In the past, companies evaluated whether to make components and parts themselves or buy them from suppliers largely by determining the total cost of ownership. Priority, risk, cost of shipments, labor, lead times, and market conditions were taken into account based on the status quo. But in today’s business environment, the “as-is” method of viewing a business through current marketplace conditions, manufacturing requirements, and supply chain availability is no longer sufficient. It is too reactive and shortsighted to overcome disruptions that are now endemic to virtually every industry in the form of competitors adopting the latest technology, rethinking product designs, or embracing innovative business models with novel ways of reaching customers.
To better deal with the disruption challenge, we offer a new strategic approach for the make-or-buy calculus: the coherent capability make-or-buy framework. This approach considers the impact of disruption on an industry’s value chain; examines which competitors, technologies, and business models pose the greatest threat in the immediate future; and analyzes which products and services will be most attractive to consumers in the coming years. From this more germane assessment, companies can determine how disruptive trends should color their make-or-buy decisions, whether they choose to compete in the transformed operating environment with a distinctive or innovative product or just maintain some level of market share as table stakes to remain a player in the industry. This analysis helps them identify critical products that must be made in-house to maintain a competitive and innovative edge versus those that can be outsourced more readily without harming growth prospects.
Clearly, the disruptions that companies in virtually every industry face today are forcing a reassessment of the value of make-or-buy strategies and are creating the dynamics for new types of partnerships between companies and suppliers that span the make-or-buy divide. New technology, product, and commercial upheavals are here to stay and will speed up in the short and long terms. As a result, companies will be dealing with a fresh set of make-or-buy decisions, which will be more complex than ever. Successful companies will be able to navigate these challenges by astutely forecasting how the competitive landscape will evolve over the next few years and by adopting the internal capabilities the organization needs to take full advantage of the appropriate approach — make, buy, or something in between.
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