During the tech boom of the late ’90s, many large companies tried to buy smaller companies developing disruptive tachnologies — rather than developing them themselves. Cisco, for example, acquired 70 companies between 1992 and 2000, and just two in 2001.
Many of those purchases were made based on a set of assumptions that Wharton professor Saikat Chaudhur now says are flawed. In a recent Knowledge@Wharton feature, Chaudhur outlines four challenges faced when buying innovation. Among them:
- integrative complexity due to technological incompatibilities
- integrative complexity due to the “maturity” of a target company
- the unpredictability of a product’s performance trajectory (“technical uncertainty”)
- the unpredictability of that product’s market (“market uncertainty”)
What do you think is the beter route: building or buying innovations? If the latter, what have you learned in terms of making such an acquisition succeed?