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By Peter Longini
 When it comes to introducing new products, components, and distinctive business solutions, there’s nothing like being first to market. And there are different ways you can get there. They include: building it yourself, buying it from someone else, or partnering with another organization that may already have worked on developing the item. All of those approaches can work. But, like every business strategy, they each have drawbacks including cost, time to market, sovereignty, business relationships, and more. So determining which would work best for any particular organization requires a bit of analysis.
Desiree Wolfe, Manager of Product Management for FiServ, a $5 billion Wisconsin-based technology company serving the financial industry, is responsible for her company’s Agent Electronic Payment business product line. And an important part of that responsibility involves deciding how to move different innovations out of development and into the marketplace. As a result, she has formulated a toolkit to help make the build/buy/partner determination in a more disciplined fashion.
It begins with an in-depth understanding of who you are and what an optimal portfolio for your company would really look like. “You need to have certain fundamentals down,” according to Wolfe. “You need to know your market – your position versus the competitor’s. It’s what I call your ‘product franchise,’ and that’s whether you have a real competitive advantage instead of what I call ‘distinctive competence.’ Then, based on where you sit, where your competitors sit, and what you do best, you’re able to look at your roadmap and see all the places you should be, and whether your current portfolio actually reflects that.”
If your analysis shows that you currently have components in market segments where you don’t really have much of a franchise, it may be a good opportunity to sell them. If there are gaps in your product lineup where you are otherwise strong, and your roadmap accurately reflects your market position and strengths, you can identify opportunities to move forward. “That’s where you build your business case for all the things you want to create,” she said.
Graphic Tools
“There are two tools I like to use,” Wolfe said. “One I call ‘Industry Mapping.’ Whether it’s a service or a physical product, you define each type of offering, what industry it falls into, and all the products in the value chain which are part of that industry.”
As an example, she points to the personal computer business, which includes hardware, peripherals, operating software, and application software. Your company may only operate in one small segment of that market. But mapping will help determine where you are playing relative to where your competitors are, she said.
“Then I have what I call a ‘Product Wheel.’ In the center, you have your core business. And from there, you look at ways you could branch out. Whether it’s a new customer segment, a new channel, a new solution offering, a new geography, or just going up or down on that value chain. That’s why you also need the industry mapping,” she explained.
In a highly competitive market, most companies have something distinctive – something they do better than the competition which earned their share of the market. It could be price, service, features, location, support – essentially anything that can be parlayed into an advantage. It’s what Wolfe calls ‘distinctive competence’ and its significance comes from giving a clear understanding of where your real strengths lie and helping you determine how much is sensible to spend on extending your product line or augmenting current products in other ways.
Keeping Ahead
Here’s how it could work: “Let’s say you have a competitive advantage you can defend,” she suggests. “And you identify a product, a feature, a functionality, a service missing from the marketplace that you now want to develop. When you’re a market leader and there are smaller companies around you, your job is to defend your position; that gives you license to spend more on this product. It also gives you an incentive to make that technology as proprietary as possible, because you don’t want your competitors to get it or to share it in any way. So, in essence, that’s a build decision.
“Because you are the market leader, you already have some customer captivity or allegiance. If you have, say, 25 percent more market share than any other player, you are likely to find that your customers will give you some license to catch up,” she said.
“Even if a new startup comes along with something your customers like, they will probably look to you to introduce something comparable. So time to market is not quite as critical for a leader. But if you’re a large, leading company, you have more to defend. It gives you license to keep things more proprietary, to acquire more and spend more, because you’re maintaining that lead.”
Strictly Business
The next step is building your business case. “You’re creating a case that says, if you had this offering, if you had this product, it would create this much value for the company. So start by capturing what would be involved with building – the costs of the goods, the variable costs, any legal costs – all of the expenses that go into building that solution. Make sure your build-it-yourself scenario addresses all the other points in your business case, too. For example, time to market. So if it’s an item that has strong holiday sales, determine when that solution would become available in your build scenario. That then becomes your base.”
Start with what you figure it would cost to build internally. “It takes this many development hours, this many QA hours, a duration of at least five months – whatever. That creates a number,” she suggests. “Then say, Ok, if I were to buy, who could I buy it from?
“But there’s something else you’ll need to add. The raw numbers will say it’s cheaper to build than to buy, but that it’s faster to buy than to build. So you need to know what the value of speed would actually be, because that’s how you evaluate your options,” Wolfe said. “The ideal scenario would be if all your competitors and companies with complementary technologies were to play fair. In a perfect world, the market would look like thus and such. Then I can compare the cost to build against the cost of buying or partnering to get into that market. Partnering would require less of a financial outlay than building or buying, but you’re weighing that against all the things that partnering might not give you.”
Partner Predicaments
However, even if a partnership arrangement made sense philosophically, the practical problems it entails can scuttle an otherwise attractive pairing. One is that the partner which acquires the other’s technology may not have the in-depth proprietary knowledge that it would if it had created the item itself. Even more important, however, is working out ahead of time how to divide the proceeds from a joint venture. Many partnerships have foundered over the issue of sharing the benefits.
“It may cost you a lot to build, and perhaps even more to buy. And getting partnerships legalized takes a lot of time,” she said. “But in practice, you have strategic considerations that you can apply to each formula. There’s a major retailer, for example, which is a client of FiServe,” she noted. “But because that relationship is so proprietary, we would probably make a strategic decision to build simply because we wouldn’t want to expose it to another partner.
“So my advice: Build if you need the proprietary knowledge, Buy if you need time to market, and Partner if you can’t get it any other way.”
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