As technology’s role in retail becomes increasingly critical for successful operations, senior leaders face a perennial challenge of deciding whether to “buy” or “build” the solutions they need. Does it make more sense to use a third-party solution or develop new in-house capabilities from scratch? The honest answer is it depends.
I first experienced the impact of this decision-making process twenty years ago. My entry into retail was with Tesco.com, a global pioneer of online grocery. At the time, Tesco.com pursued a strategy of building in-house systems superior to anything available from a third party.
Most other grocers launched their e-commerce businesses using unproven off-the-shelf platforms that were unsuited to the requirements. Some failed or fell farther behind. Meanwhile, Tesco.com established a dominant position as other retailers’ e-commerce efforts were set back by several years.
Given technology’s central role in retailing today, how should retail managers approach the decision about whether to buy or build? While ostensibly a technology decision, I’ve found that using the non-technical “Better, Simpler, Cheaper” framework is a sound approach that makes sense to non-technical managers. Here’s how it works, and how to avoid common pitfalls.
Deciding To “Buy” Or “Build” Using the Better, Simpler, Cheaper Framework
The Better, Simpler, Cheaper methodology is one I find helpful when analysing any retail decision, not just buy vs. Build technology questions. The approach considers three perspectives when comparing options.
Better for customers?
Which option best meets your customers’ needs? As a retailer, your first and most important priority is creatign the best experiences for your customers. A good starting point is to understand what your customers actually value. In its early years, Tesco.com noticed that customers placed tremendous importance on receiving 100% of their ordered products.
Realising that no third-party software adequately addressed this challenge at the time, Tesco invested time and resources to build in-house software that increased on-shelf availability. In this case, a “build” solution was most effective at creating the best customer experience, but in a different circumstance a tested and proven system might better serve the end user.
Simpler for team members?
Which option is simpler for team members to deliver in their day-to-day work? This factor is often overlooked but is critical for a long-term solution. In my current role, I see many personalised promotion engines built by in-house teams. These often require tens or even hundreds of manual steps to set up a promotion.
Although the tool can, in theory, deliver personalised promotions, the cumbersome process for team members means they only get used to a fraction of their potential. And that means that customers only get a fraction of the benefits or utility from the technology you’re implementing.
Cheaper for the business?
The third consideration is the cost of different options. A common oversight is to focus on the upfront build costs and overlook the lifetime cost of maintenance which can be never-ending (service updates, performance updates, security patching, etc.).
These require ongoing resources and time commitment which may be missed in the business case. While this can apply to both build and buy solutions, some hidden costs are more endemic to in-house tech development, including foregone revenue from a speed to market disadvantage and the ongoing cost of maintaining data security compliance.
Four common pitfalls in the “buy” versus “build” decision
1. Sunk cost trap
Many retailers have invested significant time and money into an existing solution. That can lead to resistance to change because of the accounting (and emotional) write-off needed to replace it. Leaders would do well to recognise that “you can’t change the past, but you can change the future” and orient their decision towards how it affects future prospects. I see many examples in loyalty programs, with retailers (including my former employer Tesco) relying on software that was cutting edge five or ten years ago but has not kept up with global best practices.
2. Underestimating the value of experience
Implementing a big new technology platform is like selling a house – we tend to do it just a few times and do not want to get it wrong. So, just as we use the help of experts like lawyers and conveyancers when selling a house, there is also a benefit to working with an experienced technology partner. All projects have risks, and if you work with a partner who has experience in delivering similar projects, they will bring expertise to mitigate risks as they arise. Buying a solution is also usually faster, as you will start your project at the integration phase with no time required to build.
3. Playing to your strengths
Most retailers are strong at creating the best experiences for their customers but may not be so adept at building and implementing new technologies. In a world where technology is increasingly complex, it makes sense to outsource the underlying infrastructure so you can focus your attention on improving the experience being delivered to your end customers.
4. Aiming for perfection
Tolstoy wrote that “If you look for perfection, you’ll never be content,” and this is certainly true of technology. I have seen many retailers opt for in-house builds because they could not see a third-party option that met all their requirements. The pitfall of this approach is that a theoretically perfect proposition is useless if it cannot be delivered in practice because of the cost and complexity of the development.
Buy or build – a cross-team collaboration
The discussion about whether to buy or build is often seen as technical and left mainly to technology teams. However, in today’s world, where technology is critical to the prospects of a retailer, it can have a massive impact on the success of the business. The “Better, Simpler, Cheaper” framework is a simple tool that allows all teams to collaborate in making these decisions.
Jonathan Reeve is general manager for Asia Pacific at Eagle Eye.