Get the right mix of investment vehicles
To meet their innovation goals, companies need to decide whether to build internal capabilities or use inorganic investments. This will affect how quickly they can bring products and services to market and deliver their RODI. To achieve an optimal mix, firms should break down silos, synchronize the various investment types as well as align build, buy and partner decisions with their corporate objectives.
Inorganic investments offer many advantages. These include easier access to capital, enhanced quantity and quality of technology targets as well as a faster pathway to access new technologies and fill key capabilities and skills gaps. Unsurprisingly, the DII found that 54% of Southeast Asian respondents are opting for inorganic investments — such as corporate venture capital (CVC), M&As, and partnerships — rather than building capabilities themselves to accelerate innovation.
When deciding which inorganic investment vehicle to use, 45% of global survey respondents prefer CVC for its ability to support new market expansion and allow companies to have early access to forward-looking technology or assets. Thirty-four percent would opt for partnerships to gain financial returns with lower capital investment, while 32% prefer M&A to access new technology and products more quickly.
The board should seek to align executives on the right investment mix of “build, buy, partner or corporate venture” and drive an integrated approach to accelerate digital initiatives. Depending on the digital initiative, build, buy or partner may lead to different RODIs and implementation speeds.
A successful investment strategy requires alignment at the board level so that there is accountability when directing those investments. Breaking down organizational silos and playing to executives’ strengths (e.g., relying on chief digital officers and CEOs to develop in-house capabilities and lead on M&As respectively) are the best ways to develop a successful investment strategy.