But a step change in growth profile is often needed. Buying growth is one choice. The M&A path is well trodden.
Company growth is needed to replace sales and profit attrition. Incremental growth is ever present from sales and marketing, product and process innovation and R&D.
Building future growth is the other choice. That entails bold thinking about the future, and complex entry, manage and exit choices. So, the opportunity response is sometimes hesitant, or patchy, or both.
This process involves:
- Define the Alliance or Venture logic.
- Assessing available entry types.
- Coordinating staffing, capital and resource.
- Flexibility on exit type and timing.
Some companies are expert at licensing, JVs and minority interest networks. Others have strong Corporate Venture Unit (CVU) credentials (some even managing third party capital).
Home grown start-up ventures offer staggering growth potential; but culture and worries about cannibalisation make implementation difficult. A self-stand unit, with separate mandate, staffing, reward and reporting is often needed.
Classic capital budgeting has a limited role here. Few CAPX models reflect the concept of the DCF Trap. That aside; to use group WACC to decide “go/no go” is unsound (but often used to kill threatening ideas). A story for another day.
Reward and incentives also need fresh eyes. Parent Co. STI and LTI most likely will not suit. Growth pay mechanics like gain share and Carried Interest might be needed. Defining who is in, why, and for how much on success all need much care.
As the world resets, more growth through Alliances and Ventures will be seen. This will reflect more entrepreneurial views on growth delivery, ever more technology, the Transition to Net Zero and the increasing pace of changed customer demands.
Delivering core profit is essential. But tomorrow’s profits derive from investments made today. That means M&A, yes. But it also means Alliances and Ventures.
