Build, Borrow, or Buy

CHAPTER 3

When to Borrow via Contract

Basic Contract Versus Alliance

Once you’ve determined that you need to seek resources externally, you must consider what kind of outside sourcing mode to use: basic contract, alliance, or acquisition. Faced with these three options, many firms jump straight to an acquisition. When the target firm has the desired resources, they assume that ownership through acquisition is a prerequisite of competitive advantage. And yet borrowing resources via a basic contract or an alliance could prove to be an adequate—even a superior—pathway.

You neglect these lower-intensity borrowing options at your peril. Used appropriately, basic contracts and alliances provide access to third-party resources under more flexible ...