Build - Borrow - Buy Flashcards
Motivation & Challenges of BBB
To be competitive and grow a corporation has the expand and reinvent its resource portfolio and make the most of opprtunities to keep competitive adavantage
Three Challenges:
1) Recognize resource gaps
2) Choose the right path to obtain the resources
3) Implementing the chosen path
NEED TO BREAK HABITS!
How to Build - Motivation
Motivation:
> Ability to control to intellectual property - integrate, control and protect core resources
> avoid costs and effort for searching, pricing, integration and recombing
When Build?
When existing resources relate closely to the needed resources and are superior to those of competitors.
- -> Firm’s resources close to the ones needed
- -> Firm’s resources stronger than Competitors
Factors leading to excessive building
- Manager hubris - Overestimation inhouse skills
- Misalignment of stakeholder’s incentives
- Limited horizon
- Lack of external sourcing skills
Consequence: Inertia and rigidity and the failure to consider context
How to Borrow - Basic Contracts
Arm’s length type of agreement of exchange of discrete resources
Use when resources are tradable: Clearly define what you need and determine that a contract can protect the value of resources.
- Understand the current nature.
- When leakage can be avoided
Factors leading to reluctance
- Obsessing about control
- Wanting a shortcut
- Overestimating frictions
- Misinterpreting failures
How to Borrow - Alliance
More intense form of collaboration with ongoing interactions
Depends on how focused the scope of the collaboration is
- limited span of activities vs. broad (here M&A)
- Simple patterns of coordination
Depends on the compatibility of partners’ goals
- Low competitive overlap
- Balanced resource contributions
- Symmetrical learning opportunities
Factors leading to reluctance
- Reluctance to share control
- Reluctance to share payoff
When to Buy
When more straightforward and transient strategies won’t work (Need for more access to resources and more control)
When integration of target is feasable
- Scope of resource combination (Exploitative, Extension, Exploratory)
- Scope of divesture
- Timeline of integration
- Retaining and keeping employees motivated
- M&A skills
Why do managers buy even when it is not necessary?
- Self-interest
- Over-commitment
- Blocking Strategy
- Perceived Time Pressure
Realigning Portfolio
You should always mix BBB
- Are targeted resources tradable
- Closeness to resource partners
- Integration of target firm
Changes in strategy can lead to obsolete resources. Resources may become redundant. BUT divestment is essential.
Obstacles to reallignment
- Ignoring the need to realign while pursuing growth opportunities
- defending past choices
- organizational fragmentation - everyone knows the problem but no one does something
