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Transcript: How to know when to say 'howdy partner,' or when to buy


KARL MOORE – This is Karl Moore of the Desautels Faculty of Management at McGill University, with Talking Management for The Globe and Mail.  Today I am delighted to be speaking with Laurence Capron who is a professor at INSEAD, and Will Mitchell who is a professor at Duke University.

LAURENCE CAPRON – Good afternoon, Karl.

WILL MITCHELL – Good afternoon, Karl.

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KARL MOORE – I get a sense that we are moving towards the partnering models, is that something you see happening out there as well?

WILL MITCHELL – You need a mix of the three. There are some things where it makes absolute sense to partner for, right? There are some things where one firm has a focused set of skills, another firm has a focused set of skills that complement the two, there is a reasonable sense of how they can fit together, there are small enough points of contact, you can develop a product (it shows up in pharmaceuticals all the time) you can work together to develop a new market.

Again that shows up in pharma, shows up in motor vehicles, it shows up in aerospace, it shows up in financial services and so it is absolutely part of the tool kit. If you can't figure out how to do partnering when you have a focused set of skills to work together you are not going to be able to get into some markets you need to get at and you aren't going to be able to develop some products that you need to develop. But you can over develop that and if it is a complex relationship and you try to use partnering for a complex relationship, then you are going to be in real trouble. I mean you [Laurence Capron] have done some work with looking at the Volvo-Renault alliance a few years ago, do you want to talk a little bit about some of the struggles that went with that attempt?

LAURENCE CAPRON  – Yes, so first I agree with you Karl that modes of growth tend to happen in waves. So this is, for example, typically if you take mergers and acquisitions they tend to happen in waves and then one of the challenges is that executives tend to get carried away by the waves. So you will see during a certain period of time all firms jumping to MNA's and at some point the partnership model tends to become fashionable. What we try to emphasize is that it is important to step back from this micro level wave and to make sure that the firm level executives get the discipline to review the types of modes of growth they want and what makes sense for their company.

So if at some point a company has made too many acquisitions and runs out of integration skills, it is time for that company to build back organic growth on top of that acquisitive growth, if you wish. If we go back to your question regarding the partnering approach it is true that more and more, for example if you think of the big pharma firms, they tend to become very networked and tend to develop a network approach, but in some cases acquisition is very necessary because you really need to have control over your partner and you need substantial collaboration. We can take another example, which was the Volvo-Renault case, where Renault and Volvo made a strategic alliance but what they tried to accomplish, which was merging R and D collaborating on substantial projects, was too much and too demanding for the two organizations that the framework of the alliance was too loose. They needed, in fact, full control over the combined identity.

WILL MITCHELL – In fact, Volvo essentially killed itself as an independent company because of that deal. They wasted so much time trying to make an alliance work in a situation where an alliance could not work no matter how many people you poured into it that they fell behind in the market and eventually were bought by Ford.

KARL MOORE – Is management good at all three of the models or do they tend to be stronger at one over the other two?

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WILL MITCHELL – The trap is to become really good at one. The companies that live for a long time, the companies that managed to go through technological changes, regulatory changes, market changes, business model changes, year after year and decade after decade are ones that somehow, by design or by luck or whatever, learn how to do a mix. Think of something like UTC, United Technologies, who is actually really good at some combination of internal development, alliances, acquisitions in appropriate circumstances and it is one of the reasons that is flourishes as an organization as well with the underlying businesses. Or you look at Johnson & Johnson in the medical sector – again, a lot of experience at developing things internally, a lot of experience at thoughtful alliances, a lot of experience at acquisitions and integrating acquisitions. There is a risk of sampling a dependent variable and back casting but if you carefully track a set of firms over time and look at a set of firms in one year and ask "who is likely to be around 10 years from now," a really strong predictor is how well can they balance and develop the skills to know when to use different modes of growth and how to manage them when they pick them.

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