It is probably one of the most challenging topics to bring up with your Stakeholders (unless they bring it up themselves) because most Stakeholders have a hard time even envisioning them not doing the work themselves. It also forces the development of a comprehensive analysis of the total internal costs of make/perform which is typically not a comfortable situation.
Developing a TCO model for what it takes to deliver a product/service using internal resources and then comparing it to what a vendor solution proposes provide leverage with the vendor, gives a baseline for comparison and gives a much deeper understanding of the stakeholders business. Here are some other advantages to consider:
- Allows for potential long-term strategic differentiation versus competitors
- Delineates core competencies and best outcomes
- Assists Risk Management
- Control inputs and access to supply
- Speed/Time to market
- Maintain IP
- Establishes “should” costs to evaluate supplier proposals and establish credible threats
- Impacts overall sourcing strategy
- Overcomes objections to sourcing the category
Assisting Stakeholders in analyses like these established significant credibility with the Stakeholders. Of course, cost is but one factor that should be considered when deciding between perform vs. buy and here are a few of them:
- Business Risk
- Strategic Alignment
- Technology
- Core Competencies
- Security
- Physical Resources
- Emotional Resources
- Time
- etc. etc.
You could also group the factors that impact Business Alignment and these would be like:
| Alignment with Strategic Goals |
| Potential for new Revenues |
| Importance to Core Business |
| Alignment to Core Business |
| Synergy to Existing Products / Services |
| Organizational Support of a Change |
| Potential Resource Issues |
And these need to be balanced with factors that might impact Market Share and here are examples of that:
| Any Specific Product / Service Knowledge |
| Cycle time impacts |
| TCO Impacts |
| Impacts to Quality / Service Levels |
| Technology expertise |
| Intellectual Property risks |
| Culture impacts |
Helping your Stakeholders navigate their way through these complex challenges is something that they now expect from us and having a strong base of Strategic Competencies becomes critical. There are also some common triggers that typically move us towards either Perform or Buy For example, the following might be triggers for Perform:
| Key supplier exiting business |
| Poor supplier performance |
| Establish Leverage with Supplier(s) |
| Control Destiny |
And these might be common triggers that may push us towards Buy:
| Shed Fixed Assets |
| Make costs dependent on volumes |
| Lack scale of operations |
| Not core competence |
And then of course, there are those triggers that can make us go either way:
| Major volume shift |
| Major cost escalation |
| Acquisition partner does opposite |
| Shareholder or Stakeholder pressures |
These triggers should be built into your category strategy and you should help your Stakeholders understand these triggers and be on the lookout for them so that they can be proactive in reacting to them.
There are many types of costs to consider on both sides of the equation and your Stakeholders will normally have not thought of all of these and may even challenge including some of them on the internal cost side. Here are some examples:
Internal (Make/Perform) Costs:
-
- Up-front Costs (hiring, facility, tools, etc.)
- Monitoring Costs
- Assumption of Risk (Insurance)
- Personnel Costs (salary, benefits, etc.)
- Costs of Quality/Yield
- End of Life Costs
- Known Cost Avoidances
- Costs to replicate the buy offering
- Other quantified value or risk factors
- Bias premium or discount
And here are some costs on the Buy side of the equation:
-
- Research and Search Costs
- Acquisition Costs
- Delivery Costs
- Implementation Costs
- End of Life Costs
- Known Cost Avoidances
- Costs to replicate the Perform offering
- Other quantified value or risk factors
- Bias premium or discount
Performing this type of analysis is being demanded more and more by our Stakeholders and we need to deliver – or they will bring in external consultants to do it for them?
