Build, Borrow, or Buy. Laurence Capron

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      Ultimately, the company’s executives realized that they lacked not only the necessary technical skills but even the industry contacts and level of insight needed to identify best-of-breed technologies, consulting partners, and top talent. So they forged an alliance with an up-and-coming firm in Silicon Valley, hoping that the collaboration would help them quickly boost their market credibility and data networking skills. But the alliance lasted only a few months before disagreements between the partners over market and technology strategy caused a damaging bottleneck that undermined collaboration.

      After these internal development and alliance activities failed, the company finally decided to acquire three US companies and combine them into a new US-based firm that would run the data communication business for the corporate group. The acquisitions finally gave the company a credible position in data networking.

      An executive at this firm described the painful trial-and-error process, from building to borrowing to buying: “Each failure revealed more of this pattern: that we needed to reach a certain threshold of competency before we could run effective internal development or be an effective partner within an alliance. We had to finally turn to acquisitions in order to accelerate R&D.”

      The stories of this company and many others exemplify the implementation trap: a company works doggedly to perfect the wrong course of action. It plays out like this: faced with a need for new resources, a company pursues them in ways it believes worked in the past. For instance, R&D teams typically prefer to develop future capabilities through organic innovation. As one telecom executive told us: “We have superb technical skills on the engineering side. Internal people tend to think they should be given a chance to do it on their own. We need to break this perception barrier . . . We need to develop a capability to manage alliances and acquisitions. The issue is how you bring such process skills into our people’s mind-set.”

      Unfortunately, when companies do try to break that barrier by trying something new, they tend not to stick with it long enough. An executive at a leading US telecom company shared with us his frustration that his company, instead of exploring the roots of its early failures with alliances, simply ruled them out of future consideration.

      The result is that many firms adopt a small set of methods for managing their corporate development activities. Indeed, when adding to its strategic arsenal, the typical company relies heavily on just one dominant path—commonly either internal development or acquisitions—perhaps complemented with a supplemental method.

      For instance, our study of the telecommunications industry found that only one-third of the surveyed firms actively used more than two methods of obtaining new resources. About 40 percent relied heavily on one main way of growing. When those companies did add a string to their bow, it was usually just one additional pathway: for example, M&A to complement internal development.

      Reliance on only one dominant mode leads firms to believe that their success depends on working hard at implementing that mode. Business leaders often blame poor implementation when their firms struggle in the effort to add new resources. More than half of the 162 telecom firms we surveyed flagged implementation—particularly the lack of personnel and skills (67 percent) and an inability to integrate external resources effectively (50 percent)—as the primary cause of problems.

      But the blame is misplaced. The real culprit is an ineffective process for selecting the right paths for obtaining resources. Sticking to a familiar or popular path may work in the short term. But in the long term, the implementation trap becomes a self-reinforcing cycle, with each new resource an occasion for continuously improving implementation of the wrong activities. To be sure, firms that fall into the trap do end up doing the wrong things quite well. They then become deeply frustrated when they struggle competitively. Assuming that the cause is implementation perpetuates the problem.

      Instead, executives must think carefully about the important work that precedes implementation: the disciplined process of selecting the best way to obtain new resources. Firms that select the best path integrate new resources more quickly, cheaply, and effectively than do competitors. Our telecom study revealed that firms using multiple modes to obtain new resources were 46 percent more likely to survive over a five-year period than those using only alliances, 26 percent more likely than those using only M&A, and 12 percent more likely than those using only internal development.

      Of course, some companies invest considerable time and effort in their build-borrow-buy decisions. Throughout the book, we will draw on many of the firms we have studied, including well-known companies from around the world. But even leading firms can make mistakes, sometimes rushing into deals without thoroughly exploring the implications, or succumbing to internal or external pressures to favor one pathway over another. The discouraging results of such lapses remind the firms to reassert the necessary discipline. Let’s look now at what that discipline involves.

      Finding Your Resource Pathways

      The resource pathways framework allows you to compare the potential benefits and risks of all the possible sourcing modes and, ultimately, select the best option for obtaining needed resources. In devising the framework, we’ve assumed that your firm has developed its corporate strategy and identified its resource gaps—whether through structured planning activities or other more ad hoc processes. Nonetheless, the sidebar “Recognizing Resource Gaps” highlights problems that can arise if that work has not been done properly. As a useful preliminary, you may want to revisit initial strategic planning activities and confirm that identified resource gaps and targeted resources align well with your firm’s broader strategy.

      RECOGNIZING RESOURCE GAPS

      The old adage about errant computer data—“garbage in, garbage out”—applies to the challenge of correctly identifying resource needs. It’s unproductive to follow the right pathway to the wrong resources. Consequently, you need to make sure you target the right resources.

      Companies sometimes stumble at the initial stage of targeting the right resources for the strategy they have set, especially when they have enjoyed great success in a dominant core domain. When it comes time to pursue a new strategy, with a new product line or in a new market, companies’ past habits and expectations may lead them to misjudge the needed resources. Ingrained competencies, entrenched processes, and the power of existing brands can impede a clear-eyed assessment of resource gaps—particularly when the gaps result from disruptions in the competitive environment or from emerging fields or markets.

      A prototypical example of this type of failure occurred when successful producers of steam locomotives responded to new diesel and electric locomotives by producing the most advanced, cost-competitive steam locomotives ever seen. Despite their hard work, these once-famous companies disappeared into the mists of business history, seen only thereafter on the logos of toy trains.

      More recently, both Nokia and Research In Motion have struggled to respond to advances in consumer smartphones. Both companies overvalued the relevance of their existing internal resources in responding to advances from Apple, Google, HTC, and Samsung. Each has lagged badly in the smartphone market.

      A form of myopia prevents companies from seeing that their existing core resources are unequal to the competitive demands of the moment—a problem caused by misaligned resource-management strategies. Consider what happens when management is properly aligned. In the locomotive example of the early twentieth century, a few steam locomotive producers—perhaps most notably Siemens—recognized the opportunity to build on their existing resource base by allying with firms possessing expertise in diesel and electric technologies. They became leaders in the new field because they targeted the right resources—the ones they lacked internally but recognized as core to their future СКАЧАТЬ