Build, Borrow, or Buy. Laurence Capron

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СКАЧАТЬ sector emphasized in-house R&D, production, and marketing resources. Companies relied mainly on organic growth, missing out on contributions from external innovators. During the subsequent decades, developments in biotechnology and genomics—amplified by the global spread of innovative resources—prompted many pharmas to open up their R&D processes to accommodate a mix of contracts, alliances, and acquisitions. Today, major pharmaceutical firms around the world—such as Eli Lilly (US), Sanofi-Aventis (France), Teva (Israel), and Astellas (Japan)—commonly pursue innovation and research as much outside as inside their own laboratories.

      Thus, pharmaceutical firms are transforming themselves from the old self-contained, fully integrated model into a far more open and flexible networked model. In response to this new openness, a profusion of resource providers has emerged to serve the pharmaceuticals’ growing appetite for knowledge assets and development tools.

      This transformation is not unique to the pharmaceutical sector. Information technology is fueling a boom in firms specializing in knowledge development and aggregation and analytics. No matter the industry, the ability to obtain resources in different ways requires that you learn and master when to build, buy, or borrow resources.

      All three major approaches to growth—build, borrow, and buy—are vitally important. Internal development projects, contracts, alliances, and M&A constitute tens of thousands of deals worldwide each year. Moreover, the growth in each type of activity involves nearly all industries and countries—with ever-greater volumes of cross-industry and cross-border investment and deals.

      In all this activity, there is no discernible global shift from one dominant form of obtaining new resources to another. Instead, businesses increasingly require a sophisticated, enterprise-wide ability to use multiple modes of obtaining targeted resources as circumstances warrant.

      Beating Different Paths to the Same Place

      The choice of a path is neither obvious nor easy, but is unique to a particular company. Therefore, two companies from the same industry, facing similar competitive forces, might select different paths to obtain new resources. Assuming their choices were made by a careful consideration of multiple options, both paths could be right for those companies. Conversely, if each firm reflexively chose its traditional preference, the choice would only be the right path by accident!

      Companies in the smartphone industry employ a wide variety of pathways to market these multifeatured devices. While some firms’ selections show signs of careful consideration—including a sophisticated recourse to multiple strategies for different elements of the same innovation—others seem more a matter of trial and error.

      For example, Nokia initially used a borrow strategy, forming an alliance in 1998 with the UK software firm Psion (in conjunction with Ericsson and Motorola) to develop the Symbian operating system. To gain full control of Symbian, Nokia eventually bought the operating system from Psion in 2004. Research In Motion, meanwhile, has pursued a build strategy to make its successful BlackBerry line more smartphone-like. But the company has yet to demonstrate that it has the necessary resources for internal development alone. And HP resorted to a buy strategy for its ticket into the smartphone market. In 2009, it acquired Palm, maker of the Palm personal digital assistant (PDA) and developer of the webOS operating system, which HP planned to use in devices ranging from smartphones to PCs. Apple, meanwhile, followed a sophisticated build-borrow-buy strategy for its iPhone, taking the lead in designing the operating system, while pursuing and managing various technology licenses and alliances for other components and making a few key acquisitions. Google, joining the smartphone fray from its leading Internet position, has used both buy and borrow strategies. It acquired the mobile software firm Android in 2005 and then supported the platform through an industry consortium of hardware, software, and telecommunication companies, complemented with alliances with smartphone providers such as HTC and Samsung.

      Traditional publishing firms have also followed divergent paths to fill digital resource gaps. Publishing e-books, online magazines, and other digital assets calls for skills both highly diverse and distinct from those of traditional publishing. Among them are the abilities to create multiplatform content, master data analytics, and interact with online communities.

      To close its digital resource gaps, the Finnish media company Sanoma Group acquired a Dutch digital publishing company, Ilse Media, which then drove digital growth across the company. Axel Springer, the leading German publishing group, made significant internal investments in building the digital skills of its existing journalists and marketing people while creating integrated newsrooms and a cross-media advertising sales group.

      Springer quickly discovered that it couldn’t generate enough growth by turning traditional print into digital formats. So it changed paths and embarked on multiple acquisitions of “native” Internet businesses (AuFeminin.com and immonet.de) that were only indirectly related to core print activities. Springer has operated the acquired businesses on an arm’s-length basis as it decides how best to integrate them over time. This example—like others whose first path chosen was eventually abandoned—shows how an ill-considered selection may produce disappointing results.

      The British publisher Pearson Group pursued a mixed buy-build strategy, acquiring digital companies even as it sought to upgrade the skills of internal staff and to bridge the cultural divide between digital and print media. And the Associated Press entered into long-term partnerships with selected technology providers rather than acquire or develop internally the technical skills needed to create digital offerings.

      In the automobile industry, similarly, manufacturers have adopted different ways of obtaining premium-market resources. Toyota has used internal growth to make inroads on the premium market with its Lexus branded cars. Many other firms have used acquisitions to rapidly acquire premium technologies and brand names. The Indian conglomerate Tata bought Jaguar in 2008 from its US parent, Ford, and the Chinese car firm Geely acquired Volvo in 2010, also from Ford. Still other car firms have turned to contractual agreements: the Romanian automaker Dacia licensed technology from Renault (and later became part of the French firm). There are also more substantial partnerships, such as the multiproduct alliances between the French automaker Peugeot-Citroën and the Japanese automaker Mitsubishi Motors (on 4×4 and electric vehicles in 2005 and 2010, respectively) and the Franco-German equity joint venture formed in 2011, BMW Peugeot Citroën Electrification, to develop hybrid systems.

      With all that choice, how do companies select the right path to obtain a specific resource that they need? Do they follow specific guiding principles? Do the principles depend on the nature of the gap, external pressures, internal skills and personnel, costs, the need to act quickly, the CEO’s inclinations, or other factors? In reality, all these conditions are relevant when a company seeks strategic resources.

      Given the stakes, you might expect that companies would have well-developed processes for selecting the best mode for acquiring new resources. But dysfunction is surprisingly more the norm than the exception. Our research over the years has shown that executives are often confused about the best way to obtain resources. They lack access to tools, guidelines, or even shared company wisdom that would help them make sound decisions. The following example—from a study we conducted in the global telecom industry—illustrates the consequences.

      The Implementation Trap

      In the late 1990s, a leading European supplier of telecom technologies, with a strong position in voice technology, launched an effort to compete in the fast-developing data environment. The company—well known for its superior engineering skills—had long favored internal R&D, so that was the path it chose. Because most data-networking innovation was then occurring in Silicon Valley, the company had difficulty competing СКАЧАТЬ