Centre for Strategy and Performance

Make-Buy Decisions for New Technologies

Aims

• to identify the strategic issues underlying make-buy decisions in new technology environments
• to develop an understanding of the role that suppliers play in customer firms’ ability to develop new technologies over the long-term, and on the impact that these relationships can have on firms’ make-buy decisions
• to develop a computer-based analytical model for assessing the potential strategic traps and benefits that might arise from a particular outsourcing policy

Industrial issues

 A key element of any company's plan for utilizing new technologies is its make-buy strategy. Thinking through outsourcing decisions wisely will help to protect a firm's leading role in an industry; conversely, a series of poor make-buy judgments may well bring about a profound erosion of its position in the marketplace.

Existing frameworks for make-buy strategies in new technology environments typically suggest that a company should be vertically integrated -- that is, it should pursue a fairly rigorous "make" policy -- throughout the early days of a new technology. After the technology has matured appreciably, however, these same frameworks would suggest that a company should outsource the technology more liberally. But as new innovations are repeatedly introduced into the marketplace, this to-and-fro pattern of outsourcing can develop into a rhythmic and recurring cycle of severing ties with suppliers followed by a period of accumulating new ones. Many top-ranked companies such as IBM, 3M, and GE consistently point to long-term relationships with people and other companies as a building block for their success, though. This gives rise to an important question: is the move to develop a new technology in-house without the help and input of one’s suppliers good for the long-term success of a company?

The main outcomes from the project will be:

• a framework outlining the major strategic drivers behind outsourcing decisions in new technology environments
• an analytical agent-based model that can capture the role of suppliers in the innovation process across multiple generations of technologies, and that can help managers to assess the potential strategic consequences of a particular make-buy strategy
• a generic methodology for applying the framework and analytical model in new technology scenarios

Sponsors/Collaborators

Researchers

• Rob Perrons
• Ken Platts