As businesses pursue new technology-driven opportunities, they must weigh up the pros and cons of buy vs. build. This decision-making process has led to some companies considering alternative strategies to accelerate innovation and react to rapid sector convergence.
Partnerships, alliances and joint ventures are one way for businesses to access new technology, skill sets and markets more rapidly than through organic growth or M&A, with 22% taking this approach as their primary driver of digital strategy over the next year (vs. 74% picking M&A), according to our Digital Deal Economy survey. This tactic also enables companies to access innovation in a more flexible framework without stretching their available capital.
However, these arrangements come with their own risks and require careful management, equitable risk- and reward-sharing and constant oversight to become a success. Here again, understanding the evolving external environment and aligning strategic digital goals — aided by a robust, regular portfolio review process — are the primary drivers of success.
Many companies are also investing in building digital ecosystems through separate investment vehicles. Creating corporate venture capital arms or incubators have become an increasingly popular way for executives to future-proof their business.
But even here, the challenge is when — and when not — to integrate these innovation offshoots with the main business. It’s all part of the innovator’s duality — and the right answer will vary case by case, depending on conditions, the limitations of the current business and where the strength of the asset lies. Once again, taking a holistic view of business risks and opportunities and conducting regular portfolio reviews are all vital in making the right call.