Should we buy or build? How to figure out when to outsource

It's the universal question that innovation managers always get asked: "Should we buy or build?"

The question is larger than tools, software and hardware, it stretches to all of the elements of 'capabilities' - Technology, Skills and Knowledge.

In order to figure what is best to outsource, and which parts are best to build internally (only parts: outsourcing an entire business is the road to being removed from a value chain) you need to understand your value chain, namely all the elements you need to create value for your customers.

This can be a long exhaustive chain of dependent capabilities, or you can leave it high-level, but the important thing is to build this chain with a collaborative group and discuss what is essential. It is a great way to get to grips with all the elements you thought you knew about but don't, and all the things you had no idea you needed...!

Once you have built your value chain, you can start working on how 'evolved' each element is. This is a concept used in Wardley mapping (that I've talked about before here), but can be tricky to figure out.

I often use a sort of flow chart in my head to get an idea of how evolved an element is:

These categories an also be a proxy for where work needs to happen - namely do we buy or built:

These are generalisations, and often a value chain is much more subtle. Decisions are often taken based on wider business view and also (although we try to avoid it) gut feeling of senior leaders. This rule-of-thumb flow chart may help you to justify/build a stronger case for buy or build.

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As always please let me know what you think - is this unworkable, or too dumbed-down?