A majority of U.S. CEOs (81 percent) are planning to pursue inorganic growth. KPMG’s Hunter sees the reticence to invest in organic growth (19 percent) as somewhat incongruous with the high levels of optimism about economic growth. “The only chink in the armor is this disconnect between how much CEOs say they’re going to invest in R&D and innovation versus how much they think they’re going to grow through M&A and strategic alliances,” she says.
The largest number of U.S. CEOs (38 percent) cite entering strategic alliances with third parties (compared with M&As being the top way to grow last year). “We continue to be in a growth market that is driven by disruption. Forming strategic alliances is allowing companies, today more than ever, to quickly innovate and enter new markets where they’re not constrained by their traditional, organic growth structures,” explains S. Singh Mecker, KPMG’s U.S. Leader, Alliances and Partnerships.
Arrow Electronics, a technology services company, will launch an open lab the second half of 2019 that will serve as a test site for establishing certain standards for artificial intelligence, where the company collaborates with municipalities, agencies, businesses, universities and research institutions on issues such as street lighting, public safety and security. “You have to work with other companies and pull together information from many to have a solution that works for all. It’s our core belief that technology and innovation are enablers of progress and the improvement of everyday life, and if that’s really something you believe in, that means you have to be able to work with everyone,” says Michael Long, Chairman, President and CEO of Arrow Electronics.
But while strategic alliances are a chosen way to stay competitive, CEOs recognize that they can be tricky. Almost two-thirds (65 percent) believe that the only way for their organization to achieve the agility it needs is to increase the use of third-party partnerships. Yet the same number also admit that in the past they have reconsidered a third-party partnership that would have helped with growth because the third party did not fit well with their organization’s culture and purpose.
Mecker points to three main determinants of whether an alliance will be a success or failure. The first is alignment about market opportunity and shared strategy. The second issue relates to operational execution, defining each party’s role in executing the alliance’s goals. Finally, the third element necessary to ensure a well-functioning alliance is around the culture. Not all cultures can unite to form a proverbial melting pot, and without agreement about reporting structures, incentives and purpose, an alliance is bound to be strained.
While challenges run across all three areas, Mecker believes that execution and culture are more difficult to get right. Creating a collaborative culture requires consistent definitions of success, accountability, support and rewards on both sides of an alliance partnership.