What is the build-borrow-buy framework?
The build, borrow, buy framework is an approach to be thinking about how to gain access to new resources and capabilities, particularly if the firm is looking to diversify and expand into a new area.
A company may for example already have some resources that they need for expansion, but be lacking others that are necessary to diversify. The build, borrow, buy framework indicates that there are three approaches that can be used to gain the necessary new resources:
- Build: Create the new resources through internal development
- Borrow: Partner with other organizations to gain access to the resources
- Buy: Acquire another firm through a merger or acquisition to gain access to any required resources.
Why each of the three approaches is a valid path for gaining the necessary resources, there are differences between them that influence which is likely to be the best approach.
Build: Internal development of the resource
The build approach recognizes that it may be possible for a company to develop the new resources internally itself.
This approach is likely to be best when the resources that need to be created are similar to the resources that the firm already has. If for example the new resources are software-related, and the company already has skilled software engineers, then it is more likely that the company will be able to create the new resources internally.
If, on the other hand, the resources are very different from something that the company has done before, it is much more likely to struggle in internal development. Developing a resource far from the company’s existing skill base is often challenging because the firm lacks the basic understanding to start and manage the project.
For example, if you are trying to incorporate machine learning into your product, but have never had any software development conducted in your firm, you likely lack a basic appreciation of the setting to be able to hire suitable developers. Your lack of experience in related areas may make it particularly difficult to build the necessary skill in-house.
When ‘building’ via internal development is deemed infeasible, ‘borrowing’ through partnerships with others becomes another approach to consider.
Borrow: Partner with other organizations
The borrow component of framework considers whether it is possible to gain access to the resources through partnering with other firms. Potentially there is already a company that has the resources that you are looking for, or is better placed than you are to be able to develop it. Partnering allows the company to take advantage of external firms’ capabilities, to gain access to necessary resources external to the firm.
There are different approaches that a firm can take within the ‘borrow’ component of the framework. For example, one approach is through relatively ‘hands-off’ contractual relationships – licensing the technology or purchasing parts through a supply arrangement.
While licensing or purchasing the resources may be appropriate in some settings, where more development is required, closer integration may be needed. The firms may need to actively work together to develop the capability. In such cases, a form of strategic alliance, such as a joint venture, maybe the best approach to create the necessary resource. This may involve establishing a separate legal entity, jointly backed by both firms, in order to create and commercialize the new capability.
Buy: Acquire other firms
The final approach within the framework is to acquire another firm. While this may be seen as the easiest or quickest approach – and sometimes is, avoiding the need for internal development, or managing an alliance – it also carries its own challenges.
Merging a firm together is not easy. There may be cultural clashes between the different parts of the businesses, key employees may leave, and it may be much more difficult to integrate the resources of the acquired firm into your operations. As such, while this may be an attractive and necessary approach in some situations, it is also important to recognize that acquiring another firm is not a magic bullet – rather it carries its own sets of difficulties.
Carefully consider which approach is likey to be easiest for your firm
Part of the value of the build-borrow-buy framework is that it highlights the alternative approaches – rather than seeing one as better than the other, they each carry their own tradeoffs. When considering an approach to take, the key question should be what fits best in your situation. Consider the key goals that you are aiming to achieve, the challenges associated with the different approaches, and examine which approach is most likely to be feasible and successful for your setting.