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Build, Buy, or Partner? The Digital Transformation Decisions Retailers Need to Make

This article is part of our Retail Reloaded series. It offers a new vision for retail businesses through an evolved use of technology. In order to SAVE, ACCELERATE, and SHARE, retailers will need to both use technology and develop new capabilities, new skills, and, importantly, a new vision for the future.

This article, as part of the ACCELERATE strategy, explains how to assess and then combine available (and often inexpensive) tech resources with the more expensive custom development to achieve the fastest and the most optimal product trajectory.

As the long-term commercial damage of COVID-19 continues to disrupt the retail industry, retailers are re-evaluating their existing strategies and resources. They are reconsidering how to become and remain more resilient through turbulent times.

Whether developing new products, processes or changing the old ways of doing business, it’s no longer enough just to chase new ideas and trends. There is now a thirst to develop new capabilities around innovation in order to adapt more quickly to unexpected twists and turns. As complexity grows, agility becomes more of a must-have for any modern business.

We will argue, however, that agility alone is not enough. Retail needs the kind of resourcefulness that connects multiple moving parts and accelerates at the intersection of different strategies and technologies. In order to create digital products and platforms that manage complex retail operations, retailers need to adjust their approaches to changing market and workplace conditions.

The resiliency required is best achieved through multiple small bets on different strategies, products and partnerships. As products move to the digital realm, agile teams must start by identifying the product’s market fit, the problem it solves, and then validate assumptions with users.

When building digital products and digitalizing operations, the decisions that are required revolve around three main options:

Build / custom solutions

Buy and Integrate / existing solutions

Partner / with technology and innovation companies to create joint ventures that unite retail domain expertise with powerful technology development resources ready to scale fast and reinvent the industry.

To help retailers open up new highways for fast and agile product development, our goal in this article is to provide a new way of thinking about the risks and challenges associated with any Build/Buy/Partner decision.

Things to consider from the start

Where does the Build/Buy/Partner decision fit into your product’s life-cycle?

The answer? At the very beginning.

Similar to a rocket launching, a slight miscalculation in the trajectory coordinates at the start, gets amplified across time and space. ?

But, (and this article is full of often-overlooked nuances) the decision-making doesn’t stop at the beginning. It extends to various scales and occurs at all stages of a product’s life cycle. Typically, initial plans will be changed or adjusted at least 5 times during the course of development.

Outside of the planning table, there is a whole experiential world which holds the actual keys to these decisions, so spending too much time planning can be counter-productive.

Since there is no silver bullet solution, we must consider a few factors in order to determine which of these options provides the best opportunity for sustained growth:

ROI

  1. Cost of build vs. buy vs. partner
  2. Added-value of each option

Present

  1. Can the solution handle my business requirements in its totality?
  2. Organizational challenge — how quickly can my teams adopt the technology?

Future

  1. Scalability and ease of maintenance
  2. Fluidity – can V2 be easily built and/or integrated on top of our V1

Security and Data control

 

The Domino Effect

newton's law of motion

Challenges arise from the dynamic nature of the modern retailing environment. Too often, decisions are made by a narrow set of stakeholders and only their direct effect is considered. Be mindful, however, of a more lateral effect on the rest of the business and on a wider group of stakeholders, which almost always happens as a result of a digitalization initiative. These must be considered at the time of making the decision to build, buy or partner.

  • Sales and growth teams

  • CFO and retail margins

  • Logistics and procurement

  • Advertising and marketing

  • Online and offline channel experiences

  • Pricing

Technologies Accelerating the Retail ?

The following technologies are here to stay and the main players are already adopting them to enhance a shopper’s experience and to accelerate output or delivery:
AI – allows for a deeply customized experience for your shoppers.

IoT – connects devices for a seamless in-store experience and dilutes the lines between digital and analog shopping.

Robotics – mostly used in item handling at scale across retail locations (e.g. DC’s and warehouses).

Custom tracking devices – for last-mile delivery as well as tracking of materials and goods.

Algorithms – optimize route planning and shipping capacities leading to quicker store-to-door and optimal workforce and fleet utilization.

5G – powering immersive mobile experiences that are lag-free and hyper-customized like never before.

Based on the Total Retail’s report, the biggest challenge for retailers moving forward is integration. Adding new technology solutions to the existing ones can be challenging, particularly in the case of cumbersome legacy systems that were not built to scale with new integrations in mind.

To begin with, most of today’s digital products are a combination of custom build and integrations.

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Buy/Integrate ?

The emergence and distribution of open-source and SaaS software have made possible the intense acceleration and diversification of readily available and use-case-specific solutions. Technology is now more accessible than ever before to all businesses.

A buy decision can prove appropriate and efficient when addressing side cases or common functionalities.

However, it’s not all roses when it comes to integrations.

New systems

Today, systems are built with integrations and scale in mind. This implies the need for clean APIs and their associated documentation, thorough research into existing off-the-shelf software, and solutions for how to integrate them in order to cover specific use cases and provide a clear digital product roadmap.

Relatively simple functions such as e-commerce and payment gateways can be easily integrated, as well as shipment tracking, shift planning, workforce management, customer data collection and visualization, and many more.

The challenge arises when a number of different solutions need to be integrated into a single product and customized simultaneously.

joggling

An example comes from our partner, OrbitMI, a company that is pioneering the digitization of maritime industry.

Being data-driven was an imperative for our partner. So, they created a maritime intelligence platform to bring coherence to the industry and allow companies to manage their global fleets more efficiently, profitably and sustainably.

Due to a rapid increase in data sources that allow access to raw information in this sector, modern solutions are able to keep a constant overview of new data sources, filtering and measuring the benefits that these new data sources can bring into the existing systems.

Our partner’s maritime solution relies on multiple sources that allow tracking the location of vessels in real time, as well as their other vital information, such as port data, bunker prices, voyage and captain logs, and more.

All those different data sources are standardized in their own scope, however, there is no global standardization among them. This entails that the information is not readily eligible for matching, structuring or comparison. On the contrary, it brings noise and instability to the system. In order to provide data-driven insights, our solution had to overcome the differences between these incompatible data sources by finding small but valuable data sets in each of them that are then set as cornerstones for the usage of the data.

Such foundations for each of the integrations opened the door for additional (less reliable) data to flow in from the integrated systems. Only then the different integration benefits were combined, bringing the intelligence into the platform and enabling data driven decisions on the level that was not possible before.

Bringing in an experienced integration partner early in the process enabled the company to significantly decrease the cost of integrations and to create a synchronized, standardized, and scalable integration of different data sources.

Legacy systems

Things often get hairy when legacy systems are mandatory to expand functionality through integration.

In most cases, these systems are either too valuable, complex, or expensive to be replaced in a foreseeable amount of time. The only way forward is to buy and adjust or custom build new solutions that can be integrated with the old system in order to handle new requirements. For the integration to succeed, we must take into account the limitations of the old system.

It requires a deep understanding of the business logic, as well as the legacy system’s functionalities and limitations. How does the data work? In which format is it stored? What is the logic of data and protocols?

When thinking about purchasing and integrating a product or service, the following should be taken into account:

  • Opportunity vs. cost of building this piece?

    • What is the reason only a few have built it?

  • After purchase, how easy will it be to add my business’ unique value to this solution/system?

 

Build ?

The main reasons for deciding to build are control and uniqueness. The build strategy is therefore most suited for the core of your business, where your innovation lies. You are making something that didn’t exist before.

A retailer’s platform may choose to build its own features for sourcing, vendor access and distribution, but buy available payment and invoicing systems that it will integrate. In the example of one of our clients — DAOU Family Estates — a well known winery from California, we are building a native gifting app for their members to be able to send wine bottles as gifts. This is where their innovation lies.

The following two questions can help when deciding between build or buy:

Ask yourself, how close to my core business is the thing I want to build? Now consider your answer alongside the time frame in which you want it to be delivered to the market.

Product teams often choose a more scrappy approach that includes a mixture of integrations, partnering and buying off-the-shelf solutions in the early MVP/prototype phase because speed is crucial as well as the ability to quickly test the product with real users.

But, if the product proves its ability to bring value, and you have a product-market fit tested at the MVP phase, you will then focus on building pieces or the whole custom piece to satisfy the subtle nuances of your business case and to secure the product’s differentiation. For this you will need control.

Needless to say, you would want to build a proprietary system if available solutions fail to work well with your other components or are too expensive to maintain in the long run, depending on the number of users and usage patterns.

Partner ?

Somewhere between clean cuts of independent building and buying existing solutions lies partnering. Something Google & Carrefour and Microsoft & Marks and Spencer know a great deal about.

The sum is more valuable than the total of the independent parts. Companies partner mainly to complement each other’s knowledge, capabilities, processes, and tech, to gain access to resources, investments and markets, and even more importantly because they have mutual interests and business goals.

men handshake

Pure mutual expertise-to-expertise matches are exemplified through partnerships between an RFID software vendor (providing in-store analytics and merchandising software) and an IoT tracking solutions provider. Their partnership enables real-time stock visibility on an item-level.

Aside from expertise-to-expertise, the following setups are also proving success:

Expertise-to-technology

This can be seen in the case where a retailer partners with a deep tech service provider to create a piece of novel technology that the retailer will then use within their own operations. After the solution is tested internally, the retailer and tech partner spin out a joint tech venture to bring that piece of technology to a wider market and offer it to other retailers with a similar business need. This model is called Disruption Inside-Out and HTEC is one of the pioneers in this area.

Expertise-to-market access

A range of telecom companies chooses to partner with a variety of IoT medical providers. Their aim is ultimately to sell more SIM cards, which they are able to achieve by highlighting new use cases, while the IoT vendors gain market access which would have taken them ages to obtain.

Expertise-to-intel

Machine Learning vendors are often in need of data to improve their algorithm accuracy. They may be willing to provide their basic analytics services in return for a data stream. When partnering for intel, make sure you have a discussion regarding “Who owns the data” as stakeholders who fetch, transfer, and store data might have a specific view on this.

One factor which differentiates partnerships from other types of cooperation is the need for long-term cultural fit between the partners, which needs to be managed aside from the technology dimension. This strategy relies heavily on contextual matches and dedicated leadership that knows how to drive cooperation and culture sharing. A good place to start is by undertaking your own assessment of culture and one of our other clients, Great Place to Work, truly excels here.

***

With clever technology development strategies and decisions, any retailer will be able to have their business digitalized and platformed sooner and cheaper than ever before.

This means you can allow external stakeholders to use your platform’s infrastructure upon which to build their solution, thus accelerating and sharing in the resultant success. This opens up potential new value streams and spin-offs.

The role of tech integrations and partnerships in digital retail product development has been turbocharged as a result of the growing importance of data in decision making, an accelerated focus on customer experience, the unprecedented availability of cloud solutions and the unstoppable evolution of product development methodologies. The combined effect of these is to challenge us like never before but also to reveal significant new horizons and opportunities for innovation.

In our next article of the ACCELERATE series, we help you decide on the best strategy mix to address your organization’s current state and your future product goals so that you can follow the footsteps of experienced digital retailers when building the products for tomorrow’s customer.

If you have doubts regarding your retail business digitalization or product development strategy, we’d be happy to talk. Please use the contact form below to get in touch with our consultants.

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Jovana Milankovic Osterday

Writer

Hi, I'm JoJo, a San Francisco based writer and a digital world explorer at HTEC Group. I write about humanity in the age of disruption through the stories of exceptional people, truly innovative practices and companies that are challenging the status quo. At HTEC, we call this "The art of possible".

dusan kolenovic htecgroup
Dusan Kolenovic

Product Manager

Product manager scaling B2B initiatives in Retail, Medical and FinTech .