We have received outstanding encouragement and advice from our publisher and editors. David Champion helped us shape our ideas into an outline and then provided determined guidance as the book developed. Tamzin Mitchell and Matt Darnell provided early-stage editorial work that kept us from being too obscure. Lew McCreary pushed us with unflagging patience and equally unflagging stubbornness to clarify our logic, and then actually made the book readable. Melinda Merino was willing to take a chance on the book at Harvard Business Review Press.
Finally, we are profoundly indebted to our families. We could not have written this book without their amazing support and patience. Laurence is deeply grateful for the support of her husband, Pierre Chandon, and their three daughters, Louise, Claire, and Marie. Will is deeply grateful for the support of Dilys Bowman and their three children, Mairi, Tamzin, and Luc—and he promises to be home in an hour.
Laurence Capron
William Mitchell
There is something broken in the way many businesses obtain the resources they need to grow. Most companies are very good at identifying what those new resources are, and nearly all of them take that challenge seriously. And yet we have seen company after company—even highly regarded ones—get into trouble as they grow, because they paid much less attention to the right way to obtain resources than to the task of identifying them. Companies have underestimated the importance of making a well-considered decision about the right pathways to growth: whether to build, borrow, or buy. As a result, they go about choosing carelessly, without discipline, diligence, or guiding principles. Very often, in fact, they don’t make a conscious choice at all; they do what they’ve always done, figuring that practice makes perfect. And later, when they have fallen short on a promising opportunity, they never suspect that the problem began with that long-ago careless choice.
Our aim in writing this book is to show you how to build a powerful new business capability: the discipline of selecting the best pathways to follow when pursuing growth opportunities. From our research, we have developed a comprehensive framework for deciding whether—under what sets of circumstances and in what combinations—to build, borrow, or buy your way to success. The three words that constitute the title of our book each express a point of view: (1) build: We’ll do it ourselves; (2) borrow: We need others to help us; and (3) buy: We’ll buy our way in.
Of course, put like that, it sounds deceptively simple. But it’s not.
Pursuing a new opportunity usually requires resources you don’t yet possess. These might consist of some combination of skills, know-how, technologies, methods, broad competencies, and other assets. To compete for the opportunity, a company must either build the needed resources internally or obtain them from the outside.
Because decisions on how to obtain needed resources can seem straightforward, few businesses recognize how difficult—and how important—it is to choose wisely among even a limited number of options. Consequently, firms often choose reflexively, basing their decisions on familiar past practices and preferences after devoting little thought to the matter. As we will show, such heedless habits go a long way toward explaining why many viable strategies fail to live up to their potential.
To help explain the dilemma at the heart of our book, we offer three brief hypothetical cases. They show three businesses pursuing very different approaches to obtaining the resources they need to pursue significant growth opportunities. Let’s call the strategies path-dependent growth, opportunistic growth, and build-borrow-buy growth. The first two scenarios sketch out the problem of poor path selection. The third points the way to the solutions we will describe in the coming chapters.
Path-Dependent Growth: The Plight of the One-Trick Pony
Merlin Manufacturing (all three examples are fictitious) is an engineering company with a track record of success in building industrial-control systems for customers in process industries such as oil refining and chemical manufacturing. Its products have typically been proprietary, highly complex, and heavily customized. Its traditional business model has been to work intensively, consulting with large industrial customers to produce tailored solutions.
Lately, however, customers have begun to demand Internet-based control systems capable of managing multiple manufacturing sites from a single location. Some executives at Merlin saw this coming, and there has been much internal debate over whether and when to add an Internet-based offering. However, many in the engineering group have been skeptical of the security and robustness of Internet process-control approaches. A wait-and-see consensus prevailed until one of Merlin’s main competitors launched an Internet product line.
Over the years, Merlin had added to its technical capabilities mainly by acquisition. Like many companies that buy their way up the technology curve, Merlin believed it had become sophisticated in its ability to identify and acquire small, leading-edge upstarts and to absorb them successfully into its culture. Almost by default, the buy mode had become the company’s weapon of choice in handling change in the industrial-control ecosystem. The company’s growth strategy was path-dependent: in effect, Merlin had made itself a one-trick pony.
Over the years, Merlin had built tailored processes for acquisitions. It conducted regular mergers and acquisitions (M&A) training sessions presented by top business consultants and academics. Leadership increasingly emphasized acquisition excellence based on a highly evolved set of skills. The company believed its repeatable formula had become better and faster over time—as reflected in Merlin’s rising stock price.
As had happened cyclically—with each new leap up the technology curve—Merlin now needed to ramp up its Internet process-control knowledge base. To enter this new market, Merlin would, of course, apply its magic acquisition formula and start making deals.
But Internet-based industrial control systems are a volatile new beast. Even Merlin’s engineers viewed them with suspicion, and there was an uncharacteristic lack of internal understanding about how to evaluate potential targets and even what questions to ask. Nonetheless, Merlin forged ahead as best it could. But its deals in this new domain failed to produce the expected benefits. Due diligence was more difficult, negotiations were tougher, and integration was bumpy—with key people in the acquired businesses leaving even before the ink was dry.
Merlin quickly lost ground in the new business. Moreover, it suffered in its core areas as the new acquisitions siphoned off attention and investment. Merlin’s stock price took a big hit, and executives scrambled to rebuild investor confidence—which proved to be more difficult than expected. Lacking its customary wizardry and now a takeover target itself, Merlin was bought and broken up by its archrival.
No matter which option a path-dependent firm reflexively favors, the company is likely to struggle with growth—especially in dynamic competitive situations. The path-dependent firm cannot respond effectively when its industry moves in new technical, market, or regulatory directions that both create new opportunities and trigger new threats to its traditional business.
Opportunistic Growth: When Arbitrary Choices Lead to Chaos
Maverick Publishing is an up-and-comer in the media industry. Its established competitors in traditional media face challenges from digital offerings that threaten the paper-based business model. Compared with these rivals, Maverick is highly driven, leaner, more agile, and now bursting with digital skills.
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