When considering new digital initiatives, develop and implement a sourcing strategy to determine whether you will build, buy, or lease your digital development resources.
Technology leaders are no strangers to evaluating the capabilities of their systems and platforms and identifying gaps between their current state and their desired future state. Most of our projects and programs begin with a gap assessment and serve as the basis for defining the scope of a systems implementation or multi-year technology strategy.
This same thinking must be applied to capabilities that go beyond the technology we design, implement and manage. Many technology leaders will perform meticulous assessments of their systems, but fail to apply the same approach to their teams' skills, competencies and relationships. A brilliant, multi-year technology strategy that maps out a carefully orchestrated technology implementation will have little effect if you don't have the right people or skills needed to execute the plan.
Conduct a human capacity assessment
The same thinking you applied to a technical gap assessment should be applied to your human capabilities. You can use your technology strategy, project portfolio, or any other long-term plan that details which technologies, systems, and initiatives you will manage in your portfolio.
Just as a chef needs to decide on a cooking style and create a menu before he can source ingredients, you also need to determine your “menu” of initiatives before hiring the individuals and teams who will deliver your metaphorical meal.
For each essential element of your future state plan, assess the skills needed to implement that vision. This can be a somewhat complex task and require external expertise, especially in emerging areas such as digital.
For example, suppose your technology strategy has several consumer-facing mobile apps. In this case, it may not be immediately apparent that you will need user experience and visual designers, front and back-end developers, and perhaps new platform and cybersecurity capabilities.
You should also evaluate the skills you already have internally or that you have ready access to through relationships with suppliers and partners. Maybe your tech shop has developed exceptional project management capabilities or has excellent in-house enterprise app development capabilities. This task is equivalent to mapping the “as is” state of a process or technology, a practice with which you may already be familiar.
You should now have a solid understanding of your current capabilities, your future destination, and the information you need to begin identifying skills gaps.
Identify “durable” capabilities
At this stage in the process, it should quickly become apparent where skills gaps exist. It may be tempting to email HR and speed up the hiring process, or instant message the purchasing department and ask them to start typing RFPs for outside help. However, it's worth pausing and evaluating each capability, asking yourself and your team:
- Is this a capability we should “own” internally for strategic reasons, despite a potentially significant cost?
- How difficult is it to build a team around this capability?
- How quickly do we need to acquire a productive version of this capability?
These questions will inform your sourcing strategy. Each capability gap can be filled by some variation of these three acquisition strategies:
- Build capacity internally, whether by hiring full-time staff, training and transitioning existing staff, or using external resources to train staff
- Rent capacity from a partner or supplier, enabling the company to provide people, methodologies and support structures to quickly fill a capacity gap
- Buy the capacity by acquiring another company that already owns it
Most technology leaders have limited influence over their company's mergers and acquisitions (M&A) process, so the option to buy a capability is often the result of a fortuitous strategic acquisition. While generally outside of our direct influence, if your company is acquiring another organization, it is always worth updating your capability assessment based on the new talent that will emerge from the acquisition.
Building versus renting in the digital age
| Ramp up | Rent | |
|---|---|---|
| Popularity | Gaining interest for companies looking for customization and long-term benefits. | Very popular for startups and companies looking for a quick start and less initial investment. |
| Forms | Suitable when proprietary technology, data security or personalization are priorities. | Ideal for standard functions, non-core activities or when time to market is crucial. |
| Main advantages |
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| Main disadvantages |
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| Cost benefit | Potentially more profitable in the long term, but with higher initial costs. | More profitable in the short term due to lower initial costs, but may be less efficient in the long term. |
| The infrastructure | Provided by the company. | Provided by the service provider. |
| Training | Training for the specific technology or platform is required. | Minimal training is generally required as most solutions are easy to use. |
| Communication | Direct and continuous communication with the internal team. | Communication depends on the service level agreement with the supplier. |
| Flexibility | High flexibility in terms of modifications and improvements. | It depends on the flexibility of the supplier and the type of service contract. |
| Security | High; Full control over security measures. Explain: You control and implement all security measures in accordance with your company's policies. | Average; Dependent on provider security protocols. Explain: While most vendors offer robust security measures, you depend on their practices and response in the event of a security incident. |
| Tools and Processes | Dictated by the specific needs and capabilities of the company. | Dictated by the service provider, but can sometimes be customized. |
| Agreements | Long term, considering the initial investment in capacity building. | It can be short or long term, depending on the needs of the business and the supplier's offerings. |
Many technology leaders automatically assume that building a capability is a superior option to leasing it to a partner. This can be particularly attractive in the digital age, when the idea of hiring a bunch of young designers or app developers is seen partly as a variation of making IT “cool”.
However, a careful assessment of your requirements and capability gaps should have revealed that some seemingly simple capabilities can have high acquisition costs and trade-offs. Many digital capabilities require multiple team members to provide or have one or two “hot skills” needed to make them functional. Just as a puzzle with some pieces missing is frustrating, so is an incomplete digital resource that isn't delivered due to missing pieces.
If you have a partner with the capabilities you are considering, with whom you have a trusting relationship, share some of your capability gaps and ask what teams would look like to fill those gaps. You will find some capabilities that are incremental to what you already have in-house or that can be acquired through a relatively simple upskilling of your existing team. Others may be more complex than you think and may be ready-to-rent candidates due to their complexity and cost of acquisition.
For example, the ability to produce consumer-grade front-end applications requires half a dozen individuals with different skill sets, who employ a very different design and delivery process than you are used to. Instead of hiring one or two promising visual designers and being shocked that they couldn't translate their beautiful templates into front-end code, perhaps a back-end API developer would have been more valuable.
Also, consider how often you will need a particular resource. Digital requires a wide range of capabilities, but several may be sporadic needs for your organization. For example, ethnographic research, travel mapping, application testing, and technical architecture may seem like wonderful capabilities to have in-house, but they will result in expensive resources with little to do between bursts of intense activity.
The hourly cost should be relatively low in your consideration set. Purchasing an expensive resource that would otherwise be out of use or renting a cheap resource without supporting capabilities are poor uses of limited financial resources and will ultimately harm your ability to achieve your goals.
Focusing on the capabilities you need, evaluating their durability and long-term importance to your strategy, and ultimately using these criteria to guide your decision will propel your organization forward in the digital age.
