Build vs Buy vs Partner: How to Make a Product Capability Decision

A build, buy or partner decision asks how a product should obtain a capability. The answer depends on the competitive advantage it supports, the organisation's ability to deliver it and the full cost and risk of each option.

Building means developing and operating the capability internally. Buying means acquiring an available product or service. Partnering means sharing delivery or commercial responsibilities with another organisation. Some solutions combine all three.

Separate differentiation from operational importance

A capability can be essential without being a reason customers choose the product. Payment processing, for example, may be critical while a specialist provider supplies it well. Conversely, a distinctive capability may still depend on bought infrastructure.

Geoffrey Moore's core and context distinction is useful here. Core concerns differentiation, while context supports the business. Use that distinction to frame the decision, not to issue an automatic instruction to build or outsource.

Questions for a build, buy or partner decisionDoes it differentiate?Identify the customer benefitthat depends on this capabilityHow critical is operation?Define reliability, securityand service requirementsCan an option meet the need?Compare internal deliverywith suppliers and partnersWhat is the full commitment?Include costs, dependenciesand a workable exit
Differentiation and operational importance are the starting point. The decision also needs evidence about delivery, service requirements and long term commitments.

Compare costs on the same basis

Suppose a fictional maintenance product needs routing capability. The table preserves a worked three year comparison using explicit assumptions. All figures are illustrative and undiscounted.

OptionIncluded costs over three yearsSubtotal
Build£165,000 initially plus £33,000 in each of the next two years£231,000
Buy£48,000 a year plus £30,000 initial integration£174,000
Partner20 per cent of attributable revenue of £200,000, £500,000 and £917,000£323,400

These subtotals do not settle the decision. Confirm whether support, hosting, upgrades, security review and exit work are included. A revenue share is particularly sensitive to growth and the contract's definition of attributable revenue.

Also name the work the internal team would defer. That opportunity cost matters, but avoid counting the same staff cost twice under different labels.

Test capability and service requirements

Create a short set of essential scenarios using representative data. For routing, these might include unavailable engineers, urgent jobs and unreliable connectivity. Ask each option to demonstrate how it handles the same situations.

Check integration effort, data access, incident response, commercial terms and the ability to leave. A low initial price can be outweighed by a difficult migration or a dependency the supplier will not support.

Make the decision revisable

An early product may buy a capability to test demand quickly and reconsider later. A growing product may find that operating its own capability is economical, or that a specialist has improved enough to replace an internal system.

Define a review trigger tied to evidence, such as usage cost, unmet requirements or a change in strategic importance. Include transition costs in any later comparison. Previous development spending is not recoverable, but the existing system's future value and costs remain relevant.

For a practical exercise, prepare a decision record with required scenarios, comparable costs, important risks and an exit plan. Recommend an option and name the assumption most likely to change the recommendation.

Where each syllabus puts it

The Pragmatic Framework uses this decision to address gaps in a complete solution to a market problem. The Product Strategy Practitioner course also examines how the capability supports the proposed advantage, resource allocation and commercial model.

Where this is examined
Pragmatic PMC
Strategy and Opportunity Selection, 25 per cent of the exam.
Product Strategy Practitioner
Choosing How to Win, 20 per cent of the exam.
Related material
Book
Playing to Win, On capabilities that support where to play and how to win.
Book
The Innovator's Dilemma, On what happens when the capability behind an advantage commoditises.
Book
Build: An Unorthodox Guide to Making Things Worth Making, On deciding what a team should actually make itself.
Concepts