Build, Buy or Partner? ASX 200 CEOs think there’s only one way
The pandemic has put the power of digital on full display. It’s estimated that digital transformation was advanced by up to seven years as a direct result of the pandemic. This digital future that we’ve been thrust into can be both empowering and exciting, but is also creating major challenges for businesses.
Talent development, particularly in digital and tech, has become a CEO-level priority. More than one third of CEOs recently said that their organisations were unprepared to address the skill gaps exacerbated by digitisation.
As a result, the processes of modelling, planning and analysis that sit behind a high-functioning workforce have all needed to be dramatically redefined.
Rapid digital transformation is now a permanent state. As a result, talent management approaches that have performed well in the past offer no guarantees for future success. Businesses need more dynamic ways to grow their digital and technological capabilities in order to handle the accelerating pace of digital transformation. Now and into the future, the most successful organisations will redefine the way they work so that capability building is inextricably linked with business value. Now and into the future, the most successful organisations will treat capability building as one of the surest ways to increase business value, realising that both are now permanently and inextricably bound.
Build, Buy, Partner.
Woolworths CEO Brad Banducci recently spoke of a mixed strategy of build, buy and partner for developing capability.
What does ‘build, buy and partner’ mean?
“Build” is workforce planning bedrock. Nearly every ASX 200 company is building up large in-house teams to carry out tasks such as digitising operations, developing new digital products and harnessing customer data.
“Buy” relates to contracting specialist consultants as either a temporary or ongoing solution to address specific skills gaps.
“Partner” refers to collaborating with other businesses, particularly in highly specialised technology services, to turbo-charge digital efforts.
Interestingly, leaders from several ASX 200 businesses such as Mirvac, Dexus, Boral, Seven Holdings Group, SEEK, Energy Australia are on the record as favouring building in-house expertise over buying external capability. With mixed dynamic resourcing strategies available to them, why is it that top business leaders still prioritise internal capability building?
Innovation lives in-house
Business leaders continue to ask themselves “How do we build a new set of capabilities to harness digital innovation to create competitive advantage?”. Ideally, the ability to innovate is something that lives inside an organisation, not something that needs to be plugged in.
Afterpay leaders Anthony Eisen and Nick Molnar credit their innovative DNA to having the right digital and tech minds working inside the business. Instead of outsourcing, the pair have actively chosen to foster internal talent.
“We’ve built an incredibly experienced internal team for this [innovative] work, so that’s where we’d go first. We’re lucky to have such a wealth of talent at Afterpay with highly specialised skill sets.” – Anthony Eisen and Nick Molnar, CEOs, Afterpay
The creation of their Afterpay iQ product in less than eight months affirms the impact of internally-driven innovation. “We created Afterpay iQ entirely in-house, with our behavioural science team scoping the work and key insights they wanted to bring to life for merchants, and then working with our engineering team to bring it to life”, Eisen and Molnar report.
Innovation should ideally come from within, from the people who already know the business best. If this is to become a business priority, it will naturally require investment in the form of actively plugging existing skills gaps either through recruitment, upskilling or reskilling.
No need for cultural and technical ‘bridging’
By integrating specialised digital and tech talent into your organisation, you reduce the ongoing need for other members of your team to ‘bridge’ with suppliers or partners. Relaying instructions and context to external contributors is not efficient. It often requires your best people to articulate technical requirements across various business units and actively manage integration efforts.
One McKinsey study concluded that companies who implement internal capability-building programs as part of their transformations are 4.1 times more likely to succeed than those who don’t. By building internal capability, time and effort across the organisation as a whole can be streamlined and put toward other high-value business activities.
Added to this, if you integrate the right talent into your business permanently, you’ll give them the time to fully absorb your company’s technical and cultural norms, which will give you practical long-term skills solutions.
SEEK CEO Ian Narev observes that integrating specialised digital and tech talent into his organisation has been has been a a sustainable long-term long-term solution. This is because in building the right talent pipelines, the business sees longer-term ROI.
“Overall, we would rather spend the money building sustainable internal capability” – Ian Narev, CEO, SEEK
Faster “speed to market”
Maintaining a strong digital talent pipeline also means that businesses can get priority projects off the ground quickly. 85 percent of companies have picked up the pace of their digitisation efforts in direct response to the pandemic. In today’s hyper-competitive market, where staying one step ahead of the competition is imperative, those businesses best set up to rapidly respond to new technologies and trends have a distinct advantage.
Organising for speed has become a critical component of good business practice. Businesses are now viewing their internal capability planning as a key tactic in their ‘speed to market’ performance.
With the right capability in place, businesses can launch new initiatives efficiently to gain competitive advantage.
The Afterpay iQ platform example illustrates this point perfectly. In less than eight months, their in-house teams analysed 12 months of purchasing behaviour and over 150 million transactions in order to align the product with merchant needs before getting it to market.
It is hard to imagine an alternative solution involving external parties which achieved the same result in a comparable timeframe. This kind of speed and turnaround time is enviable for many companies who are working within the confines of external partnerships and supplier arrangements.
Securing intellectual property (IP) is an ongoing consideration for organisations driving innovative agendas. “Security concerns” represent the most common digital transformation barrier for more than a third of executives in the financial services industry.
When speaking of the importance of digital capabilities, Woolworths CEO Brad Banducci says their approach is to “deploy the best capabilities at all times, while also enabling us to own strategically important capabilities and IP.”
Woolworths reportedly hire and develop data science skills in-house rather than seeking external solutions. Having people with the right skills to lead machine learning and AI systems projects means that much of Woolworths digital marketing and personalisation activity is performed in-house.
There is no way of securing IP completely when it comes to what knowledge people possess of your business, products, processes and technology. That said, many business leaders see keeping that knowledge in-house as a risk mitigation mechanism and further reason to build strong digital and tech teams internally.
The pandemic brought major disruption for many organisations, revealing vulnerabilities that business leaders had never before acknowledged. In many cases, pivoting to digital services and online operations played a critical role in their resilience.
The pandemic also brought a kind of executive-level consensus concerning digital capabilities. Few leaders now debate the role of digital in helping them to achieve business success.
This realisation has subsequently required investment – and when it comes to people and capability, this investment typically is being funnelled in-house to build strong tech and digital functions.
It can be argued that talent and workforce planning have never been more integral to business performance. One recent study showed that organisations that can reallocate talent in step with their strategic plans are more than twice as likely to outperform their peers.
Onboarding the right digital talent won’t necessarily be easy for businesses, particularly given the currently compacted labour market. Securing the right digital capabilities likely will involve a number of starts and stops. Nevertheless, it is the most sustainable solution for those enterprises determined to move with the times, develop a lasting talent supply and thrive in an age of ceaseless digital disruption.
“Companies will need to be digital to play — but they will need the right strategy to win.” – Deloitte Insights