Digital disruption is a fact of life for all industries. As digital technologies redefine markets, customers and workforces, how do organizations adapt? Should they build, buy, ally or invest to pivot to digital?
Most CEOs are making significant commitments to digital. Accenture research however shows that in most instances, these digital investments are not translating to better financial performance, especially new business growth (Figure 1).1 Only 6 percent of companies studied were able to couple broad levels of digital investment with a broad level of business success, the companies we call the "Digital High Performers".2
What separates "Digital High Performers" from the rest? One driver is their M&A strategy. Accenture Strategy research shows that when it comes to investing in digital technologies, most companies choose to acquire (49 percent), whereas 32 percent choose limited partner investment, 10 percent to form a partner alliance, 8 percent a joint venture and 1 percent other.3 Which is the correct choice?
Companies that have the most success in pivoting to digital don’t limit themselves to one strategy. They use a combination of acquisitions, alliances, and building in-house to make rapid progress, adapting to the situations they face.
There are five things to consider when deciding whether to build, buy, ally, or invest.
Core to future revenue streams – Is the target capability going to grow/ support core revenue or provide you with new revenue streams?
Required operational control – Do you require operational control of the technology and are you aware of any operational liabilities?
Capability to execute – Do you understand the capabilities, both financial and human, required to succeed? Can you develop the capability to execute in the short or medium term?
Time to market – How fast is the market evolving? Are competitors acting quickly and is there a need to adopt the digital trend?
Maturity of digital capability – Does the digital capability already exist in large organizations or is it nascent, existing only in niche or early stage companies?
The interplay of these five considerations can be illustrated with the following scenarios:
You will be developing a mature digital capability that will likely be core to your existing revenue streams. You either have the skill in-house or can access the skill via hiring to build the capability. Time to market is inherently not critical.
Time to market is key here as there is strong competitive pressure from a rapidly evolving market. You lack the in-house capability to build in a competitive time-frame.
You don’t require complete control of operations and there is a degree of uncertainty as to how the market/ technology will evolve in the future. Consequently, you may not have the risk appetite to acquire the capability, but choose to ally instead.
VC/ Invest/ Accelerate
Here, you are investing for the future. Capabilities are embryonic, evolving and require time to mature; by nature, these will be early-stage companies.
Eighty-six percent of executives agree that to succeed in the digital era, companies must develop new M&A capabilities that help them choose from buying, partnering, investing, or incubating when implementing digital business models.4 "Going digital" does not guarantee success. To be successful, organizations must adopt the appropriate technology at the right time and using the right methodology.
1 Accenture Digital Performance: Time to Rotate to the New, 2016
3 Accenture Strategy, M&A Research, 2017