By Gordon Vinther, President and Founder, Ardent Concepts
The BUY versus BUILD question in business is not new. But with rapid advancements in technology, is it becoming more of a factor in the interconnect world? I think so.
Even at some of the largest and most successful electronics organizations, cutbacks in investment in R&D (and the people who innovate) have left holes in the product suite. Companies have two ways to fill the gaps:
1. BUY: license the technology from another company
2. BUILD: develop the technology internally
We have found the following to be key considerations in this situation as it relates to the interconnect industry:
1. BUY:
a. Enables you to fill the gap quicker; avoid loss of existing customers
b. Resources – financial and human remain available or focused on existing core capabilities; generally less resource intensive to BUY versus BUILD.
2. BUILD:
a. Cost – path to new development can be long and expensive
b. Time – existing customers may not wait for your timeline
c. No guarantees your build will ‘work’ or be better than existing market solutions
The above summary is admittedly intuitive. With respect to the interconnect space, what is striking is how licensing can be an especially appealing option in these challenging economic times. That goes for both parties involved.
In the buy scenario, the licensee secures added revenue and expands its market reach. Additional benefits include gaining market knowledge and credibility. How? Being the licensee of interconnect technology provides insight into customers’ ongoing needs and requirements which fosters continuing technical innovation. As an engineer, this can be one of the high points of licensing as you expand your reach and have the opportunity and the challenge of taking your technology to the next level via evolving customer demands.
For the buyer or licensor, being able to respond to ever-changing customer needs is a primary driver in selecting the licensing option. The capability gap is filled. At the same time, the licensor has avoided a commitment of significant resources that would have been required to build. While resources are still needed to fully evaluate both the company and the technologies involved, the investment is generally less than with organic development.
So it makes you wonder why licensing isn’t more common in the interconnect space – right? Here at Ardent, we have been involved in a number of licensing agreements with larger firms, to varying degrees of success. The more successful ones are those where companies recognize and value the potential benefit of using outside partners to solve customer problems. A true collaboration is imperative – from design through customer acceptance, on market message and go-to-market strategy, and on price point – to have a ‘win-win’ agreement that allows both partners to realize profits while meeting customer needs. Easier said than done.
The approach to BUY or BUILD is the same as evaluating overseas outsourcing or the acquisition of a company with a vastly different culture and values. Approach and intent of both parties needs to be aligned. With a collaborative approach focused on ‘helping the customer,’ the BUY option of a licensing agreement can lead to great things in the interconnect space. ‘Tribal knowledge’ and long-term customer relationships can be used to help ‘bake in’ the recipe for success at a project or program level. Working together, risks can be curtailed for all parties – the customer, the licensor and the licensee.
An age old business question – BUY or BUILD? Based on our experience, we believe the BUY option offers a great way for companies to quickly acquire the technologies they need to maintain their competitive advantage and meet their customers’ current and future needs.
Gordon Vinther is an inventor, entrepreneur, and connector design expert. He can be reached at Gordon@ardentconcepts.com
