Should We Develop Capability Internally or Hire Externally?

"We need CFO/FD capability. Should we develop our finance manager over 18 months or hire a CFO/FD now?"

The make-or-buy decision. Choose wrong: £220K-£260K wasted.

The Decision Framework

DEVELOP INTERNALLY when:
• Core to competitive advantage
• Long-term sustained need
• 12-18 months available
• Internal person has potential
• Can tolerate learning mistakes

HIRE EXTERNALLY when:
• Large expertise gap
• Immediate need
• High cost of mistakes
• Market window closing
• No internal potential

FRACTIONAL HYBRID when:
• Want both: External expertise + internal development
• Use fractional 6-12 months while developing internal
• Lower cost and risk

The £70K Make-or-Buy Failures

Failure 1: Developed When Should Have Hired

£19M business needed CFO/FD capability.

Decision: Develop finance manager (save money)

18-month attempt:
• Courses, training
• Costly mistakes: £70K+
• Still not CFO/FD-level after 18 months

Should have: Hired fractional CFO/FD £78K-£117K annually
• Prevented additional £130K mistakes (£70K already incurred + £130K avoided)
• Developed manager properly
• Had capability immediately

Cost of wrong choice: £70K training + £70K mistakes + £78K-£117K eventual fractional = £218K-£257K total

Right choice: £78K-£117K fractional annually (saves £140K+ in mistakes and delays)

Failure 2: Hired When Should Have Developed

£8M business needed customer success capability.

Decision: Hire CS Director £120K

12-month result:
• Director excellent but role not big enough (20 clients)
• Left after 14 months

Should have: Developed internal CS Manager
• Capability was core
• Had 12+ months
• Internal understood clients/culture

Cost: £200K wasted

The Five Diagnostic Questions

Question 1: Capability core to competitive advantage?
• YES → Develop (build it your way)
• NO → Consider hiring

Question 2: Have 12-18 months for development?
• YES → Develop might work
• NO → Must hire or fractional

Question 3: Is the expertise gap large?
• LARGE → Hire (cannot bridge quickly)
• SMALL → Develop

Question 4: Have internal person with potential?
• YES → Develop (if time available)
• NO → Hire

Question 5: Cost of mistakes during learning?
• HIGH → Hire (cannot afford errors)
• LOW → Develop (can tolerate learning)

Scoring:
• 4-5 "Develop" → Build internally
• 4-5 "Hire" → Hire externally
• Mixed → Fractional hybrid

The Fractional Approach

How it works:

Months 1-3: Fractional builds foundation
• Immediate expertise
• Sets up systems
• Identifies gaps

Months 4-6: Fractional + Internal together
• Internal works alongside fractional
• Learning by doing together
• Progressive handover

Months 7-12: Internal takes ownership
• Internal runs systems with supervision
• Fractional reducing involvement
• Testing independence

Month 13: Fractional exits
• Internal owns capability
• Systems running
• Fractional available if needed

Cost: £78K-£156K vs £140K-£180K permanent
Benefit: External expertise + internal capability permanently

Frequently Asked Questions

When should I develop capability internally vs hire externally?

Develop when: Core to advantage, 12-18 months available, small expertise gap, internal potential, can tolerate learning mistakes. Hire when: Large expertise gap, immediate need, high cost of mistakes, market window closing, no internal potential. Wrong hire costs 1.5-2.5× salary – £200K+ for senior talent (CIPD). External hires have higher failure rates (Wharton). Fractional works when you want both external expertise and internal development.

What is the fractional executive approach?

Fractional uses an experienced executive 1-3 days weekly for £78K-£156K annually instead of permanent £140K-£180K. Use when: Want to test before permanent, need immediate expertise while developing internal, not ready for full-time. Fractional builds foundation 6-12 months, internal learns alongside, fractional exits when internal is ready. Combines expertise with development at lower cost and risk.

How much does the wrong make-or-buy decision cost?

Wrong decision costs £200K-£400K through: (1) Developing when should hire: 18 months: £70K training + £70K mistakes = £140K, still need hire £140K-£180K, total £210K-£257K vs £117K-£175K for 18 months of fractional from start (saves £93K-£82K). (2) Hiring when should develop: £140K salary for underutilised hire who leaves, £60K recruitment, total £200K wasted. Right choice: Develop core capabilities. Hire/fractional for specialized immediate needs.