Digital transformation does not only change how work is performed; it can change which work belongs inside the enterprise at all.
A company may outsource analytics because it lacks data infrastructure. It may buy condition-monitoring services because suppliers own the specialist tools. It may rely on consultants because internal teams cannot integrate information across business units.
Then digital capability improves.
Data becomes accessible. Internal analysts learn the process. Dashboards standardise decision routines. Teams can estimate service costs, identify performance gaps and automate work that once required external support. At that point, the original make-or-buy logic has changed even if the contract has not.
This is an underappreciated consequence of digital transformation. Capability accumulation can redraw the organisational boundary.
The Strategic Context
Pagoropoulos, Maier and McAloone's 2017 action-research study in the maritime industry examined how institutionalising digital capabilities affected Product-Service Systems, or PSS. PSS combine products and services into integrated value propositions, often requiring close collaboration between customers and external providers.
The study began with a proposition that stronger digital capability in the customer organisation would reveal opportunities for procurement and co-development of PSS. The results only partly supported that proposition. Digital capabilities facilitated internal development and strategic co-development, but they also reduced some opportunities for externally procured services.
The researchers observed that data integration and business-intelligence capability helped internal stakeholders standardise processes, identify improvement opportunities and use existing resources more effectively. External stakeholders remained important, particularly for strategic collaboration and innovation, but the network delivering services changed.
The implication is broader than maritime services. When information and analytical capability shift, transaction boundaries can shift with them.
What Leaders Commonly Misread
The first mistake is to treat make-or-buy as a static sourcing decision. It is actually a capability decision whose answer can change as cost, knowledge, technology and strategic importance change.
The second is to assume digital capability always increases outsourcing because platforms make suppliers easier to integrate. Sometimes it does. But better internal data and analytics can also make previously specialised services economical to perform internally.
The third is to equate internalisation with independence. A company may bring service delivery inside while becoming more dependent on cloud providers, software vendors, data standards or specialist technology partners.
The fourth is to assume standardisation and innovation always reinforce each other. The maritime study found that digital capability supported standardisation strongly, while more disruptive innovation could be harder to absorb when it disturbed the standardisation process. That tension deserves active management.
Reframing the Issue
The make-or-buy question should not be framed as “Can we do this ourselves?”
The stronger question is:
Which capabilities should the enterprise own because they shape advantage, learning, control or future options, and which should it access through partners because external scale and specialisation create more value?
Digital transformation changes the answer by changing four variables.
Information asymmetry: internal teams can see more of the process and may no longer depend on suppliers to interpret performance.
Coordination cost: shared data and standardised workflows can reduce the effort needed to deliver services internally or coordinate partners.
Knowledge accumulation: repeated internal analysis builds domain capability that can become strategically valuable.
Supplier differentiation: capabilities that were once rare can become less distinctive when customers acquire similar digital tools.
These are operating-model changes, not IT benefits.
When Digital Capability Favors “Make”
Internalisation becomes more attractive when the activity is frequent, data-rich, close to core operations and important for continuous learning.
For example, a manufacturer may historically outsource production-performance analysis to a specialist. Once machine data, ERP data and quality information are integrated internally, engineers may be able to diagnose losses continuously. The external provider may still add value for advanced modelling or benchmarking, but routine interpretation moves closer to the plant.
Internal capability can also improve cost transparency. The maritime research highlighted the role of cost estimation in making organisations more responsive to threats and opportunities. Better cost understanding exposes cases where an externally supplied service no longer justifies its margin.
But internalisation carries opportunity costs. Talent must be recruited and retained. Tools require governance. Internal teams can become insular. Scale may be insufficient. The ability to perform an activity does not automatically mean the activity belongs inside.
When Digital Capability Favors “Buy” or “Co-Develop”
External capability remains attractive where innovation cycles are fast, specialist expertise is scarce, scale advantages are material or the activity does not create strategic learning.
Co-development is especially valuable where the enterprise owns operational context and data while partners bring specialist technology or cross-industry knowledge. In such arrangements, digital maturity can improve the partnership because the customer becomes a more capable co-creator rather than a passive buyer.
This produces a more nuanced operating model than simple outsourcing or insourcing. Routine service delivery may move inside while frontier innovation remains collaborative.
That pattern is consistent with the maritime study's observation that internal stakeholders became more important in service delivery while external stakeholders retained strategic roles.
Decision Framework
Use five tests when digital capability changes a sourcing boundary.
| Test | Question |
|---|---|
| Strategic learning | Does performing this activity improve knowledge we need to compete or operate safely? |
| Scale economics | Can internal volume justify the fixed capability cost? |
| Differentiation | Does the supplier possess genuinely distinctive capability, or mainly tools we now also possess? |
| Control and risk | What operational, cyber, data, continuity or IP risks change if the work moves? |
| Innovation access | Will internalising the activity reduce exposure to external ideas and specialist development? |
The output need not be binary. Classify activities as:
Own: strategically differentiating or knowledge-critical capability.
Partner: capability where joint development creates more value than either party alone.
Buy: scalable, non-differentiating service where external economics dominate.
Automate or retire: activity whose original value proposition disappears as digital capability improves.
From Strategy to Execution
Immediate action is to review major service contracts against current internal digital capability, not the capability that existed when the contract was signed. Look for services whose value proposition depends primarily on data access, reporting or analysis that is now available internally.
Medium-term capability building requires explicit capability ownership. Digital programmes should identify not only systems to deploy but also the decisions and skills the organisation intends to own afterwards. Otherwise, technology can be implemented without changing dependence.
Create internal capability deliberately where it compounds. If each cycle of analysis improves process knowledge, internal ownership may build an advantage over time. Conversely, avoid rebuilding commodity services internally simply because tools make it possible.
Long-term positioning means managing the supplier ecosystem as a portfolio of capabilities. As the internal boundary shifts, suppliers should move towards areas where they create distinctive value: advanced technology, external benchmarks, innovation, specialist engineering, integration or capacity surges.
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Signals to Monitor
Watch whether external services increasingly reproduce analysis already available internally. That may indicate value leakage.
Monitor internal capability utilisation. If a newly built analytics team remains dependent on suppliers for basic interpretation, the organisation may have bought tools without institutionalising capability.
Track supplier innovation contribution separately from service volume. A supplier can become more strategically valuable even while routine spend falls.
Also monitor the standardisation-innovation tension. When every digital initiative is forced into one standard process too early, the organisation may suppress experimentation. When every team creates its own tools, the organisation loses scale and control. The boundary between exploration and standardisation should be designed deliberately.
Questions for the Leadership Team
- Which outsourced services exist mainly because we lacked digital capability when the contract was created?
- Which capabilities create learning that should compound inside the enterprise?
- Where do external partners still possess genuinely distinctive knowledge or scale?
- Are we internalising work because it is strategically valuable, or merely because we now can?
- How has digital capability changed supplier power and information asymmetry?
- Which services should move from procurement to co-development rather than simple insourcing?
Closing Perspective
Digital transformation changes more than process speed and reporting quality. It changes the economics of organisational boundaries.
As information becomes internal, expertise develops and coordination costs fall, work that once belonged to suppliers may become core capability. At the same time, external partners can become more valuable where innovation and specialised knowledge matter most.
The strategic task is not to maximise insourcing or outsourcing. It is to keep redrawing the boundary so that the enterprise owns what compounds advantage and partners where the network creates more value than ownership alone.
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