By: Ciopages Staff Writer
Updated on: Feb 25, 2023
Let’s explore technology acquisition options for non-technology companies, which, however, are reliant on technology for transactions, operations, and functional enablement.
Today, as the saying goes, every company is a technology company. And many non-technology companies employ more technologists than even traditional technology firms.
For example, JP Morgan Chase, which is a giant financial institution, employs more than 50,000 technologists and spends more than $11 billion on technology development. Imagine the sheer scale of the budget and the number of employees.
Walmart, the retail behemoth, employs more than 10,000 technologists in the U.S. alone.
In comparison, SalesForce.com employs 49,000 overall employees, not all technologists. ServiceNow, the I.T. management software company, employs 11,000. And, Slack, the red hot startup employs only 1650 people.
Now that it is evident that technology is a critical capability let’s examine what are the technology acquisition options and the best way to evaluate the buy, build, acquire, license, or outsource decisions.
One can categorize large companies into either a “buy shop” or a “build shop.” In general, these are cultural legacies established over the years. Several years ago, it may have been the right decision to build when there are no viable commercial options. But as years go on, the I.T. departments become highly vested in continuing the build patterns for no rationale other than “we have always done it this way.”
Leaving the cultural norms and I.T. legacies aside, let’s examine when would be a good time for companies to build technology internally?
While each sector and the company specifics may dictate the details, the general ratio of internal technology development spans about 30-35% of capabilities and 20-30% of the overall I.T. spend.
Thanks to the cloud, companies are relying on vendor software more than ever before. The B2B SAAS market, expected to be about the U.S. $220 billion, led by SalesForce.com and Workday, among others, have heralded a new way of licensing and subscribing to software that is available anywhere, any time and to anyone – all through a browser.
In addition to the advent of the cloud revolutionizing and revitalizing the software market, thanks to trends such as digital transformation and the emergence of cognitive technologies, the sophistication, features, and capabilities of software vendors are unparalleled.
Hence, the traditional Global 2000 companies are relying on vendor products to power their technology needs and growth aspirations.
Of course, this does not fit the mold of “Acquisition,” but outsourcing is a perfect way for companies to gain technology capabilities without building or buying. In most cases, companies tend to outsource commodity functions or shared services to a BPO (Business Process Outsourcing) specialist for whom the areas are core bread and butter functions/services.
Companies can also acquire technologies by way of licensing one or more patents or commercialize technology from a university or a lab. In this context, we are not referring to paying for a vendor software license.
Typically, licensing technology is prevalent in pharma, biotech, consumer products, and manufacturing sectors.
In this mode, companies license (or buy) innovative new technologies that could be either an insurance policy or become the foundation for the next generation of products/platforms.
More and more large firms are engaging in M&A (Mergers and Acquisitions – mostly the latter) to acquire critical technologies from startups. Such acquisitions allow for not only access to new technology but often top tech talent.
Sometimes, these acquisitions are considered Acqui-hire when the startup has not fully built out the product or validated the product/market fit, and it is pre-revenue or generates non-material revenue streams. The Acqui-Hire is primarily a talent play, and companies are happy to pay top dollar to onboard leading technologists and innovators.
For any large firm, there is no universal answer, and it is different strokes for different folks. The decisions about how to acquire and deploy technologies are situation dependent and reliant on the specific case.
However, if a company seldom acquires (or acqui-hires) or doesn’t outsource even one commodity function, it is likely due to politics and culture and not sound rationale and data-driven decision making.
Senior executives of each firm should find a balance between buying, building, licensing, outsourcing, acquiring technologies. A company that can calibrate the technology acquisition equation is going to be eminently successful in this new paradigm of digitalization and cognitive technologies.
Companies have a ton of data on technology acquisitions of the past and the relative ROI. However, in most companies, while the data exists it does not drive the decisions.
are How does your company make decisions regarding buying, building, outsourcing, licensing, and acquiring? Please share your thoughts.