Flevy Management Insights Q&A

How should companies evaluate the scalability of Build vs. Buy options in their IT strategy?

     Joseph Robinson    |    Build vs. Buy


This article provides a detailed response to: How should companies evaluate the scalability of Build vs. Buy options in their IT strategy? For a comprehensive understanding of Build vs. Buy, we also include relevant case studies for further reading and links to Build vs. Buy best practice resources.

TLDR Companies should evaluate Build vs. Buy options in IT strategy by analyzing strategic implications, cost, resource needs, and scalability to align with business objectives and technological requirements.

Reading time: 5 minutes

Before we begin, let's review some important management concepts, as they relate to this question.

What does Scalability mean?
What does Total Cost of Ownership mean?
What does Strategic Alignment mean?


Evaluating the scalability of Build vs. Buy options in an organization's IT strategy is a critical decision that can significantly impact its operational efficiency, innovation capabilities, and competitive edge. This decision-making process involves analyzing various factors such as cost, time to market, customization needs, and long-term strategic goals. By carefully considering these elements, organizations can make informed choices that align with their business objectives and technological requirements.

Understanding the Strategic Implications

When considering Build vs. Buy, organizations must first understand the strategic implications of each option. Building custom solutions allows for tailored features and functionalities that precisely meet specific business needs. It offers greater control over the development process, potentially leading to a competitive advantage if the solution significantly enhances operational efficiency or customer experience. However, this approach requires significant investment in terms of time, resources, and expertise. According to Gartner, custom-built solutions can lead to higher long-term maintenance costs and may pose scalability challenges as the organization grows and its needs evolve.

On the other hand, buying off-the-shelf software can be more cost-effective and allows for quicker implementation. Vendors often provide continuous updates and support, reducing the burden on internal IT staff. However, organizations may face limitations in terms of customization and dependency on the vendor for critical updates and feature enhancements. A study by McKinsey highlighted that companies prioritizing speed and efficiency in their digital transformation efforts often favor buying solutions to leverage existing technologies and accelerate time to value.

Strategic Planning plays a crucial role in this decision-making process. Organizations must align their IT strategy with their overall business strategy, considering how the Build or Buy decision will support their long-term goals. For instance, a company focusing on innovation and market differentiation might lean towards building custom solutions, while a company aiming for quick market entry and operational efficiency might prefer buying.

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Assessing Cost and Resource Implications

Cost is a pivotal factor in the Build vs. Buy decision. Building custom IT solutions often requires upfront investment in development, which includes hiring skilled developers, investing in technology infrastructure, and allocating resources for ongoing maintenance and support. According to Deloitte, the total cost of ownership for custom-built software must include not only initial development costs but also long-term expenses related to upgrades, security, compliance, and scalability. These costs can be significant, especially for complex projects or those requiring cutting-edge technology expertise.

Conversely, buying software typically involves licensing fees, subscription costs, and potentially, costs for additional customization or integration services. While the initial expenditure may be lower compared to building, organizations need to consider the total cost of ownership over the software's lifecycle, including upgrade and support costs. PwC reports that organizations often underestimate the long-term costs associated with bought solutions, particularly when they require extensive customization to fit the company's needs.

Resource implications also play a critical role. Organizations must assess their internal capabilities and determine whether they have the necessary skills and expertise to develop and maintain a custom solution. If not, the costs and time required to build these capabilities or hire external talent must be factored into the decision. For bought solutions, the focus shifts to evaluating the vendor's ability to provide reliable support and continuous innovation to meet the organization's evolving needs.

Evaluating Scalability and Flexibility

Scalability is a key consideration in the Build vs. Buy debate. Organizations need solutions that can grow and adapt as their business evolves. Custom-built solutions offer the benefit of being designed with specific scalability requirements in mind. However, achieving this requires foresight and a deep understanding of future needs, which can be challenging to predict accurately. Accenture's research indicates that scalable custom solutions necessitate a modular architecture that allows for easy adaptation and integration with new technologies, a task that requires significant architectural expertise.

Buying software, while potentially less flexible in terms of customization, often provides scalability through vendor-managed updates and cloud-based solutions. Vendors typically invest heavily in ensuring their products can scale to meet the demands of a broad customer base, which can benefit organizations without the need to invest directly in scalability features. According to Forrester, leveraging cloud-based SaaS solutions can significantly reduce scalability concerns, as these platforms are designed to handle varying levels of demand and can be easily adjusted to meet changing business requirements.

Ultimately, the decision to build or buy should be based on a comprehensive analysis of the organization's current and future needs, strategic goals, cost considerations, and internal capabilities. Real-world examples, such as Netflix's decision to build its content delivery network (CDN) to ensure optimal streaming performance worldwide, illustrate the benefits of custom solutions for specific strategic needs. Conversely, small to medium-sized enterprises (SMEs) often find value in buying SaaS solutions to manage their CRM or ERP needs, benefiting from the scalability and efficiency these solutions offer without the need for significant upfront investment in development.

Best Practices in Build vs. Buy

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Build vs. Buy Case Studies

For a practical understanding of Build vs. Buy, take a look at these case studies.

Defense Procurement Strategy for Aerospace Components

Scenario: The organization is a major player in the aerospace defense sector, grappling with the decision to make or buy critical components.

Read Full Case Study

Build vs. Buy Decision Framework for Semiconductor Manufacturer

Scenario: A semiconductor firm in the highly competitive technology sector is grappling with the strategic decision of building in-house capabilities versus buying or licensing from external sources.

Read Full Case Study

Telecom Infrastructure Outsourcing Strategy

Scenario: The organization is a regional telecom operator facing increased pressure to modernize its infrastructure while managing costs.

Read Full Case Study

Luxury Brand E-commerce Platform Decision

Scenario: A luxury fashion house is grappling with the decision to develop an in-house e-commerce platform or to leverage an existing third-party solution.

Read Full Case Study

Make or Buy Decision Analysis for Luxury Goods Manufacturer

Scenario: The organization in question is a high-end luxury goods manufacturer facing challenges in deciding whether to make components in-house or outsource to third-party vendors.

Read Full Case Study

Sustainability Strategy for Boutique Hotel Chain in Eco-Tourism Niche

Scenario: A boutique hotel chain in the eco-tourism sector is navigating the strategic challenge of a "build vs.

Read Full Case Study


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Related Questions

Here are our additional questions you may be interested in.

How should companies approach the make-or-buy decision in highly regulated industries differently?
In highly regulated industries, companies must adopt a comprehensive approach to the make-or-buy decision, considering Regulatory Compliance, Risk Management, Strategic Alignment, and long-term implications for sustainable success. [Read full explanation]
What is a make or buy analysis?
A make or buy analysis is a strategic framework for deciding whether to produce a product in-house or purchase it from an external supplier, considering cost, quality, and risk. [Read full explanation]
What are the key indicators that suggest a company should pivot from a "Buy" to a "Build" strategy, or vice versa, in response to market changes?
Discover when to pivot from a Buy to a Build strategy (or vice versa) by evaluating Cost, Time to Market, Core Competencies, and Strategic Fit for competitive advantage. [Read full explanation]
What role does corporate social responsibility (CSR) play in the Build vs. Buy decision-making process?
Integrating Corporate Social Responsibility (CSR) into Strategic Planning and Operational Excellence influences the Build vs. Buy decision, enhancing brand reputation, sustainability, and market competitiveness. [Read full explanation]
How can companies effectively measure and compare the innovation potential of Build vs. Buy options?
Organizations can evaluate the innovation potential of Build vs. Buy options by conducting Skills and Capabilities Assessments, Financial Analyses, and Risk Assessments, employing Decision Matrices and Scenario Planning to align with Strategic Planning and Innovation Strategy. [Read full explanation]
What impact do global supply chain disruptions have on the make-or-buy decision-making process?
Global supply chain disruptions significantly impact the make-or-buy decision-making process, emphasizing Risk Management, Strategic Alignment, Operational Excellence, and the need for agility, resilience, and innovation in sourcing strategies. [Read full explanation]

 
Joseph Robinson, New York

Operational Excellence, Management Consulting

This Q&A article was reviewed by Joseph Robinson. Joseph is the VP of Strategy at Flevy with expertise in Corporate Strategy and Operational Excellence. Prior to Flevy, Joseph worked at the Boston Consulting Group. He also has an MBA from MIT Sloan.

To cite this article, please use:

Source: "How should companies evaluate the scalability of Build vs. Buy options in their IT strategy?," Flevy Management Insights, Joseph Robinson, 2025




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