Each approach has benefits and potential pitfalls and which is most appropriate would be dependent upon a number of factors so what may be the best approach on one occasion, may not be on another. Below is a summary of each type and the pros and cons of each strategic approach.
1.) Make
This is where, in response to an organisation identifying an opportunity for growth, the strategic decision is made to make whatever changes are required to systems and processes so that they can capitalise upon the opportunity.
An example could be a company that manufactures bicycles, identifying an opportunity in the e-bike space and deciding to invest in new machinery, processes and systems so that they can enter this new market.
Pros –
The company remains fully in control of operational matters
Potential for significant profits that do not have to be shared with another entity
All intellectual property remains in the company
Cons –
The company assumes all the cost
The company takes on all of the risk associated with the strategy
Often, making significant changes to processes, systems and tooling can be time consuming and there’s a risk that by the time the organisation has things in place, that the opportunity is missed.
2.) Buy
Using the example above, ‘buy’ would involve the bicycle manufacturer deciding that rather than invest in developing the capability to start producing e–bikes, that a better option would be to acquire a company already operating within this space.
Pros –
The company is able to jump onto the new opportunity quickly
Potential for increased overall company value
Potential to immediately increase the size and diversity of the customer base
Cons –
Valuing a business can be difficult and often businesses pay too much when acquiring another company
Often managers underestimate the difficulties encountered when integrating a company (different organisational cultures for example)
Often the synergies expected from the acquisition do not eventuate
3.) Ally:
Using the example above, the ‘ally’ strategy would be where the company would form a strategic partnership with a company already operating within the e- bike space. In this instance an agreement between the two entities would be formed and they would operate as an ‘alliance’.
Pros –
Shared risk and resources
Ability to capitalise upon the opportunity quickly
The sum of the alliance is often greater than it’s individual parts, potentially leading to more opportunities
Cons –
The alliance may have no clear lead
The organisations in the alliance may have different (and to some extent competing) priorities
Forming an alliance often means sharing some intellectual property which can be a potential risk (especially if the alliance were to break down)
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