"Brand" factor in make or buy decision

Buyers are heavily influenced by "Brand" in their purchasing decisions. It's a no-brainer to realize that in a consumer industry Brand is driven primarily by advertising and marketing. While product (or service) is also important, the experts in the consumer industry will unanimously agree that, differentiation is very difficult to achieve by a product centric approach.

The question I am trying to answer is "The role of brand in a B2B industry" ( which is more releavent for my line of work. ) Branding has a new flavor and meaning for a B2B industry. Here are some of them according to my experience:

• Product/Service innovation
• Quality of work
• Variety or range of solutions
• After Sales Service (Ex: HP)
• Parent brand association (Ex: Corning getting into telecom)
• Relationships (Ex: Intel and Microsoft)
• Natural affinity (Ex: Healthcare and Pharma)

While there could be some more, I have listed what I thought are important for discussion. What is more important I think is the consistency in the company's differentiation. Once the strategy is defined, it is very important that the company work's consistently on the differentiators. Obviously, it is impractical to differentiate on all the dimensions or only one dimension but to at least 2 dimensions gives the company options when competing.

While many B2B companies do some advertising for branding, they don't consider advertising to be their core strategy. "Word of mouth" or "Customer References" are most important than advertising in B2B branding. So the solution for B2B branding is primarily a two step approach.

1. Differentiation strategy: Align every function or department in the company to focus on the differentiators. (Ex: Innovation and relationship)
2. Consistent execution: to ensure Customers experience the differentiation.

This will lead to word of mouth and consequently the brand the B2B company wants to create.

Enterprise Buying Influences

Buying decisions in enterprises are complex. It is a panistakingly slow and long process in many cases of large enterprises. The diagram above is a very simplistic view of how buying decisions happen in enterprises. Depending on the company, business need and the size of the decision the weightage to the above percentages will change. For large buying decisions, more weightage is given to the left side and for relatively small buying decisions more weightages are given to the right side.

Buying score card!

This score card can be used to measure the value of your buy. I have an excel sheet which can be used and customized to your specific
requirements. Obviously higher the score, higher is the preference. Please feel free to contact me if you need a soft copy of this.

Make or Buy Decision making flow chart

P.S: You can email me if you want the soft copy of the above flow chart.

CK Prahlad's "Core competency of a Coroporation"

Urge you to visit biography of CK Prahlad if you don't know him. In summary, Prahlad is a renowned Management consultant, author and orator, well respected both by Indian and Western businesses.

In his HBR article on "The Core Competency of Corporation" (written in 1990) he stresses on concepts around how companies should invest in their core strengths. He compares NEC and GTE (now acquired by Verizon) and depicts with data on how NEC succeeded and GTE failed. At one point of time GTE was a much larger company than NEC. He stresses on the fact that every company should strive to find its core competency and stick to it. He says The critical task for management is to create an organization capable of infusing products with irresistible functionality or, better yet, creating products that customers need but have not yet even imagined. (I cannot help but quote Nintendo here, who is a market leader in Video gaming business just because of exploiting this "irresistible functionality".)

If C.K. Prahlad is right, the formula for success is clearly to be market focused and to create well differentiated products and services in the company's domain, there by gaining as much market share as possible. I have to agree, while this is simple to say and conceptualize, it is not something which we see in the real life. Companies have no business in diversification but today we see every big corporation has business units, which are clearly in Red. Diversification is a choice of investor and not the company. Today business units function like companies themselves and do whatever they can to survive and create "false hope" which slows down the conglomerate as a whole. I really like the GE philosophy of being 1st or 2nd in the market. If business units cannot create or help create appealing products and there by gaining market share, they have no business justification to be a part of the company.

Here, I want to take the example of a typical Indian IT company and debate what goes around. We have so many support units such as HR and Finance which cut across number of business units in an IT company. In almost all the IT companies I know of, these support units hold more power and influence on the business than, the business decison makers. While I am not underplaying the support unit's role, the call on the business should almost always be done by a business leader and not a support unit. Why this is not a visible problem? My answer: The rate at which many of our IT companies are growing, because of the demand, has not exposed the problem. I am betting that this problem will be exposed in this downturn and companies evolve and change for good. We can never outsource Finance or HR decisions which are very closely aligned to the growth of the IT business but we can definitely outsource some support functions such as back end processing, procurement, operations etc.,

"Revenue maximization" and "cost optimization" is always a tussle between business units and finance. This is an interesting topic and I will cover this in subsequent blogs but my point is that no company can grow with "Cost Optimization" as its core strategy. There is no doubt that companies should be lean and mean to be competitive and cost efficient but "Cost optimization" cannot be the core strategy of any company. I believe this economy will actually help companies to shake out that extra fat and be lean and mean.

CK Prahlad's ideas around core competency hold good even today. Businesses cannot afford to create business units, which are not aligned to their core competency. If businesses really want to succeed and gain market share, businesses should focus on creating compelling products and creating core competencies in their domain and allow non-profitable and inefficient businesses to fail. In this economy, this concept is mandatory and not optional for every company.

Make vs Buy made simple

At one point in human civilization, everybody must be making stuff. Nobody probably thought about not making until Barter system was in practice. Barter system made things better but had problems of its own. It was a difficult and impractical system to follow until money was evolved. Money made acquiring things very simple for (wo)mankind. After Humans invented money, the concept of buying came to practice. Of course, the consequence was that fundamentally all human beings, families, communities, businesses, cities, districts, countries and now a days even continents(Euro) are driven by this omnipotent and omnipresent money, which I love to call "Vitamin M".

What is my point? With money, everybody have a potential to buy. However, consciously or unconsciously, we make this "Make" vs "Buy" decision for every transaction we make. For example, let's take one of the fundamental decision every body has to take 3 times a day (for some it could be more), which is food consumption. On every instance, we make a choice whether to cook at home or eat out. There are many reasons why we decide to one over the other. Here are some of them:

1. Cost
2. Effort
3. Convenience
4. Variety/Flavour
5. Quality
6. Time

I do agree that above list is not exhaustive but should cover all the bases. Think of these variables as inputs to our decision making process, which should finally help us to make the decision. Depending on the situation we apply this decision making process for our daily needs.

If this is a simple process to understand, what I do not understand is, why many companies waste billions of dollars of their investments on making things which they are not supposed to and buying things which they are supposed. (Vice versa is also true). I will leave this thought here and will try to expand further in next blogs.

Purpose of this Blog

The primary purpose of this blog is to create excitement about what I am trying to do around the age old concept of "Make or Buy" decision.

I will be writing blogs, introducing tools and posting information releavent to this concept.

I also encourage viewers of this blog to contribute with comments, ideas and information.