Q1 - Strategy (CA Technologies)

Ok guys, you seem to acknowledge the fact that external growth is in CA tech case a smart move.
We believe the same, 2 pieces of evidence in the case can also support your belief.

1/ CA Tech is growing at a pace of 3 to 4 % whereas the market growth was 7 to 8% which make a case for a product re positioning
2/ CA Tech is spending 600 Million on development each year which hasn't changed the situation which highlight a relative lack of efficiency of their R&D program.

For some inside the company, CA Tech failed to lead the development of the Cloud computing and made some acquisition moves to try to make up its delay. If you guys could also provide in your post some efficient and ground-breaking tools and best practices tech companies can put into practices to stay at the forefront of tech in their market please share them with us.

Charles

Talking about acquisition by CA, I believe it was ok as strategy. The company has been in previous stream, and needed something new. This reminded me of one well known case study learned last year about Kodak. That they were once film camera giant, but taken over by digital camera. In the case says, Kodak tried to develop their own digital camera, but since film camera is in chemistry field and digital camera is in mechanical field, it didn't fly. Well, I can't tell if the difference between cloud computing and mainframe business are as big as kodak case. Therefore, I would take strategic acquisition for the sake of obtaining new technology as positive. But of course it is not promising of the success. As mentioned below, such as managerial, protection or etc remains.

I agree with Patrick about the external acquisition of innovations. There are many possibilities, some mediocre and some great, to apply cloud computing. As I have mentioned in another thread, with the acceleration of IT start ups with cloud computing (e.g. dropbox), the amount of innovations one could not develop can be a future competitor or technology. Thus, monitoring and observing the competitino is very important in a brand new market. There is always the risk to be left behind, to bet on the wrong technology. If another competitor has a complementary technology, fitting to the companies own portfolio, an aquisition should be considered, or also if there plans exist to expand into new fields without much experience in it.

I think being innovative through acquisitions shouldn’t be any proactive strategy – so I strongly disagree with some of the statements before; it should only be a reaction to potential competitors if they have an outstanding technology. So I agree with AIKO.

Somehow, CA Technologies is a big company. I worked 3 years for HP and in big companies it is very difficult to develop innovative products as there are bureaucratic processes that need to be followed. In smaller companies there is more “garage spirit” and flat processes. Thus, I think big companies should invest in startups and keep them as a daughter company. Anyhow, buying already existing small competitors is not a solution.

I think it is very important to associate CA Technologies with innovative products. However, the market will recognize if innovations are acquired inorganically. So I think it is better to support startups with capital and withdraw their knowledge and associate it with the CA Tech. brand.

As the first though, I was thinking why not doing the both way, external acquisitions and internal development at the same time? But after some consideration, I am wondering whether this way really works.

If a company acquire another small firm which are master in the technology and keep up their works, at the same time they still want to develop new technology, will there be enough resources to do that? When external acquisitions increase, how to maintain that much team of different technology? And as Esben says, “However, such a strategy does posses managerial challenges as to how the acquisitions, both in terms of technology and people, are best integrated.” Integrated is also a big issue, how to integrated several firms, or technology?

In my opinion, if a company really wants to focus on developing their own new technology, then acquire other firms can be a strategy to decrease competitor. The company will then have the choice to keep developing the technology or just let it die. Otherwise, focus on one technology from the acquired firms will be more possible and effective!

HolgerRasmussen wrote:

Back to the question which type, internal or external growth, is better, I would say that the right balance is needed. Only depending on internal development may not produce enough innovative products and processes. If too many acquisitions are made, the management will become extremly difficult and there is also a liquidity risk.

So it seems that everyone agrees with the idea of having a right balance between internal and external development. Yet, we have only talked about the logistical and cultural issues that may be caused by acqusitions. What do you think about the financial cost of such a strategy? As the forrester analyst stated page 7, cloud computing may be "overblown". Do you agree with that statement? Do you think it could be more profitable to invest in more L&D rather than acquiring start-ups?

gregoire.schiller wrote:
In other terms, should you treat an acquired company as a small child? Or leave it develop itself without being involved in the management?

I think this is a very good strategy for external acquisitions, as I can imagine that burdening a small acquisition with all the bureaucracy of a large company would definitly decrease the motivation of the employees. This could lead to important employees leaving the company thus making the acquisition worthless. For this strategy to work, the parent company needs to be large and patient.

Back to the question which type, internal or external growth, is better, I would say that the right balance is needed. Only depending on internal development may not produce enough innovative products and processes. If too many acquisitions are made, the management will become extremly difficult and there is also a liquidity risk.

I agree that an innovative industry can be suitable for external growth strategy. But let's take the pharmaceutical industry. There is also a huge need for innovation in developing new drugs. And companies grow mainly internally, by developing technologies by themselves. Why do you think this industry differenciates from the cloud computing? And therefore why is the strategy different when it comes to acquisition based growth?

Also about the management of acquired companies, do you agree with the following quote from the case:

"When you bring small companies in that do completely different things from what you do, it’s not
an adjacency opportunity. I saw it at IBM, it’s like white blood cells surround the new thing and they
kill it.” Some argued for insulating some of the smaller acquisitions—incubating them. “Like a parent
bringing up a child,” McCracken explained, “you protect them until they’re big enough to be on their
own. They are guided and protected, but also pushed out on their own when they are ready.” He
acknowledged that for many, this was a culture shock, “We upset the apple cart,” he said, “but we
needed to or people wouldn’t change.”

In other terms, should you treat an acquired company as a small child? Or leave it develop itself without being involved in the management?

I think a growth strategy is necessary. In the fast paced world of technology relying solely on internal growth means you risk getting left behind in the dust. While everyone seems to agree that everyone will be moving into the cloud eventually, multitude of solutions and technologies could be viable in ensuring the best offering and it is unlike that a company is able to develop the right technical solution by itself. Since no one knows the endgame external growth seems unavoidable. However, such a strategy does posses managerial challenges as to how the acquisitions, both in terms of technology and people, are best integrated.

Thanks a lot for your answer Dennis

Here are a few subquestions you can react on:

1. What are the motivations for a company to build up an external acquisition growth strategy?

2. What are the particularities of the IT sector and especially the cloud computing one related with external or internal growth strategies? What makes this field different from other ones and makes it more or less suitable for acquisition based strategies?


3. What are the challenges linked with the acquisition based strategy? How can CA Technologies deal them with?

The bottom line of these questions: Was CA Technologies right to develop an acquisition based growth strategy or should it have focus on developing internally new technologies?

Look forward for other answers!

I think the best strategy would be to combine the two approaches mentioned in the question. The comapny should use externally acquired technology to their advantage in order to improve the processes internally and thereby create far superior products. Furthermore external acquisition is perfect to create a competitive edge since you can gain knowledge rather quickly. However by solely relying on this you can never be a first mover and create a technology that is both innovative and appealing to the end customer.

Hi guys!

So here's the first question concerning the article "CA Technologies: Bringing the Cloud to Earth".

In 2010 the company acquired eight companies to strengthen its cloud strategy. For a big software company like CA Technologies, what would be the most strategic option to implement a new technology in its portfolio?
Would this be through internal development and growth of the technology, or external acquisitions of smaller companies that master this technology?

Looking forward to your answers.