Growth Strategy: What’s Changed?

A New Normal for Growth?

It is no surprise that digital trends have transformed the technology and business landscapes across all industries and re-shaped the speed at which companies need to innovate. Tech companies and those “born digital” are dominating the market with platform business models that span cross industry boundaries. Ecosystems and ecosystem plays are redefining the shape and structure of the economy, enabling massive innovation around the world and unlocking network effects more quickly than ever before.

Within this new network-based framework for growth, how should companies approach the development of corporate strategies? When there is an imperative to find new growth opportunities, do traditional approaches on how to develop a growth strategy still apply? The simple answer is “yes”.

When a company is looking at ways to grow, the typical approach to developing and tweaking corporate strategy has not changed. Companies have always had a need for growth or a desire to enter new geographies. The next question was always “where?”: skill gaps, product gaps, channel gaps.

Once analyzed and solved for, the next question was: “how?” The answer to this was and still is: ”buy, build, or borrow/partner?”. Whether companies choose to take advantage of opportunities to develop their own ecosystems or simply plugging into existing ones, shifting the focus from value chain integration to exponential growth via networks has become a more important component of growth strategy.

Ecosystems: The New Flavor of Inorganic Strategy

Given the combinatorial advancements in technologies we’ve seen over the past several years, the type of deals which seek to embed new technology into the fabric of a firm’s capabilities have risen. Accenture Strategy surveyed over 1,100 C-Suite executives in mid-2017 across 13 industries and in seven countries to determine the key drivers of M&A activity growth in recent years. While traditionally firms look to acquire similar companies to derive revenue synergies from vertical integration or cost synergies from scale, currently, the search for digital capabilities is a top contributor to M&A pursuits as “nearly one-third of companies logging M&A activity describe themselves as traditional companies acquiring digital companies or assets.”[i].

With the pace of change, speed to market of digital companies and convergence of traditional markets, the mix of buy, build and borrow itself is changing. Traditionally, firms look at M&A in a silo while they consider alliances separately. Today, this approach creates unnecessary duplication of activities across siloed groups which could benefit from a closer form of collaboration when it comes to evaluating, selecting, and investing in targets and/or strategic partners.

For instance, companies are increasingly looking at partnerships as they consider platforms to evolve their ecosystem strategies. A study surveying over 1200 C-Suite executives from the Global 2000 group indicates that the top ways companies are looking to grow via disruption is through new tech adoption (65%) and ecosystem building (60%).[ii]

Conversely, these same executives see a lack of capabilities, mindset and ecosystem membership as top impediments in building these ecosystems. Interestingly, only 24% highlight governance as a key challenge. [iii]

Growth Strategy for a Continuously Changing Landscape

As they evaluate the new mix of strategies for growth, companies need to define their role in either an existing or new ecosystem and align on an approach to continuously evaluate their position within this ecosystem. Determining which ecosystem(s) one can orchestrate versus where to simply plug-and-play within is critical. Doing so, however, requires alignment at the very top on corporate development activities versus partnerships and ventures.

Whether through an acquisition or partnership, an inorganic strategy which embeds ecosystem plays can thus help companies not only survive disruption, but also eliminate duplication of activities, and even more importantly, accelerate innovation. To achieve this level of cohesion, companies can:

1.    Determine where to play: as always, select core areas of growth versus exploration. Companies must strike the right balance between the pursuit of new knowledge and capabilities versus the risk of reaching too far out of their core. Strategy departments must increasingly centralize various avenues for growth i.e. buy/build/partner or CVC investments to enable a cohesive growth strategy that allows for a greater flexibility in building their ecosystem business models.

2.    Align resources and eliminate noise or duplicative work: ongoing ecosystem monitoring and screening can allow simultaneous identification of potential minority or acquisition targets AND ecosystem partners.

3.    Leverage analytics and artificial intelligence across the deal cycle: faster target/partner screening, technology due diligence and integration is critical to leap ahead when building ecosystems or considering the acquisition of multiple, often digital, startups.

[i] Tech-Led M&A, From Art to Science, Accenture, 2018

[ii] Ecosystem Research, Accenture, 2018

[iii] Ecosystem Research, Accenture, 2018