Make or Buy decision in IT: The EFS Consulting approach before IT-Sourcing starts

Key Takeaways

• A Target Operating Model (TOM) provides the foundation for defining core vs. non-core services and linking them to the Plan–Build–Run framework 

• Typical sourcing patterns include full outsourcing, full insourcing, and hybrid models, each with distinct advantages and trade-offs 

• Comparative assessments across five dimensions (cost-effectiveness, technology & innovation, service quality, collaboration, and risk management) enable informed decisions 

Target Operating Model 

A Target Operating Model describes the desired future setup of an organization’s IT functions, including the structures, processes, and responsibilities needed to deliver services. It defines which capabilities are kept in-house (Core) and which are outsourced (Non-Core) and links them to the Plan–Build–Run framework.  

The Plan-Build-Run framework separates activities into strategic planning and design (Plan), solution development and integration (Build), and daily operations (Run). While other approaches such as the ITIL service lifecycle or DevOps models can also be applied, the Plan–Build–Run structure is widely used in practice for its clarity and straightforward alignment with make-or-buy decisions. 

Definition of Make-or-Buy decisions IT 

In general, make-or-buy can be defined as the decision to either produce a product or service internally or to obtain it from an external provider. In the context of IT, this decision extends beyond user support and also encompasses areas such as infrastructure and development: 

1. Applications: in-house development or purchase of market-ready application/joint development with the IT-Service provider. 
2. Infrastructure & data hosting: operation of own data centre or hosting in the cloud 
3. Support: in-house or external support for applications or infrastructure (server, network, client etc.)  

An important consideration in the Make-or-Buy decision is the distinction between core and non-core services: 

Core Services  

Core services are those that are directly tied to a company’s strategic objectives, competitive advantage, or critical business processes. They are often seen as essential to maintaining control, ensuring quality, and promote innovation, particularly in areas such as IT security, business continuity, and unique market positioning. 

Non-core services 

Non-core services are supportive in nature and do not directly influence the company’s strategic positioning. 

This classification is typically embedded in a Target Operating Model and provides the basis for a structured strategic discussion on where in-house capabilities add the most value and where external sourcing can be used most effectively. Organizations may choose to retain core IT services in-house to preserve expertise and control, while outsourcing non-core services can reduce costs, increase efficiency, and free up internal resources for more value-adding tasks. 

In practice, sourcing decisions are rarely clear-cut. While Run activities are often easier to outsource due to their operational nature, Plan activities are typically retained in-house to secure strategic control. The following three patterns are among the most common:  

• Full outsourcing model: typically found in cost-driven organizations aiming to minimize internal operations and reduce fixed costs. 
• Full insourcing model: often chosen by organizations handling highly sensitive information or requiring maximum control over IT functions. 
• Hybrid sourcing model: a mixed approach where Run (and in some cases Build) activities are sourced externally, while Plan functions such as architecture and requirements engineering remain internal.

Comparative Assessment of Make-or-Buy Decisions 

In the following chapter, the Make and Buy options are evaluated across five overarching dimensions of every sourcing decision, which EFS Consulting has established to support strategic sourcing goals: 

1. Cost Effectiveness: evaluation of initial, operating and long-term costs 
2. Technology & Innovation: assessment of future readiness, scalability as well as required know-how, infrastructure and compatibility with existing systems and standards 
3. Service Quality: encompasses technical and functional requirements among other things 
4. Collaboration: takes into consideration the model of collaboration and cultural fit 
5. Risk Management: analyses aspects such as vendor dependency, data security or regulatory requirements 

This comparison provides a basis for making informed and aligned sourcing choices. In the case of hybrid models, the advantages and disadvantages of both make and buy approaches are combined, resulting in a trade-off between flexibility, control, and efficiency. How this balance plays out in practice must be assessed individually in each case. Leveraging its extensive experience in strategic sourcing projects, EFS Consulting can provide structured assessments, tailored recommendations, and hands-on support to ensure that sourcing decisions are both effective and aligned with long-term business objectives. 

1. Cost-effectiveness 

Make: By performing a service itself, companies maintain full control over cost management, optimizing both initial and long-term expenses. The key benefit is a clearer understanding of the total cost of ownership (TCO). On the downside, significant upfront investments and internal resources may be required to secure a high quality of operations. This is largely dependent on the extent the company already has experience with internally delivering IT services, e.g., if the required infrastructure is available or if the company has the people with the required knowledge available. 

Buy: Buying a service can offer substantial cost savings by leveraging external economies of scale and reducing operational overhead. This is particularly true, if a standard solution gets purchased. On the other hand, hidden expenses can arise, especially in contract renewals or additional service requirements, if the contract is ambiguous or not sufficiently detailed. 

2: Technology & Innovation 

Make: Companies benefit from the ability to directly influence technological decisions and create customized solutions that align with their strategic goals. The challenge, however, is the ongoing investment and capacity needed to stay ahead of technological trends and ensure systems remain up-to-date. Furthermore, the level of expertise available in the company can significantly influence the extent to which innovations can be brought in. 

Buy: By buying a service, businesses gain access to state-of-the-art technologies and expertise, which can provide a competitive advantage. However, this also creates a dependency on the vendor’s ability to innovate and respond to market changes, which may limit flexibility. 

3. Service Quality 

Make: With performing a service itself, companies have direct oversight of quality standards, enabling quicker adjustments when issues arise. The trade-off is that this places a significant burden on internal teams to continuously maintain and monitor quality levels. Furthermore, particularly in the early stages, a solution might not meet the expected service quality as the internal teams need to gain more experience in handling the solution. 

Buy: Buying a service often guarantees consistent service quality through Service Level Agreements (SLAs), offering clearly defined benchmarks. However, the risk of quality variation exists if the vendor faces challenges or fails to meet the agreed-upon standards. 

4. Collaboration 

Make: Internal teams benefit from closer collaboration, ensuring that goals are aligned and decisions can be made quickly. On the downside, conflicting internal goals can hinder cross-departmental collaboration. 

Buy: Effective collaboration with external vendors relies on a clear communication framework and a well-defined working relationship. Cultural differences like language barriers or misaligned expectations can, however, create barriers to smooth interaction and lead to misunderstandings. 

This dimension gains particular importance when the mode of delivery gets changed. If a solution previously outsourced gets insourced and vice versa, the change needs to be actively managed to ensure smooth implementation and stakeholder buy-in. This involves clear communication of the reasons for the change, the benefits it will bring, and the steps involved in the transition to prevent resistance to change. Additionally, if a solution gets insourced, training programs should be established to equip employees with the necessary skills and knowledge to adapt to new processes and technologies. 

5. Risk Management 

Make: Provides a high level of control over risks, as the organization can directly manage both internal and external factors and is directly responsible for providing the solution. Thus, the organization itself can establish and monitor the necessary security precautions. However, managing all risks internally can stretch resources, especially when scaling or addressing unforeseen challenges. 

Buy: The purchase of a service can shift certain risks to the vendor, allowing the organization to leverage external expertise in mitigating potential threats. On the other hand, relying on the vendor increases dependency, which can lead to vulnerabilities if the vendor faces instability or disruptions. 

Strategic Takeaways 

In summary, while providing a solution in-house benefits from having full-control over the entire process of service provision, potentially higher costs and lack of internal resources and knowledge are factors speaking against internally providing particularly non-core services. IT-Service provider can provide out of the box solutions, which are available within a short amount of time and can offer cost-effective delivery models, e.g., by selecting the adequate shoring model. To be able to leverage the benefits of buying IT-solutions, the process of selecting and manage external providers needs to be well governed. The table below summarizes the key arguments. 

Conclusion 

Ultimately, make-or-buy decisions in IT are never purely cost-driven but must balance strategic control, innovation, quality, collaboration, and risk. A structured assessment across these dimensions enables organizations to identify the sourcing model that best fits their long-term business objectives. 

At EFS Consulting, we combine deep expertise in IT strategy with hands-on experience in complex sourcing projects. We support organizations in designing Target Operating Models, evaluating sourcing options, and managing transitions to ensure sustainable results.