For example, Nokia initially used a borrow strategy, forming an alliance in 1998 with the UK software firm Psion (in conjunction with Ericsson and Motorola) to develop the Symbian operating system. To gain full control of Symbian, Nokia eventually bought the operating system from Psion in 2004. Research In Motion, meanwhile, has pursued a build strategy to make its successful BlackBerry line more smartphone-like. But the company has yet to demonstrate that it has the necessary resources for internal development alone. And HP resorted to a buy strategy for its ticket into the smartphone market. In 2009, it acquired Palm, maker of the Palm personal digital assistant (PDA) and developer of the webOS operating system, which HP planned to use in devices ranging from smartphones to PCs. Apple, meanwhile, followed a sophisticated build-borrow-buy strategy for its iPhone, taking the lead in designing the operating system, while pursuing and managing various technology licenses and alliances for other components and making a few key acquisitions. Google, joining the smartphone fray from its leading Internet position, has used both buy and borrow strategies. It acquired the mobile software firm Android in 2005 and then supported the platform through an industry consortium of hardware, software, and telecommunication companies, complemented with alliances with smartphone providers such as HTC and Samsung.
Traditional publishing firms have also followed divergent paths to fill digital resource gaps. Publishing e-books, online magazines, and other digital assets calls for skills both highly diverse and distinct from those of traditional publishing. Among them are the abilities to create multiplatform content, master data analytics, and interact with online communities.
To close its digital resource gaps, the Finnish media company Sanoma Group acquired a Dutch digital publishing company, Ilse Media, which then drove digital growth across the company. Axel Springer, the leading German publishing group, made significant internal investments in building the digital skills of its existing journalists and marketing people while creating integrated newsrooms and a cross-media advertising sales group.
Springer quickly discovered that it couldn’t generate enough growth by turning traditional print into digital formats. So it changed paths and embarked on multiple acquisitions of “native” Internet businesses (AuFeminin.com and immonet.de) that were only indirectly related to core print activities. Springer has operated the acquired businesses on an arm’s-length basis as it decides how best to integrate them over time. This example—like others whose first path chosen was eventually abandoned—shows how an ill-considered selection may produce disappointing results.
The British publisher Pearson Group pursued a mixed buy-build strategy, acquiring digital companies even as it sought to upgrade the skills of internal staff and to bridge the cultural divide between digital and print media. And the Associated Press entered into long-term partnerships with selected technology providers rather than acquire or develop internally the technical skills needed to create digital offerings.
In the automobile industry, similarly, manufacturers have adopted different ways of obtaining premium-market resources. Toyota has used internal growth to make inroads on the premium market with its Lexus branded cars. Many other firms have used acquisitions to rapidly acquire premium technologies and brand names. The Indian conglomerate Tata bought Jaguar in 2008 from its US parent, Ford, and the Chinese car firm Geely acquired Volvo in 2010, also from Ford. Still other car firms have turned to contractual agreements: the Romanian automaker Dacia licensed technology from Renault (and later became part of the French firm). There are also more substantial partnerships, such as the multiproduct alliances between the French automaker Peugeot-Citroën and the Japanese automaker Mitsubishi Motors (on 4×4 and electric vehicles in 2005 and 2010, respectively) and the Franco-German equity joint venture formed in 2011, BMW Peugeot Citroën Electrification, to develop hybrid systems.
With all that choice, how do companies select the right path to obtain a specific resource that they need? Do they follow specific guiding principles? Do the principles depend on the nature of the gap, external pressures, internal skills and personnel, costs, the need to act quickly, the CEO’s inclinations, or other factors? In reality, all these conditions are relevant when a company seeks strategic resources.
Given the stakes, you might expect that companies would have well-developed processes for selecting the best mode for acquiring new resources. But dysfunction is surprisingly more the norm than the exception. Our research over the years has shown that executives are often confused about the best way to obtain resources. They lack access to tools, guidelines, or even shared company wisdom that would help them make sound decisions. The following example—from a study we conducted in the global telecom industry—illustrates the consequences.
The Implementation Trap
In the late 1990s, a leading European supplier of telecom technologies, with a strong position in voice technology, launched an effort to compete in the fast-developing data environment. The company—well known for its superior engineering skills—had long favored internal R&D, so that was the path it chose. Because most data-networking innovation was then occurring in Silicon Valley, the company had difficulty competing for enough new talent to sustain the internal development effort. Lacking relevant know-how, the company failed in its internal innovation efforts.
Ultimately, the company’s executives realized that they lacked not only the necessary technical skills but even the industry contacts and level of insight needed to identify best-of-breed technologies, consulting partners, and top talent. So they forged an alliance with an up-and-coming firm in Silicon Valley, hoping that the collaboration would help them quickly boost their market credibility and data networking skills. But the alliance lasted only a few months before disagreements between the partners over market and technology strategy caused a damaging bottleneck that undermined collaboration.
After these internal development and alliance activities failed, the company finally decided to acquire three US companies and combine them into a new US-based firm that would run the data communication business for the corporate group. The acquisitions finally gave the company a credible position in data networking.
An executive at this firm described the painful trial-and-error process, from building to borrowing to buying: “Each failure revealed more of this pattern: that we needed to reach a certain threshold of competency before we could run effective internal development or be an effective partner within an alliance. We had to finally turn to acquisitions in order to accelerate R&D.”
The stories of this company and many others exemplify the implementation trap: a company works doggedly to perfect the wrong course of action. It plays out like this: faced with a need for new resources, a company pursues them in ways it believes worked in the past. For instance, R&D teams typically prefer to develop future capabilities through organic innovation. As one telecom executive told us: “We have superb technical skills on the engineering side. Internal people tend to think they should be given a chance to do it on their own. We need to break this perception barrier . . . We need to develop a capability to manage alliances and acquisitions. The issue is how you bring such process skills into our people’s mind-set.”
Unfortunately, when companies do try to break that barrier by trying something new, they tend not to stick with it long enough. An executive at a leading US telecom company shared with us his frustration that his company, instead of exploring the roots of its early failures with alliances, simply ruled them out of future consideration.
The result is that many firms adopt a small set of methods for managing their corporate development activities. Indeed, when adding to its strategic arsenal, the typical company relies heavily on just one dominant path—commonly either internal development or acquisitions—perhaps complemented with a supplemental method.
For instance, our study of the telecommunications industry found that only one-third of the surveyed firms actively used more than two methods of obtaining new resources. About 40 percent relied