Capability Investment Planning: 9-Box your Build vs. Buy Decision
Stop Me If You’ve Heard This One…
A guy clicks into a meeting, shares to present, and gets stopped halfway into the recommendation. The CxO asks:
“How do other companies approach this build vs. buy decision? My engineering talent is really strong — capable of most any development effort. I know we shouldn’t build everything, but we’re struggling to frame a decision across stakeholders.”
It’s no joke. In fact, it’s a significant question, loaded with far reaching implications touching how we work, who we hire, and the infrastructure that supports our revenues and mission.
Everyone has a horse in the race. My software engineer relishes the creative process, and she wants a crack at building something new and cool. My designer wants to roll up his sleeves and own every pixel of the user experience. The CFO wants efficiency, the CRO wants efficacy, and the team in the field just wants “something that works”.
Make a Decision
Steve Jobs famously said, “Deciding what not to do is as important as deciding what to do.” He said it was true of companies and of products. It’s also true in this context. Deciding what not to build is as important as deciding what to build.
To that end, this article will help leaders identify what to build, what not to build, and support the process visually with an easy to use 9 box and heuristic.
The Language of Change is ‘Capability’
The best approach toward initiative planning is to first identify the business capabilities in question. Describing forward-looking change in terms of business capability improvement takes risk out of the process. For example, a request for improved customer journey management is less ambiguous (better) than a request for a new marketing system. It anchors the request in business terms. Success is described with business KPIs and outcomes. Focusing on capability-language helps to avoid the science projects, system(s) investment that fail to achieve business results, and proof of concepts that go nowhere. It reduces the risk of miscommunication, e.g. “you said you wanted a new system — I didn’t realize it had to do that”. Done well, it can reduce the risk of system sprawl, and technical debt, “we have 9 marketing systems — how is it we need another system?!” For more depth on this topic, a quick search should yield a few professional consultancies and organizations that leverage a capability-driven approach to transformation. If in need of a list of capabilities to consider and language to use, consider this as a starter.
What to Build? Capability with High Strategic Value
Not all capabilities are created equal. In a world of finite resources, organizations should prioritize where they apply those resources. Just because we can build a new web-browsing or document editing capability, doesn’t mean we should. Rightly so, few organizations would even try.
Organizations should seek the greatest return from their committed resources. The assertion here is, build capability that presents high strategic value for the organization. Expect variety in this discussion. For example, ‘search’ as a capability, is of the highest strategic importance, if you happen to be Alphabet, but for a basic B2B manufacturer it is less important.
Start with simple categorization: low, medium, high. In the example below, we see capability alpha identified as having high strategic value. Because of this, it warrants different treatment as compared to capability beta. This capability may be a good build candidate for our development resources.
Key Build vs. Buy Takeaway: Recall the Alphabet Google ‘search’ example. Few capabilities are truly brand defining or sources of sustainable competitive advantage. Manage opportunity cost. Prioritize development resources for capabilities with high strategic value. The debate can be lively; stack rank capabilities if considering many. Similar to “when everything’s a priority, nothing is a priority,” (as penned Karen Martin) when every capability is of high strategic value, none of them are. If the capability is not a strategic differentiator, consider buying (or renting).
What to Buy? Commoditized Capability
Here we use availability of capability in market as a proxy for commodity. Why? Any monetizable capability has commercial value. As pay-for providers improve depth and breadth of feature and quality, competition rapidly drives toward commoditization.
For most marketing, sales and service capabilities, a company carries significant commoditization risk on any build investment because large commercial providers are actively competing for feature parity and differentiation. In very short time, a company can end up with a custom-build solution that is sub-standard to those rented (SaaS) from many pay-for commercial providers. Instead, a company that buys (or rents) this capability can benefit from that feature parity and differentiation race.
Again, start with simple categorization: low, medium, high. In the example below, we see capability delta identified as having high availability in market. Buy (or rent) this capability (rather than risk reinventing the wheel). In turn, development resources are available to build capability gamma, which has few commercial options (low availability in market).
Key Buy vs. Build Takeaway: If there’s high availability of the capability from commercial providers recommend buying the capability. Using the earlier example, unless you’re Alphabet, ‘search’ is a capability most companies should buy. Where monetization of the capability is not the goal, even the chance of commercial appeal should be weighed carefully. Customers and employees will quickly expect commercial feature parity experiences from the home-grown solution, risking waste and stakeholder dissatisfaction.
Use the 9-Box to Guide a Build vs. Buy Decision
Bring the Strategic Value y-axis and Availability in Market x-axis together to frame the conversation in a 9-box. Every organizational leader has worked with a 3x3 at some point and the structural familiarity eases use and understanding. For added benefit, name each box and add descriptor text appropriate for your context. See example below.
Plot your Capabilities
Use the 9-box structure above along with the questions in Image 1 and Image 2. For an holistic assessment, start the discussion with the business capabilities most critical to your company’s brand and value propositions. If the goal is to inform next year’s budget, evaluate key business capabilities in planned initiatives, and plot them. See example below.
Key Plotting Exercise Takeaway: This plotting exercise can be done fairly quickly by individuals in preparation of a larger discussion, collaboratively as a team, or even survey based. It visually reinforces that not all capabilities are created equal. Reflecting on the results above, there are interesting points. Several plot points acknowledge high commercial availability. A decision to build any of these commodity capabilities begs the question — should these development resources be leveraged for something of greater strategic importance for the company? This team should follow up with greater discussion on the revenue driving ‘abandoned cart recall’ (6) capability, which pops on the y-axis, and the potentially monetizable, ‘consumer risk score & segmentation’ (5), which lands as a potential differentiator.
Summary
The 9-box model is just one tool in the toolbox. For completeness, an organization may require other criteria be factored as a secondary, or tertiary steps in capability investment planning. The most important takeaway is to actively manage build vs. buy decisions with intentionality. The 9-box intentionally weighs strategic value and commercial availability. Finally, use business capability language to drive alignment and reduce risk in change management. All of this contributes to a well-managed, Capability Investment Planning and Execution, function.
Thank You
Thank you for reading. As always, much gratitude to those along the way that influenced me and helped nurture my craft. Specific thanks to @Darrren Knutson who first introduced me to the 9-box approach to capability evaluation many years ago.
