Make-buy decisions in the face of radical innovations.

Abstract

Some research in the area of make-buy decisions for new technologies suggests that it is a good idea for a company to pursue a fairly rigorous “make” policy in the early days of a potentially disruptive innovation. Other studies prescribe exactly the opposite, promoting instead a “buy” strategy. This lack of convergence points to the fact that the scheme of categorization used to analyze make-buy decisions in the face of radical innovations is not yet complete. Accordingly, this thesis builds upon prior work on make-buy decisions and disruptive technologies, and constructs two new hypotheses by introducing evidence from research in the areas of (1) supplier relationships and (2) industry clockspeed. Using a three-phase research design involving both case studies and a survey, this research shows that close relationships between customer firms and principal suppliers that are built on trust and personal relationships do not play an important long-term role in the development of radical innovations. Thus, while previous research in this area underlines the value of these relationships during the day-to-day operations of a business, this evidence draws into question whether they are helpful in the face of a radical innovation. The results also show that an industry’s clockspeed has no significant bearing on the success or failure of any particular make-buy strategy for a radical innovation. Because many of the prescriptive frameworks and strategic formulas put forward in the literature for make-buy decisions involving radical innovations are based on observations from fast clockspeed industries, this conclusion effectively broadens the potential applicability of prior research in this area.