Research shows that companies need to expand their thinking when acquiring new resources
When companies execute a new strategy, it usually requires the acquisition of resources and capabilities. However, most firms rely overwhelmingly on one chief way of acquiring resources. In their new study, published in the current issue of the Harvard Business Review*, Professors Laurence Capron of INSEAD and Will Mitchell of the Fuqua School of Business show that firms using all the resource-acquisition methods outperform those with a more narrow approach.
As part of their research, Capron and Mitchell conducted a 10-year global study of 162 telecom companies to determine how they acquire resources when executing a new strategy. They found that only one-third actively use all of the methods available to them. More than half of the managers studied cited implementation as the primary cause of their struggle to build new resources and capabilities. More specifically, the managers noted lack of people and skills (67%) and poor ability to integrate acquired businesses (50%) as key contributors to the problem.
‘By blaming implementation rather than looking at corporate-development strategy, companies leave a lot of value on the table,’ said Capron, Professor of Strategy at INSEAD and Programme Director of "M&As and Corporate Strategy" . ‘Our study demonstrates conclusively that firms using all of the resource-acquisition methods are more successful over the long-term.’
The study found that firms acquiring resources in multiple ways are 46% more likely to survive over a five-year period than those relying mainly on alliances, 26% more likely than those focusing on M&A, and 12% more likely than those sticking with internal development. Additionally, 54% of managers who haven’t paid close attention to the tactics they have used report a high failure rate in resource acquisition, compared with only 20% of those who have looked at the full range of options.
Capron and Mitchell have developed a framework to help managers become more strategic decision makers when acquiring resources. The framework is centred on three critical questions:
- Are there relevant resources available? – If there are relevant resources available, opt for internal development; if not, go outside the company.
- How easy is it to agree with resource providers on the value of what they have to offer? – A shared understanding of value is imperative to make a purchase contract work effectively. Otherwise, consider an alliance or business acquisition.
- How close is the relationship with the provider? – If generating the necessary resources requires the involvement of many people and units, M&A may be a better solution than a partnership.
‘Smart companies keep revisiting the question of how they should develop new resources,’ said Mitchell, Professor of International Management and Strategy at the Fuqua School of Business. ‘Many organisations overlook the most efficient way to find the resources they need. It’s essential to go after new resources in the simplest way that will satisfy strategic goals.’
Capron added, ‘Although sticking with one mode of resource acquisition may work in the short term, the long-term risk is that the company will end up doing the wrong things really well, lagging more broadly capable competitors, and quite likely, becoming targets themselves.’
* Spotlight on the Effective Organisation: ‘Finding the Right Path’, Harvard Business Review, July/August 2010, pages 102 – 107. www.hbr.org
