difficult macroeconomics conditions, Make Innovation is emotionally translated in fixed cost with less (painful and costly) capability to tune it based on the external environment while Buy Innovation is considered a full variable expense with a higher degree of freedom against externalities.?

Make vs Buy Innovation is a very complex decision where hard numbers are mixed with company culture and psychological attitude. Just who is mastering such complex landscape has the right playbook to navigate it and take the right decision.?