MAKE OR BUY STRATEGY
Make or buy is an extremely important issue in any industry. In manufacturing, for example, the production or purchasing strategy involves manufacturing the product yourself or buying it from a third-party supplier. Likewise, in any professional services industry, such as consulting, there are options for your in-house team to do the work or to outsource it to any other organization that specializes in that line of services.
WHAT IS THE MAKE-OR-BUY DILEMMA IN SOURCING CONSULTING?
In consulting projects, an independent task force can bring focus, speed, and pressure to the board, which is a prerequisite for successful project execution. Now, when running a consulting project, you have two options:
First of all, it is based on internal strength.
Second, you can work with outside consultants.
For consulting services, a make-or-buy strategy is a more strategic choice that must be made after considering a multitude of factors other than cost-benefit analysis.
However, for employees, when acting as an internal consultant, it often becomes difficult to challenge boundaries. Naturally, the people involved in these projects have high potential and are results-oriented. The fact that team members are part of the company can make it difficult to break the established order, unlike outside consultants who are not part of the company.
The internal team may need to know the latest industry trends or capabilities. However, they can save time reinventing well-established improvement methods, resulting in longer projects and higher overall costs. But, the fact that team members are part of the business can make it difficult to disrupt the established order.
You need to ensure they have the right expertise and experience in your industry to understand your business development needs.
In addition, there are also privacy issues to consider. It is a well-known fact that Strategy Consultants tend to use benchmarks, which they learn from other projects. And that’s why we hired them in the first place, right? But for some specific projects, this can be a problem.
CREATE AN EFFECTIVE BUY OR SELL STRATEGY TO DEAL WITH THE DILEMMA
Aiming to optimize your organization’s and supplier team’s outsourced spending to execute projects in the most cost-effective way possible, your buy-or-do strategy will allow you to choose with confidence between internal and external consultants. The framework includes five strategic components – Understanding Project Needs, Project Centralization, Project Outsourcing Evaluation, Strategic Valuation, and Outsourcing Valuation software. We call them the five pillars of the make or Buy strategic framework.
PILLAR #1 UNDERSTAND YOUR PROJECT
Start by answering the following questions to determine your project needs:
What are the main activities that can be outsourced?
What does the pool of potential suppliers look like?
What is the maturity of the market for suppliers?
Which service provider is right for us?
Is it worth outsourcing a particular activity over the long term?
Unfortunately, most companies need the experience or methods to answer them. Therefore, when contracting for large consulting projects, they often hire outside consultants based on word of mouth, the reputations of different providers, and sometimes excessive demands from the experts themselves with a consultant. Or they choose the path of least resistance and hire the same consultants they have used before, whether those consultants are best suited for a particular project or to advance strategy. Larger than the company. As a result, project outcomes often need to align with the overall business strategy.
Therefore, purchasing managers should utilize a reliable method to determine if a particular consultant meets business needs, assessing how well the performance is doing. Consultant availability and compare multiple providers. When they have an independent and reliable way to evaluate suppliers and tailor them to their business needs, they can confidently hire an outside consultant.
PILLAR #2 CENTRALIZATION FOR PORTFOLIO MONITORING
We’ve just told you the questions you need to ask yourself to understand your project’s needs and choose between internal and external consulting. But then, how to really start with a starting point of view?
Many companies solve their buy or sell strategy dilemma by centralizing the source of advice. The goal is to have a more global view of consulting efforts, to better understand costs, and to have stronger leverages to negotiate volume discounts and create cross-departmental synergies. Recognizing that consulting is a force for change, these companies place management consulting under the direct responsibility of a strategy manager or a transformation leader.
Overall, delegating responsibility for board budgeting and tracking board spending to the strategic team is a step in the right direction.
This group must define rules for purchasing consulting services. Demand management, fulfillment or purchasing strategies and consulting spend analysis should run through them to ensure alignment with the overall strategy and consistency across the board.
PILLAR #3 DISCOVERING “OUTSOURCING” FOR YOUR PROJECT
After completing the steps mentioned above, now is the time to analyze if a project can be outsourced. First, it would help if you evaluated whether the problem you want to solve is a candidate for outsourcing.
Procurement best practices recommend having a well-defined project that the rest of the organization can independently manage (as much as possible). For consulting projects, these good practices translate into the ability to operate in project mode with a focus group.
Can you clearly define the deliverables for your project?
You must accurately describe and document the results or outcomes you expect from the project.
Can you set a firm deadline for the project?
All projects must be completed within an allotted time. Deadlines are closely related to the priority of your project. The higher the priority, the tighter the deadline.
What is your project’s level of uncertainty?
Over-dependence on delivery from other internal teams can negatively affect the quality and duration of the project. Therefore, your project should be independent of other parts of the organization.
Do you have access to the necessary resources?
The idea here is to assess whether the resources you need for your project are accessible from the inside or the outside.
In other words, are there people in your company or external consulting firms capable of carrying out your project?
If you get affirmative answers to all the above questions, it makes more sense to do it yourself. In such cases, outsourcing should only be your first choice if it is not affected by other factors, which we will cover later.
PILLAR #4 FINDING THE STRATEGIC VALUE OF THE PROJECT
Every project has strategic value. When the expected impact is high, the project is said to have high strategic value.
Some projects clearly have high strategic value. But some non-strategic projects can still deliver value when they trigger another strategic project.
Understanding the strategic value of the project will help you determine the project’s priority, which will help you decide whether to hire an outside consultant immediately. The concept of strategic value is closely related to the demand management function. We will return to this point later.
Let’s first take a look at the questions that need to be answered to assess the strategic value of a project:
What is the expected impact of the project?
You can expect an impact on profitability, costs, culture, and leadership. This information will help you determine the priority of the project.
How much are you willing to pay for the project?
In other words, you have to ask yourself, “can we afford this project right now?”
Is now the best time for the project?
Even if a project is strategic, “now” is not always the case. Sometimes, you may need an activated project before launching this project. Additionally, you may need to start a regulatory project. In that case, you may have to wait several years before starting it.
Do we need this skill for other projects in the next three years?
A project that helps you lay the groundwork for a new skill and hone your teams has enormous strategic value. Using external resources can be a great long-term decision here.
PILLAR #5 FIND THE EXTERNALIZATION VALUE OF YOUR PROJECT
We have previously covered aspects that contribute to outsourcing a project. You should also evaluate the project outsourcing value
Are project-related skills the focus of your business?
When you have the right skills and resources in-house, it can make more sense to do the project in-house. If not, but skills are or will soon be at the heart of your business, you should strengthen your existing teams and start projects internally.
Is there a specific reason to go out?
You can leverage independent expertise, gain third-party validation of your management decisions, or leverage a consultant’s brand to justify a difficult decision. In all of these cases, working with external consultants will be a key success factor for your project.
Are we improving the business if we accelerate the project?
Outsourcing a project will bring more value than doing it yourself. If pushing the project (compared to the time taken internally) adds value, you want to work with consultants.