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This presentation discusses the global business and technology trends that will shape the coming decade. With AI, Robotics and Blockchain penetrating every industry, there will be far reaching implications to countries worldwide.
We could also see new leaders worldwide in the next decade, shifting the balance of power from developed countries to others.
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From the changing landscape of ICT infrastructure to tackling tricky supply chain issues, we explore every corner of the IT industry in issue 002 of the Probrand Group magazine: http://www.probrand.co.uk/imag/issue02/index.html
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In our latest piece, we share unique perspectives on how artificial intelligence is amplifying human potential and reshaping business. This article explore 3 fundamental questions:
How will AI shift the expectations of my customers?
How will AI transform the way my competitors run their businesses?
How should my company respond to AI?
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Nine Business & Technology Trends impacting 2018 and beyond.Dileep Srinivasan
This presentation discusses the global business and technology trends that will shape the coming decade. With AI, Robotics and Blockchain penetrating every industry, there will be far reaching implications to countries worldwide.
We could also see new leaders worldwide in the next decade, shifting the balance of power from developed countries to others.
Volvo Cars Corporation: Shifting from a B2B to a “B2B+B2C” Business ModelCapgemini
Volvo is undertaking a deep transformation in its business model leveraging four digital technologies: mobility, social media, analytics and smart embedded devices. The intent is to develop a more direct relationship with the end-customer without disrupting the relationship dealers have with their customers.
Commentary: Making Dollars & Sense of the Platform EconomyCognizant
As market dynamics change, organizations must figure out how and where to plug and play with emerging platforms that create economies of scale and new forms of value.
From the changing landscape of ICT infrastructure to tackling tricky supply chain issues, we explore every corner of the IT industry in issue 002 of the Probrand Group magazine: http://www.probrand.co.uk/imag/issue02/index.html
The results of our latest study on ‘Smart data transformation,’ carried out with Fraunhofer FIT, are here. In this special research report, we wanted to understand the business benefits, challenges and success factors around this topic, as well as identify key needs to facilitate the effective implementation of smart data transformation.
In our latest piece, we share unique perspectives on how artificial intelligence is amplifying human potential and reshaping business. This article explore 3 fundamental questions:
How will AI shift the expectations of my customers?
How will AI transform the way my competitors run their businesses?
How should my company respond to AI?
Apps for the Connected World: Supercharge Customer Data with Code HalosCognizant
By making meaning from the data that swirls around every digital interaction, companies can gain unprecedented insight into what customer and prospects want and value, essentially what makes them "tick."
In our latest white paper, our expert authors share insights on why an integrated, real-time approach is key to business planning in the digital age. This special report is the great work of our supply chain experts, who are leading some of our firm’s most innovative thinking and solutions with top global clients.
Learn About:
The evolution of planning capabilities in the enterprise
Why an integrated business planning (IBP) framework should include end-to-end business processes across the organization
A view into the different maturity levels an organization can achieve and strategies for developing a digital-driven IBP framework
How companies can get started and accelerate their journey to advanced business planning
Our supply chain expert shares insights on how Industry 4.0 is enabling companies to create lasting competitive advantage, sustainably and financially. This paper explores the key pillars of today’s sustainable supply chain and what variables have impacted its rise. Key points:
Industry 4.0 advances are being powered by the Internet of Things in which factory “command centers” are tethered to the cloud, enabling real-time monitoring and demand-driven configuration.
To win in today’s market firms must also embrace big data in a way that stiches together fragmented, custom e-commerce orders with reactive, optimized supply chains and factory production.
An overview of a framework companies can use to deliver on Industry 4.0 to seize a competitive advantage in today’s uber-connected world.
Companies embracing the new era of sustainability not only help the environment through decreased energy usage, but also please shareholders via expanding enterprise value – economically and sustainably.
Three Engagement Models for Embracing Digital in Life SciencesCognizant
Life sciences organizations must weigh their options for digital transformation. Here's an evaluative guide, with pros and cons and selection criteria, to three engagement models where digital innovation is either IT-centric, business-centric or managed by a 'new entity'.
In partnership with IDG, our 2022 Insight Intelligent Technology™ Report examines how companies are making progress on long-term IT strategies to meet the changing, post-pandemic expectations of their businesses, their employees, and the market more broadly.
This thought-piece discusses how established companies can manage the duality dilemma triggered by the coexistence of new digital offerings and legacy products, and provides expert insights into how a common set of core capabilities can accelerate the digital transformation journey ahead.
Ctrl-alt-del: Rebooting the Business Model for the Digital AgeCapgemini
Our research with the MIT Sloan Management Review reveals that only 16% of organizations are leveraging digital technologies to develop new business models. Most organizations follow traditional approaches to innovation that focus on new products and services, rather than on business models. However, research suggests that the returns from traditional approaches have been diminishing with time. As Serguei Netessine, Professor at INSEAD Singapore says, “Pharmaceutical companies spend as much as 30% of their revenues on R&D, trying to develop new products or technologies. But the return from this enormous expenditure has been very elusive and it is a common problem across industries.” Business model reinvention can be as good a route as technology, product or service innovations. This research highlight five different approaches that organizations can adopt to reinvent their business model with digital technologies.
Ericka pionin digital transformation – definedEricka Pionin
Digital Transformation – Defined
To be successful, companies must focus on customer experience and to remain sustainable, they must invest in digital technology.
The Digital Economy: How to develop effective tax planning for your digital s...Alex Baulf
This is the first in a series of three articles from Grant Thornton on the tax issues and tax opportunities associated with the digital economy, internet of things, and data analytics
The digital revolution affects nearly every aspect of our lives. It impacts the way the world does business, both today and in the future, and poses a number of challenges for decision makers. This article explains how digital is impacting the economy, its effect on the business enterprise, and, how your tax strategy needs to align to your digital strategy to avoid double taxation. In addition it outlines what action is required to minimize tax risk and maximize tax opportunities in the digital economy.
The rapidly shifting technology environment raises serious questions on how to help their companies capitalize on the transformation under way. Advancing technologies and their swift adoption are upending traditional business models. So, today we bring you Five Hottest Tech-Enabled Business Trends in 2017.
Realising Digital’s Full Potential in the Value ChainCognizant
When we spoke with executives across Europe who lead digitising efforts, they described a diverse range of deployments, but digital can, and must, deliver far more than it has so far. In this ebook, we explore how businesses can explore digital's full potential across their value chain.
The smac-code-embracing-new-technologies-for-future-business (1)Sumit Roy
Social mobile Analytics and Cloud: How SMAC model is changing and disrupting business across industry. SMAC is not only changing the way markets function , but it also is a pointer that technology today is the biggest tool for innovation,however this is a double edged sword as SMAC is a great enabler. Small companies and the giants both have a level playing field
SMACology i.e. SMAC Technology is the new buzzword reforming the IT industries as well as the skills of technical aspirants. Learn how.
PDF courtesy: KPMG
In our latest white paper, our expert authors share insights on why an integrated, real-time approach is key to business planning in the digital age. This special report is the great work of our supply chain experts, who are leading some of our firm’s most innovative thinking and solutions with top global clients.
Learn About:
The evolution of planning capabilities in the enterprise
Why an integrated business planning (IBP) framework should include end-to-end business processes across the organization
A view into the different maturity levels an organization can achieve and strategies for developing a digital-driven IBP framework
How companies can get started and accelerate their journey to advanced business planning
Our supply chain expert shares insights on how Industry 4.0 is enabling companies to create lasting competitive advantage, sustainably and financially. This paper explores the key pillars of today’s sustainable supply chain and what variables have impacted its rise. Key points:
Industry 4.0 advances are being powered by the Internet of Things in which factory “command centers” are tethered to the cloud, enabling real-time monitoring and demand-driven configuration.
To win in today’s market firms must also embrace big data in a way that stiches together fragmented, custom e-commerce orders with reactive, optimized supply chains and factory production.
An overview of a framework companies can use to deliver on Industry 4.0 to seize a competitive advantage in today’s uber-connected world.
Companies embracing the new era of sustainability not only help the environment through decreased energy usage, but also please shareholders via expanding enterprise value – economically and sustainably.
Three Engagement Models for Embracing Digital in Life SciencesCognizant
Life sciences organizations must weigh their options for digital transformation. Here's an evaluative guide, with pros and cons and selection criteria, to three engagement models where digital innovation is either IT-centric, business-centric or managed by a 'new entity'.
In partnership with IDG, our 2022 Insight Intelligent Technology™ Report examines how companies are making progress on long-term IT strategies to meet the changing, post-pandemic expectations of their businesses, their employees, and the market more broadly.
This thought-piece discusses how established companies can manage the duality dilemma triggered by the coexistence of new digital offerings and legacy products, and provides expert insights into how a common set of core capabilities can accelerate the digital transformation journey ahead.
Ctrl-alt-del: Rebooting the Business Model for the Digital AgeCapgemini
Our research with the MIT Sloan Management Review reveals that only 16% of organizations are leveraging digital technologies to develop new business models. Most organizations follow traditional approaches to innovation that focus on new products and services, rather than on business models. However, research suggests that the returns from traditional approaches have been diminishing with time. As Serguei Netessine, Professor at INSEAD Singapore says, “Pharmaceutical companies spend as much as 30% of their revenues on R&D, trying to develop new products or technologies. But the return from this enormous expenditure has been very elusive and it is a common problem across industries.” Business model reinvention can be as good a route as technology, product or service innovations. This research highlight five different approaches that organizations can adopt to reinvent their business model with digital technologies.
Ericka pionin digital transformation – definedEricka Pionin
Digital Transformation – Defined
To be successful, companies must focus on customer experience and to remain sustainable, they must invest in digital technology.
The Digital Economy: How to develop effective tax planning for your digital s...Alex Baulf
This is the first in a series of three articles from Grant Thornton on the tax issues and tax opportunities associated with the digital economy, internet of things, and data analytics
The digital revolution affects nearly every aspect of our lives. It impacts the way the world does business, both today and in the future, and poses a number of challenges for decision makers. This article explains how digital is impacting the economy, its effect on the business enterprise, and, how your tax strategy needs to align to your digital strategy to avoid double taxation. In addition it outlines what action is required to minimize tax risk and maximize tax opportunities in the digital economy.
The rapidly shifting technology environment raises serious questions on how to help their companies capitalize on the transformation under way. Advancing technologies and their swift adoption are upending traditional business models. So, today we bring you Five Hottest Tech-Enabled Business Trends in 2017.
Realising Digital’s Full Potential in the Value ChainCognizant
When we spoke with executives across Europe who lead digitising efforts, they described a diverse range of deployments, but digital can, and must, deliver far more than it has so far. In this ebook, we explore how businesses can explore digital's full potential across their value chain.
The smac-code-embracing-new-technologies-for-future-business (1)Sumit Roy
Social mobile Analytics and Cloud: How SMAC model is changing and disrupting business across industry. SMAC is not only changing the way markets function , but it also is a pointer that technology today is the biggest tool for innovation,however this is a double edged sword as SMAC is a great enabler. Small companies and the giants both have a level playing field
SMACology i.e. SMAC Technology is the new buzzword reforming the IT industries as well as the skills of technical aspirants. Learn how.
PDF courtesy: KPMG
Putting the Experience in Digital Customer ExperienceCognizant
As the digital revolution has gained momentum, it has become widely understood that the “digital customer experience” is the key to engage with, delight and monetize customers in the modern world. However, only a miniscule number of companies believe their customers’ current digital experience qualifies as “excellent,” our primary research reveals.
In this white paper, we’ll spread the light on such issues as:
- What big data is
- How data science creates a real value in retail
- 5 big data use-cases revealing how retail companies can turn their customers’ data in action
"70% of surveyed executives said the pandemic is likely to accelerate the pace of their digital transformations"
The COVID-19 crisis seemingly provides a sudden glimpse into a future world.
- A world in which digital channels become the primary customer engagement model
- Automated processes become a primary driver of productivity
- Flexible, transparent and stable supply chains
In this unique moment, companies can learn and progress more quickly than ever before!
Being Digital, Fast-forward to the Right Digital Strategy Fabio Mittelstaedt
Do my Company have the right Digital Strategy? Is it compelling enough to beat my competitors? Or to conquer the new digital customers from millenniums to baby boomers? Competing in a world shaped by digital technologies requires a fundamentally different approach to how strategies are developed and executed. 55% of business leaders admit that they do not yet have an enterprise-level digital strategy to support their corporate strategy. But there is a difference between developing some digital capabilities or being a digital lead in your industry. Digital disrupts business strategy. Business leaders must consider a new strategic approach.
The Digital TransformationNew information technologies,s.docxmehek4
The Digital Transformation
New information technologies,
such as broadband networks,
mobile communications and the
Internet, have well-known, but
often unrealized, potential
to transform businesses and
industries. The key to success is
knowing how and when to apply
the technologies. Companies
should look at 10 specific
drivers to help determine their
best strategy.
Angela Andal-Ancion,
Phillip A. Cartwright
and George S. Yip
uring tbe 1990s, companies bad vast amounts of funding for new
D information technologies, or NIT' Tbey invested millions of dol-lars on Web sites, sophisticated software packages, teleconferenc-
ing equipment, broadband networks, mobile communications
and other digital technologies. Such investments helped them to keep abreast
of competitors tbat were making similar expenditures. Today, many compa-
nies are strapped for resources, and they need to be extremely selective about
the technologies they fund, deploying NIT in ways tbat are tbe most relevant
to their businesses and strategic objectives, including their sales and market-
ing efforts.
What kinds of companies and products can benellt most from the use of
NIT? Books and airline tickets sell readily over the Internet wbereas automo-
biles and higb fashion clothing do not. Furtbennore, what types of business
transformations do sucb investments enable? A company might, for example,
use NIT to cut away layers of middlemen, such as distributors, that separate it
from its customers (called classic disintermediation). Or, instead of getting rid
of middlemen, it might choose to embrace them {remediation). Or it might
build strategic alliances and partnerships with new and existing players in a
tangle of complex relationships (network-based mediation). (See"Tbree Medi-
ation Strategies," p. 37.)
All three mediation strategies depend on various factors, such as a prod-
uct's customizability and information content. By fully understanding those
drivers of NIT, companies can begin to predict tbe potential transformations
of tbeir industries, especially in terms of how products are marketed and sold.
To tbat end, we have developed a systematic framework tbat identifies wbich
drivers are important for tbe different approaches of classic disintermediation,
remediation and network-based mediation. Using this tool, companies can
determine both the optimum ways to transform tbeir businesses and the NIT
investments required to accomplisb sucb changes.
The Drivers of NIT
From a study of large corporations in Nortb America and Europe, we have
identified tbe different drivers that determine the competitive advantages of
deploying NIT. (See "About the Research.") Each of the drivers is very specific
to bow NIT can be applied in a particular industry. Tbat Is, they are not gen-
Angela Andal-Ancion is a ajnsultant with ascension in London; Phillip A. Cartwright
is a principal with BearingPoint in Paris; and George S, Yip is professor ot strategic and
international mana ...
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Whitepaper: Why banks need to move if they want to own banking in the future.Stefan F. Dieffenbacher
1. Executive Summary
Driven by the top Internet players the speed of change in the financial services market is rapidly increasing. To secure their business and generate further growth these Internet players are forced to attack additional markets and the financial services market is one of them.
They will conquer the financial services market by
• utilizing their global customer base and advanced customer intelligence (data),
• by connecting today separated services to an eco system using technology and delivering advanced user experience
• and their ability to move fast.
Their entry point to the financial services market is the offering of payment services to their clients through the use of their mobile devices. Extending the functionality of wallets will challenge classical retail banking’s value proposition as these Internet companies can go far beyond classical value propositions.
Some traditional financial services companies already start to understand that the time for a change has come, as these developments will challenge their core business models in very few years. For the first time, this many large-scale companies are starting to invest in programs in large excess of €500m to become better in digital.
While huge investments are not a sufficient reaction to the challenges of the market, players that will not follow the trend will lose their current position in the next years.
Traditional bank’s service offering and channel mix needs to be further rethought and adapted, followed by a fast-paced execution to respond to today’s quickly emerging reality. Players who are not able to manifest their position in the digital channels soon will be challenged in their existence.
The strategic transition needs to be guided by a short-term tactical approach to seriously start earning money in digital. On top of the pure positive financial impact of such a tactical approach, achieving significant sales through a much stronger public website as well as data-driven up- and cross-selling measures will start a cultural shift within the bank. When executives and employees discover that suddenly the digital channels generate large amounts of money, a movement of change could be kicked off. That would be the basis to understand the urgency and the possibility to develop a guiding coalition – the start of any strong change process.
2. Introduction
We are convinced that banks needs to even further raise their attention to their Digital Channels and some necessary adoptions of their business models to stay long term successful. We have rationalized our analysis and proposed actions by a large body of research and facts, which provide deep evidence and insights in recent market evolutions.
To provide a complete picture we showcase recent alterations and transformations in diverse industries, highlight the changing face of the insurance industry and subsequently dive into an analysis of the banking industry. We cover w
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Will You Be Mine in the Digital World?
1. www.strategy-business.com
strategy+business
ONLINE MARCH 1, 2016
THE CAPABLE DEAL MAKER
Will You Be Mine in
the Digital World?
As they look to enhance digital capabilities through
mergers and acquisitions, traditional companies have
to heed a new set of dating rules.
BY JOERG KRINGS, J. NEELY, AND OLAF ACKER
2. www.strategy-business.com
1
the market by becoming serial acquirers. The acquisi-
tions have given these companies overnight access to
software and cloud technologies that they probably
wouldn’t have developed on their own. But the spate of
deal making is presenting traditional companies with a
new set of challenges. In the red-hot market for digital
M&A — M&A in which the target is either a hardware,
software, IT service, or Internet company — leaders of
traditional companies must not only pick the right deals
but figure out how to leverage them. Corporate develop-
ment staffs and business unit managers are learning as
they go.
Globally, digital deals accounted for about 32 per-
cent of all transactions in 2015, according to a study by
Strategy&, PwC’s strategy consulting business, and
data provided by Dealogic. That was up from about 20
percent in 2011. The real spike has been seen in acquir-
ers in non-digital industries, including automotive, nat-
ural resources, retail and wholesale, and hospitality (see
exhibit). Companies in non-digital industries completed
48 percent more digital deals in 2015 than they did in
2011. They are embarking on multiyear efforts to pro-
tect their franchises and get ahead of their competitors.
Clear Objectives
Of the roughly 20,000 digital deals announced between
2011 and 2015, about a third involved a non-technolo-
I
n the space of about 17 days in the spring of 2015,
Boeing bought a company that develops aerial im-
aging software, Spanish bank BBVA bought a de-
sign studio that specializes in the online user experience,
and MasterCard purchased an analytics company that
helps convenience store owners figure out what they
should sell at the checkout counter.
The three deals barely registered on Wall Street.
2d3, the imaging company that Boeing bought for
US$25 million, was a tiny 40-employee outfit. Spring
Studio, BBVA’s acquisition, was similar — just 38 work-
ers. Although MasterCard’s deal for Applied Predictive
Technologies was larger, the $600 million purchase
price (and the addition of some 300 employees to
MasterCard’s payroll) had virtually no impact on the
company’s share price.
Yet to dismiss these deals as inconsequential be-
cause of their limited immediate impact would be to
miss the point. None of the deals was a “one and done.”
The deals were among the at least seven, eight, and 10
digital acquisitions made by BBVA, MasterCard, and
Boeing, respectively, since 2011. Other brick-and-mor-
tar companies were even more active during that period.
For instance, Siemens has bought or invested in at least
28 digital properties, General Electric at least 22.
In their determination not to be left behind, many
traditionally non-digital companies have jumped into
Will You Be Mine in the
Digital World?
As they look to enhance digital capabilities through mergers and acquisitions,
traditional companies have to heed a new set of dating rules.
by Joerg Krings, J. Neely, and Olaf Acker
3. www.strategy-business.com
2
capital and private equity firms.) These deals fit into
three basic categories.
1. Acquisitions of digital products and services. Some
deals are intended to give the acquirer a new product or
service it can sell. The new prod-
uct could be something that helps
the acquirer expand its offering in
an area of growing importance to
customers, such as smart meters.
It could be an analytics service,
such as the tools for assessing pa-
tient data that 3M’s healthcare
business obtained through its ac-
quisition of Treo Solutions.
The new product could also
be a digital version of a product
the acquirer was previously sell-
ing in a physical form. The acqui-
sition of Elektrobit Automotive
by Continental AG in May 2015
exemplifies this. Continental had
already been introducing digital
products and moving beyond its
roots as a maker of physical car
parts — tires, brake systems, and
powertrains. Elektrobit’s software
for driver assistance and infotain-
ment may allow Continental to
cement its position in the digital
realm.
2. New digital business mod-
els. Adding a new way of generat-
ing revenue that isn’t closely
bound to the physical world is a
gy, non-telecom buyer, according to Strategy&’s analy-
sis. (The total deal count excludes investments in digital
properties made strictly for the purposes of getting a fi-
nancial return, including investments made by venture
Joerg Krings
joerg.krings@
strategyand.de.pwc.com
is an advisor to executives in
the automotive and industrials
sectors for Strategy&, PwC’s
strategy consulting group. He
is a partner with PwC Germany
based in Munich. His focus
is organic and M&A growth
strategies.
J. Neely
j.neely@strategyand.pwc.com
is a leading practitioner in M&A
transformation with Strategy&.
He is a principal with PwC US
based in Cleveland. His
specialty is mergers and
restructurings in consumer
products and industrial
sectors.
Olaf Acker
olaf.acker@
strategyand.de.pwc.com
is a leading practitioner in
digital services and technology
strategy for Strategy&. He is
a partner with PwC Germany
based in Frankfurt. His focus
is technology and digital trans-
formation.
Exhibit: Non-Digital Industries Are Increasing Their Investments in
Digital Assets
In the last several years, mergers and acquisitions have become a more popular way for companies
to gain access to much-needed technological capabilities.
–4 –2 0 2 4 6 8 10
Aerospace and defense
Machinery and equipment
Utilities
Construction
Transportation and logistics
Pharmaceuticals
Basic manufacturing
Agriculture and forestry
Healthcare
Entertainment
Chemicals
Financial services
Personal and professional services
Consumer products
Hospitality
Retail and wholesale
Natural resources
Automotive 10.0
8.9
7.8
7.1
6.4
6.4
6.2
6.0
5.7
5.2
5.1
4.8
3.5
3.4
3.3
2.3
1.3
–2.1
16%
11%
21%
9%
12%
24%
13%
10%
21%
12%
7%
11%
7%
8%
8%
7%
15%
25%
% digital
deals
2015
Percentage-point increase in the share of deals that were digital, 2015 vs. 2011
Note: Data excludes investments by venture capital and private equity firms.
Source: Dealogic data for January 2011–December 2015, Strategy& analysis.
4. www.strategy-business.com
3
of products they already have or are developing.
For instance, when it bought Definiens, an identi-
fier of biomarkers, in 2015, pharmaceutical company
AstraZeneca was seeking technology that would help it
identify the best patients for clinical trials of cancer
drugs. BBVA was certainly thinking about its value
chain in 2015 when the bank bought Madiva for its
speedy mortgage-approval software. Target’s 2014 pur-
chase of Powered Analytics was driven by a desire to
give customers interactive recommendations and guid-
ance when they were shopping in Target’s retail stores.
And a steady stream of acquisitions in the Internet of
Things arena, particularly of sensor and cloud technol-
ogies, is offering traditional manufacturers a way of be-
ing able to track their products in the aftermarket and
play a bigger role in service and support.
To some extent, the deals in the value chain cate-
gory are related to IT investments that traditional com-
panies have been making for years, including invest-
ments in products like SAP. This makes deals in this
category less experimental, in a sense, and increases the
likelihood of a fast payback.
Digital Deal-Making Challenges
Many of these acquisitions thrust the acquirers into cir-
cumstances where they don’t feel as sure-footed as with
other types of acquisitions. For many traditional com-
second major objective of those pursuing digital deals.
This can mean a new delivery model for a similar set of
products — the goal that Walgreens had when it bought
Drugstore.com in 2011. In other instances, the acquisi-
tion may allow for the possibility of entirely new service
offerings; the French bank Société Générale bought Fi-
duceo in 2015 to get into the burgeoning area of finan-
cial account aggregation.
As consumers of information and entertainment
have increasingly shifted online, media and publishing
companies have been among the most avid users of
M&A to recreate their business models. Since 2011, for
instance, German media conglomerate Axel Springer,
publisher of Bild, one of Europe’s largest-circulation
newspapers, has used 25 acquisitions of digital proper-
ties to increase its presence in areas such as online
classified ads and social media. The information and
analytics company Relx Group (previously known as
Reed Elsevier) has been equally active, buying dozens
of information and software companies while dispos-
ing of some offline properties, including the print mag-
azine Variety.
3. Digitization of the value chain. The digital acquisi-
tions that traditional companies make aren’t always de-
signed to sell something new. Sometimes these deals are
aimed at helping companies do a better job of identify-
ing promising new products or of speeding the delivery
IllustrationbyMartinLeonBarreto
5. www.strategy-business.com
4
Valuation. “What’s it worth?” In digital deal mak-
ing, there is often no obvious answer to this question.
There may be no cash flow to which the buyer can at-
tach a multiple. The overheated state of the digital
M&A market makes the appraisal process more diffi-
cult; with these deals, time is not on the buyer’s side.
The concept of strategic value looms large. A tradi-
tional company may have great potential in a given area
but may need to chain together a few new digital capa-
bilities to realize the opportunity. Maybe what it’s
missing is a way of delivering a product digitally, or
of interacting with customers through the cloud. A tar-
get company that has — or appears to have — the miss-
ing link in the capabilities chain may be able to drive a
hard bargain.
And in some situations, strategic value leads to pric-
es that simply don’t make sense for traditional compa-
nies. For instance, suppose a commercial security com-
pany sets its sights on a startup specializing in optical
recognition in hopes of using the startup’s technology
to create a product that would control access to build-
ings. At $10 million or $20 million, that might be capi-
tal well spent. But if Facebook sees the technology as
something it could run across all the photos its 1.5 bil-
lion users upload and decides to enter the bidding, the
contest is likely to become one the traditional company
should quit. As the CFO of a Fortune 500 company
once said to us, you have to know your walk-away price.
We think traditional companies largely understand
this dilemma. And it helps explain why at this relatively
early stage of their digital deal making, they tend to em-
phasize small deals over large ones. They understand
the need to take a little leap of faith, but don’t want to
be foolish about it.
Talent retention. “How can we make sure the team
stays?” When AstraZeneca bought biomarker company
Definiens in 2015, it gained access to Gerd Binnig, a
physics Nobel laureate who had founded the company.
Walmart, in buying Adchemy, acquired the services of
a former engineering lead at WebEx and a former head
of search innovation at Yahoo.
In digital-on-digital acquisitions, these exception-
ally talented scientists and technologists sometimes do
stay. Nathan Myhrvold came to Microsoft after the
company bought his startup for $1.5 million and played
a prominent role at the software company during its
dominant run in the 1980s and 1990s. Ray Ozzie, de-
veloper of Lotus Notes, likewise stayed at Microsoft for
five years (2005 to 2010) as chief technical officer and
panies, digital deals are what we call enhancement
deals, since they are meant to enhance the acquirer’s
existing set of capabilities. Both our experience working
with buyers and research we’ve conducted show that
these deals are among the trickiest to pull off (see “Deals
That Win,” by J. Neely, John Jullens, and Joerg Krings,
s+b, July 14, 2015).
Certainly a company would be making a colossal
mistake if it tried to jam an enhancement deal through
the same M&A apparatus (with an emphasis on cost
synergies) that it might use for a more conventional
deal. Such deals face overarching obstacles that include
cultural differences and the acquiring company’s typi-
cally light experience with digital M&A. Digital M&A
presents challenges at every phase of the process:
Identification. “Who do we want to buy?” With tra-
ditional deals — one company buying another in the
same industry — the answer to this question is usually
straightforward. The number of targets is limited by the
strategic intent: to buy an adjacent product, get into a
particular geographic market, or consolidate. A compa-
ny’s managers may be able to generate a preliminary list
based solely on their knowledge of the market, and the
initial contact could easily be one executive calling an-
other.
Very little of this framework applies to digital deals.
Instead of one main person to approach, there may be
four or five — a company founder, investors, key mem-
bers of the team. Instead of a short set of acquisition
candidates, the list may contain dozens, some of them
extremely small. The acquisition ideas could come from
just about anywhere — contacts at major research uni-
versities, patent searches, partners at venture capital
firms. The technologies are generally new and highly
specific, and their viability is often untested. In essence,
traditional companies must now develop a brand-new
capability in the M&A area that allows them to identify
the most promising digital targets.
To deal with the complexity of the identification
stage, companies must be clear about how they want to
create value and how different technologies might con-
tribute to the process. And if the buyer is making a set
of acquisitions in a given area in the hope of building up
a specific capability, the task gets even more complicat-
ed. The people scouring the landscape for M&A ideas
must have a sense of how different technologies might
interconnect and must be good judges of the feel and fit
of different target companies. These situations require a
new set of screening tactics.
6. www.strategy-business.com
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chief software architect, after Microsoft bought a com-
pany he had founded.
Retention is potentially more difficult in deals
where the buyer is a traditional company. But tradition-
al companies can improve their chances at retention —
and the commitment of the technologists working for
them after deals close — if they go beyond money and
try to identify goals the technologists can best accom-
plish with the help of their new, bigger organization.
Money means a lot to the people who have founded
a company and are selling it. But it isn’t everything,
and earn-out clauses have their limits in terms of influ-
encing behaviors.
Deal integration. “How will we integrate this com-
pany into our larger operation?” Traditional deals are
often driven by the prospect of cost synergies. But since
digital deals don’t naturally lend themselves to cost ra-
tionalization, acquirers need to tread lightly.
To start with, it sometimes makes sense to let the
acquired company stay in its geographic location, and to
limit any attempts at operational efficiencies, at least ini-
tially, to back-office integration. Acquirers must also
respect cultural differences. Pushing change in a seem-
ingly minor area such as dress codes or discontinuing a
free food or beverage benefit may have a subtly crushing
effect on morale. Yet an acquirer also needs to be sensi-
tive to the impact on the broader organization if it al-
lows an acquired unit to continue to operate by its own,
more flexible or more generous rules.
In short, integrating even a small digital property
requires a considerable amount of thoughtfulness on the
part of a traditional company. And it isn’t only the man-
agers or executives doing the deal who must be commit-
ted to the deal’s success. The challenges of traditional-
on-digital M&A are such that before an offer is ever
made, other professionals at the acquiring company,
including human resources, information technology,
and line managers, must buy into the post-deal integra-
tion plan, support it, and contribute to it.
Advocating for a light touch is not the same as sug-
gesting that traditional companies should not ask their
digital acquisitions to make any adjustments at all. In
conjunction with the new company’s management
team, the buying company (usually through an execu-
tive acting as a sponsor) needs to set milestones for prod-
uct development, talent retention, and broader company
collaboration. Avoiding such challenges, and instead al-
lowing the operation to be ring-fenced, runs the risk of
forestalling a linkage to the company’s broader strategy.
The question is how to get the linkage. Multiple post-
deal operating models exist, and companies have to se-
lect the ones that work for them on the basis of their
own identity and the unique circumstances of the ac-
quired asset.
Motivated Sellers
We’ve resisted putting it so bluntly up to now, but when
digital and traditional companies enter a relationship,
things can get messy. We are reminded of the problems
that arose when one of the U.S.’s biggest consumer
packaged goods (CPG) companies started to advertise
on Google. The company’s structure was complex and
the number of employees it had interacting with Google
at one point would have come close to filling a Broad-
way theater. Neither Google nor the CPG company was
happy with the results.
Applying this experience to M&A, big traditional
companies should maintain some degree of centralized
oversight of their digital deal-making process. Not all of
them do. Given the organizational complexity of tradi-
tional companies, it would not be unusual if employees
from separate functions were off trying to buy largely
similar digital companies at the same time. The process
works better when a single person or group oversees all
the company’s digital deals and figures out how a given
deal might benefit other parts of the enterprise. Without
such centralized oversight, companies will miss oppor-
tunities — opportunities to learn, share ideas, preserve
capital, and take advantage of new technology.
A final point: Even when they are acquiring, tradi-
tional companies have to do a sales job. They have to
convince the digital company to accept their offer
instead of a competitive offer from a rival suitor. To
succeed, they will need as much empathy as they do
cash. The offer can’t just be a certain amount of money,
“take it or leave it.” Executives at traditional companies
must place themselves in the shoes of the target com-
pany’s key decision makers and figure out what, on top
of the payout, might matter to them. The key factor
might be the chance to vastly increase the distribution
of the digital company’s product. It might be the stature
of being associated with a prominent brand. It might
be the traditional company’s reputation for taking the
long-term view. These acquisition offers are akin to a
marriage proposal. When you say, “I’m the one for you,”
and ask your partner to commit to you for life, it has
to ring true. +