Notes From The Pervasive Corporate Development and M&A Trench
We have seen a surge in M&A activity in the Smart Systems and Internet of Things arena over the past several months. The list of deals has been quite diverse. We have been trying to do some “pattern recognition” on this important dimension of market development. What we see is that when it comes to developing new growth opportunities, most companies are plagued by tunnel vision.
The recent moves in the market indicate that acquisitions strategy for the IoT is far from maturing—it’s still stuck, for the most part, on replicating and scaling existing businesses, technologies and models. Technology players have tended to view the opportunity through the prism of what they do today, instead of envisioning a radically different view of the future.
To date, smart connected devices, products and systems have largely been focused on “simple” applications like remote diagnostics or simple tracking/location services—in large part because of technical complexities and business model challenges. Existing technology has proven cumbersome and costly to apply, with many conflicting protocols and incomplete component-based solutions. Two big adoption hurdles have been the challenges of developing applications and integrating diverse devices onto networks in an interoperable manner.
We believe most of the acquisitions within this arena over the past several years have mirrored this focus on simple applications that tend to be dominated by simple, narrow technologies (for example, cellular for fleets or networks for meters).
Despite the recent acquisition maneuvers and the strategies they are coupled to, however, the value of connectivity and smart systems does not have to end with simple applications focused on a single class of device, machine, or technology. Return from simple applications, while extremely valuable, is often limited by the manufacturer’s service delivery efficiency.
As technologies mature and open standards become the norm, applications based on deeper, peer-to-peer interactions between devices, systems and people will drive more “compound” and dynamic value streams. This opens up new collaborative business model opportunities that have the potential to drive much greater value for the customer. Pursuing a strategy to enable more compound applications and realize that value will require a different approach to acquisitions and partnering.
Effectively pursuing profitable new growth opportunities in the Smart Systems and Internet of Things space means changing the way opportunities are discovered, defined and developed.
Success in this market will depend on developing both forward and peripheral vision. The IoT will drive disruption of existing mature businesses, while at the same time it will enable entirely new categories of opportunities. Companies will need to focus on a much broader set of indicators to defend and enhance their businesses. Corporate development will need to take a view that spans diverse technologies, existing and new markets, and non-traditional business models. In the age of Smart Systems, companies will need to embrace a broader, more creative and diverse view of opportunities than most organizations have traditionally been able to develop.
This is particularly true with the largest technology companies and massive diversified manufacturers, who now operate at a scale where the variety and complexity of their internal efforts mirrors the diversity of the markets they serve. Corporate development needs to build a much broader field of vision that can take in the complexities of today’s business landscape and bring into focus the challenges and opportunities that lie ahead.