How do you grow your company? There are generally three ways: 1. Building on your internal resources (funding innovations, running product development teams); 2. Borrowing from others by making licensing or alliance agreements; or 3. Buying your way in by acquiring other companies.
Put like that, it sounds deceptively simple, but it’s not. Few businesses recognize how difficult it is to choose wisely among even a limited number of options. They skip this critical step and emphasize execution. In fact, research shows that companies can excel at execution and still fail because they choose the wrong mode of development. For instance, they may spend considerable resources on internal development programs, when, actually, they should have been looking outward to catch new trends and acquire new talent and skills.
The Implementation Trap
When attempts to grow falter, the common response is simply to try harder. In doing so, executives fall into the “implementation trap,” whereby they work doggedly to perfect the wrong course of action. They invest in learning how to manage a specific mode of growth and continue refining what they have come to revere as “best practices” attained through their experience with that mode.
It’s tempting for firms and executives to repeat what has worked in the past—to reproduce across each project what they have rigorously developed through learning by doing, repetition and training. Unfortunately, the implementation trap is a deadly one.
Sadly, best practices and implementation excellence will not save you if you make the wrong choices for your growth modes. In research on 150 telecom firms, we found that organizations that used multiple ways to grow outperformed those that focused narrowly on one mode. Indeed, firms that used multiple modes to obtain new resources and skills were 46 percent more likely to survive over a five-year period than those just using alliances, 26 percent more likely to survive than those exclusively using M&As and 12 percent more likely than those relying purely on internal development.
Consider IBM. In the 1980s and 1990s, IBM missed new technologies and market opportunities. An internal report suggested several reasons: 1. Too much emphasis on execution efficiency and short-term results; 2. A related focus on existing markets and offerings; and 3. A tendency to assess growth opportunities using the same performance process and metrics applied to mature businesses. These factors worked well enough in mature markets, but they limited IBM’s ability to explore and develop new businesses.
The challenge was compounded by the company’s dominant ethos: “We do it best.” For many years, IBM placed most of its best internally. Only when it expanded its growth options—while learning to create and manage business experimentation—did IBM regain its stride. It continued to develop products internally and revitalized its ability to launch new products and businesses, but it also actively sought in-licenses, alliances and acquisitions to renew its resource base.