- What is the best way for you to build innovative capabilities and culture?
- Should you develop in-house capabilities further or buy them?
- Do you know where assets and capabilities needed are located and/or available?
- Do you know how to find attractive assets, partnerships and alliances?
- How do you protect and realize value once you have acquired the companies?
While the majority of respondents stated that they are relying on organic growth to fill their digital gaps, it is telling that 59% revealed that they do not have the in-house capabilities required to respond to digital transformation.
Organic digital initiatives can take years to reach the bottom line. M&A, JVs and alliances provide the fastest strategic route to digital transformation and growth.
In the face of rapidly accelerating change, our findings reveal that more companies are turning to M&A, partnerships and alliances. Two-thirds (67%) of companies are planning to use M&A to upgrade their digital capabilities in the near future, up from the 53%.
In our survey, 90% of respondents are facing increased competition from companies that have embraced digital. Of those, 62% said those rivals had reached their competitive position inorganically. However, only 48% of respondents have themselves completed acquisitions in the past two years that were designed to support their own digital transformation. Again, an effective digital strategy underpinned by a digital Capital Agenda will help enable innovation.
What companies have acquired and what they want to acquire
In the past, the majority of companies have focused on buying customer-facing and advertising/marketing technologies (34% and 32%, respectively). However, both of these are set to fall in the future.
The key growth areas in terms of acquisitions are analytics and cybersecurity. In past deals, only 20% of respondents were concentrating on these subsectors — this rises to 27% in terms of future deals. Yet, despite this growth, analytics and cybersecurity are still the smallest proportion of all the capabilities that companies are looking to buy.
It would appear that, as companies become more comfortable with technology and progress, their digital strategy, in line with industry innovation capabilities such as payment and processing solutions and 3D printing solutions, will grow.
However, much of this is evolutionary as opposed to revolutionary technology. As digital strategies progress, companies need to ensure they are allocating capital for the next wave of innovation, such as robotics and artificial intelligence.
Watch: Could acquiring innovation transform your business?
As companies look for new digital capabilities, alliances — in addition to and sometimes in place of acquisitions — are also proving attractive. A third (32%) of respondents plan to create alliances and partnerships in the next two to three years.
Unlike joint ventures, alliances are usually less involved and not permanent, offering greater flexibility to businesses pursuing a digital transformation strategy. Alliances allow companies to plan for multiple futures. Companies can commit underused assets, or assets that others are better positioned to exploit, in exchange for more efficient digital capabilities owned by collaboration partners. An effective strategic alliance will allow each company to maintain its autonomy while discovering new opportunities and more effective processes, as well as access to new markets.
Companies are increasingly leveraging alliances with clients, suppliers, vendors and institutions to create new business models and ecosystems, increasing operational efficiency and integrating the whole value chain to better serve the market, while also increasing competitiveness. Swift-footed companies are investing in promising start-ups via incubations, collaborations and sponsorships and integrating them to provide cutting-edge digital services.
However, while the benefits of alliances or JVs are evident, companies need to ask themselves six key questions before embarking on these partnerships:
- Who are suitable targets and how do you value them?
- If you are creating an alliance or JV, how do you profit from it?
- If your alliance creates joint intellectual property (IP), who actually owns that IP?
- How do protect your IP?
- What is the best way of forming an alliance to protect value?
- How do you protect your customers and their data?