Capron and Mitchell believe that when growth is imminent, companies generally take the new resources required to facilitate that growth seriously and give the situation the attention it deserves, identifying if the business needs new skills, know-how, methods, or technologies. The actual obtaining of those new resources is however just as important as the identification process, and this is where many companies – even those high-flyers you would expect to get it right – fall down.
Identifying the resources needed for business growth
The authors argue that there are three types of implementation processes to choose from, namely:
- Building on your already-existing internal resources;
- Borrowing from others (whether by contract or an alliance agreement); and
- Buying another company or companies.
They then propose that many executive teams hamstring their company’s growth by choosing the wrong implementation process. Moreover, they contend that when the chosen route starts showing itself to be problematic and ineffectual, executives and their staff often respond by trying harder, spending even more time, effort, and resources in trying to make the selected method work. The problem however is not the degree of commitment to the chosen process – far from it – but rather that the wrong choice was made in the first place.
The implementation trap
The process is essentially doomed from the outset. The authors call such a state of affairs the “implementation trap”. Capron and Mitchell studied 150 telecom companies during their research and found that those companies that adopted more than one method of acquiring the identified resources needed to grow their company enjoyed greater success than those that chose and stuck with just one course of action.
Based on their findings, they report that, “firms that used multiple modes to obtain new resources were 46 percent more likely to survive over a five-year period than those relying on alliances, 26 percent more likely to survive than those relying on M&As, and 12 percent more likely than those relying on internal development.” The authors mention Sanofi and Xerox as examples of firms that initially ran with just one growth mode, to their detriment…
In the 1980s and 1990s respectively, both Xerox and the French pharmaceutical company Sanofi pursued only internal development and this, Capron and Mitchell argue, “limited the companies’ ability to create new product lines in response to market transformation. Only when they expanded their growth options – while learning to create and manage business experimentation – did Sanofi and Xerox regain their stride. […] Some firms invest resources on internal development programs, when, actually, they should have been looking beyond their existing resources to identify new ideas and obtain new skills.”
How to choose the best method of growth
The authors developed the following five rules for choosing the best method of growth implementation to help guide businesses through the transition and ensure they have success:
- Be honest about the relevance of your internal resources – while growth often comes about because a company’s internal resources are doing a great job, executives need to be shrewd about internal capacity and skills, and not overestimate them.
- Acquisition should be the last resort – mergers and acquisitions are tempting shortcuts to growth for those in control, allowing businesses to occasionally bypass the competition, but M&As should complement external sourcing rather than replace it.
- Learn to use contracts and alliances to obtain new resources – when the meeting of a need can be clearly defined within a contract, go for the contract.
“A thoughtful contracting strategy helps you shop for target resources without having to integrate an entire organisation or manage a complex alliance. When an alliance is needed, know that it has the greatest chance of success when your partner’s goals are aligned with yours.” ~ Build, Borrow or Buy: Solving the Growth Dilemma
Build, Borrow, or Buy
- Identify an integration pathway before embarking on an acquisition – Capron and Mitchell argue that you need an integration plan before the acquisition process takes place, otherwise you are setting yourself up for numerous headaches and stumbling blocks.
If you learn to identify targets where you can map the integration process in a way that key people will embrace, then acquisition is a valuable option. You will often not be able to identify every step, but at least specify the major milestones along the route to creating new value.” ~ Build, Borrow or Buy: Solving the Growth Dilemma
“Ideally,” say the authors, “you should start from a position of strength as early as possible as you experiment with new modes of growing, before rigid habits and reliance on a dominant mode of growth start hurting your performance; begin to use multiple ways of achieving your goals.”
It seems to be a case of ‘both/and’; not ‘either/or’ when it comes to acquiring the necessary resources to grow a business.