Insights

Buy, Build or Borrow? Developing Business Capabilities in an AI-Driven World

The rapid advancement and adoption of artificial intelligence (AI) is transforming industries and creating a significant gap between digital leaders and laggards. A recent McKinsey study[1] found that the spread in digital and AI maturity between top and bottom performers has increased by 60% over the past three years, with leaders outperforming laggards by two to six times on total shareholder returns (TSR) across every sector analysed.

Organisations must carefully consider their approach to acquiring the necessary skills and capabilities to thrive in this new landscape. Conducting a thorough capability gap analysis and assessing the strategic implications and the organisation's risk appetite is crucial. This involves understanding the nature of the problem or opportunity, assessing the urgency of addressing it, and determining whether the capability is a strategic, long-term need or a short-term requirement to close a gap. External and internal factors, such as market trends and organisational culture, also play a significant role in decision-making.

A Balanced, Strategic Approach

When it comes to acquiring AI capabilities, organisations typically face three options: buy, build, or borrow. A recent Deloitte study[2] found a strong inclination among companies to buy needed AI skills from outside rather than build from within, with a 3:1 preference for hiring new AI-ready talent over retraining existing staff. However, given the scarcity of AI talent and the intense competition for these skills, relying solely on a "buying" strategy may not be sustainable in the long run.

Forward-thinking organisations recognise the need for a balanced approach, combining targeted hiring of specialised skills (“ie. buying”) with a strong focus on building capabilities internally. Some organisations are establishing in-house training academies (ie. “building”) to train their own software developers to create AI solutions, IT staff to deploy them, and employees to use AI in their workflow, while others are partnering with external education providers to upskill their staff (ie. “borrowing”).  Key to setting the path for this acquisition of capability is understanding the urgency and scale of the task facing your organisation.

Understanding the Board’s Risk Appetite

Determining which option to take requires capabilities in skills assessment, gap analysis, and governance practices. Continuous evaluation of indicators and metrics is crucial for anticipating emerging business challenges and opportunities in the rapidly evolving AI landscape. Organisations must align their board-endorsed strategies with policies and management systems to effectively manage risks and drive innovation. The board's risk appetite directly impacts organisational strategy and risk management.  Clear communication of the risk appetite across all levels of governance is essential, particularly when dealing with disruptive capabilities such as AI.  Understanding of the potential consequences, and being prepared, will yield positive results. Continuous monitoring and review processes are necessary to learn from both successes and failures.

Organisational culture also plays a critical part in managing the risk that comes with developing new capabilities. In particular, developing a learning culture supported by suitable incentives and governance to drive continuous learning is essential for innovation and enterprise adaptability. Senior executives must prioritise time and resources to upskill themselves and be role models for their organisations.  Importantly, this needs to occur during work hours and not up to employees to do in their spare time.  This comes with understanding the implications of both action and inaction, as well as the range of potential outcomes, such as the impact of AI on job roles and the future of work.

Figure 1: The “People-Process-Technology” (PPT) framework updated for the AI-era

A Call to Action

So, how does an organisation consider and set in place the right strategy for it, considering its opportunity and environment?

1. Firstly, before considering widespread adoption of AI capabilities across your organisation, and before implementing AI into critical customer facing processes, understand the Board’s risk appetite and ensure appropriate policy settings and controls are considered – likely enhanced through some sort of pilots or contained trials;

2. Consider how the adoption of AI technologies complement the organisation’s purpose and core strategies, ensuring the path to their positive contribution;

3. Consider the urgency of “closing the gap” between the organisation’s current state and target state for acquiring AI capabilities, including the supportive role AI plays across other organisational capabilities;

4. Assess the maturity of local market capabilities that may be available to assist the acquisition process, being mindful that things may not always be what they seem when acquiring new capabilities; and

5. Ensure that any acquired capability (whether bought, built or borrowed) then comes to play in support of your organisation’s purpose and strategy, and operates within the controls determined for your organisation, and processes to review and update these settings as capability matures.

Organisations must find the right mix of buying, building, and borrowing capabilities to thrive in an AI-enabled world. This may require a combination of strategic hiring, broad upskilling and reskilling of staff, targeted borrowing of capabilities, and a clear vision for how humans and AI will collaborate in the future. By conducting thorough capability gap analyses, aligning risk appetite with disruptive technologies, and fostering a learning culture, organisations can effectively navigate the challenges and opportunities presented by AI-driven industry disruption.

[1] https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/rewired-and-running-ahead-digital-and-ai-leaders-are-leaving-the-rest-behind#/

[2] https://www2.deloitte.com/content/dam/insights/us/articles/6546_talent-and-workforce-effects-in-the-age-of-ai/DI_Talent-and-workforce-effects-in-the-age-of-AI.pdf

Acknowledgements

The primary source of content for this article was from experts in the Capability Network.  AI tools were used to synthesise and accelerate document production.

About Capability

For over 25 years, Capability has been helping many of Australia’s leading organisations grow, digitalise, and optimise their business through execution capability. As a boutique Melbourne-based management consultancy, we differentiate our services through thoughtful balancing of strategy and governance advice with decades of pragmatic implementation experience.  Our leaders are distinguished by their repeated success through multiple organisations, and all have previously held leadership roles in both professional services and industry. 

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