Sunday, July 12, 2009

Growth by acquisition

When Oracle announced in late April that it would buy Sun Microsystems it shocked more than a few people. Tom In, Managing Director and Portfolio Manager at Alkeon Capital Management, obviously had his own thoughts on the matter. Paraphrased, he recalled to me over lunch the other notable acquisitions that Oracle had made: Primavera, PeopleSoft, and BEA to name a few.

During our discussion, we noted several possible combinations of acquired assets that could be used depending on what their corporate strategy is. Oracle is hardly the first company to take this approach either. BMC, HP, CA, Microsoft and several others have been known to base their growth on the purchasing of other companies rather than grow organically. Why do this? Generally, their mindset in situations like this is that it's quicker to buy than build; if you purchase companies that are best in their respective fields you can fill holes in your corporate strategy much more quickly.

On a personal level, we all have goals we have set for ourselves. But instead of learning from corporate America, I have frequently found that people rarely give any consideration as to how they intend to reach those goals. I'm sure you all know where you want to be, but do you have any idea how you will get there?

In the game of 8-ball (pool), the prevailing philosophy is that you start from the end of the game and work backwards, i.e. determine what shot you need to make so that you can make the winning shot; then determine what shot you need to make to make the previously mentioned shot; etc. If you know where you want to be in 5, 10, 20 years, doesn't it behoove you to figure out how to position yourself to be there at that time and then work backwards?

As a specific example, suppose you envision yourself as the CEO of a company but you are "only" in IT at the moment. What "shots" do you need to make, i.e. what types of skills do you need to acquire, to move yourself into a position to actually grab the brass ring?

After you've answered that, you need to determine how you plan to acquire those skills. Will you go back to school and get your MBA? Take different types of jobs to get Business Development, Sales, Marketing, etc. experience? The choices are yours to make, but until you not only make those decisions but also execute them successfully you won't go anywhere quickly.

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