The Internet of Things (IoT) enables vendors to create an entirely new line of “smart” solutions for its existing and new markets. While the decision to go “smart” is straightforward, the decision of how to do so is not. Vendors are faced with a “build, buy, partner” decision – build it themselves, buy or license it from someone, or partner with a complementary solution provider and go to market together. This article discusses some of the key considerations product managers and executives must study in order to make the most appropriate decision.
For many vendors, IoT means adding a technology layer to products that never had any before. Even for tech savvy vendors, IoT presents a whole new set of technologies that they are less familiar with. Equally important, IoT is not just technology, but includes data, security, user experience, and business/business model elements. Figure One shows an IoT product management framework developed by Daniel Elizalde of TechProductManagement. A company going “smart” has a lot of decisions to make, of which technology is just one component.
The framework shows that the “build, buy, partner” decision is multi-dimensional. There are six decision areas, spread across components from the edge to the user applications. Each represents a different “build, buy, partner” decision point, and each takes the company down a different path. In today’s fragmented and dynamic IoT ecosystem, many companies will need to “build, buy, partner” simultaneously. For example, cybersecurity is a specialized field that many vendors cannot address on their own, and must buy or license for their solution. The actual proportion of “build, buy, partner” each vendor does varies based on their specific situations.
The company creates the solution themselves with the resources they own, control or contract to. Companies who choose this option, but have limited internal expertise may contract with Original Design Manufacturers (ODM). These ODMs provide a portfolio of services, from design, prototyping, test, certification, to manufacturing. One example of an ODM, specializing in IoT, is Blue Clover.
The “Build” option enables full management oversight of the development process, the solution functionality and the intellectual property. Conversely, this option may result in a longer time to market, and require additional capital and resources beyond what is scoped.
Companies consider this approach when:
The company procures all or part of the solution components from a 3rd party. This includes licensing technology and services. Companies may also acquire technology through mergers and acquisitions, as well as buying the rights to technology from companies willing to part with it. This option eliminates “reinventing the wheel”, enables faster time to market, maximizes resource efficiency with limited execution risk.
One common variant of this approach is to buy technology platform from a vendor, and then build their specific solution components on top of that. For example, manufacturers developing smart industrial solutions can license an industrial IoT platform from ClearBlade. Similarly, Ayla Networks offers an IoT platform for consumer products manufacturers.
The downsides of the “Buy” option include a loss of control in the development process, and limited agility to respond in a timely manner to changes in the market and customer needs.
Companies consider this approach when:
The company allies itself with a complementary solution or service provider to integrate and offer a joint solution. This option enables both companies to enter a market neither can alone, access to specialized knowledge neither has, and a faster time to market. This option adds additional management and solution integration complexity. For some companies, reliance on partners for some aspects of the solution may be uncomfortable due to a limited loss of control.
Companies consider this approach when:
Before the company chooses a path to go “smart”, executives and managers must base their decision along three “build, buy, partner” dimensions – execution, strategy, and transformation.
The first dimension focuses on the company’s ability to execute successfully. Managers must audit and assess their capabilities and resources to answer the following questions:
The second dimension relates to the company’s current and future strategic needs. These are company specific as it relates to its current situation, its customer and channel, and its position within the industry. Key considerations to be addressed include:
The third dimension is the company’s ability to manage transformation. Going “smart” doesn’t stop with the IoT technology. The entire organization, its operations, policies, systems and business models must transform to support and operate the “smart” business. Furthermore, resellers and service channels, and suppliers and partners, are also impacted.
Each company is unique, and its situation will dictate its response to these dimensions. There is no one “right” universal answer to the “build, buy, partner” decision. Equally important, what’s right today, may not be right tomorrow. Companies that want to go “smart” start by looking inward first and doing the following:
Originally the article was published here.
This article was written by Benson Chan, a Senior Partner at Strategy of Things, a transformation management consultancy helping companies innovate for a hyperconnected world. He has over 25 years of scaling innovative businesses and bringing innovations to market for Fortune 500 and start-up companies.
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