When executed correctly, a "co-creation" investment strategy can reduce the risk of returns due to demand instability and improve speed to achieving
Key Highlights :
The current business environment is characterized by an uncertain market, higher regulatory scrutiny and a contractionary monetary policy, which has made it difficult for companies to make investments in mergers and acquisitions (M&A). To counter this, many are now turning to a "co-creation" investment strategy, which can reduce the risk of investment returns due to demand instability, eliminate the need for spending time and money to achieve synergies and benefit both the buyer and the seller.
In this article, we explore the concept of co-creation and the four key drivers to a successful co-creation investment strategy.
What Is Co-Creation?
Co-creation is an investment strategy in which a buyer (who is also the supplier) and a seller (who is also the client) enter into a contract to deliver business outcomes. This is done by the buyer investing in the seller in exchange for equity. This cash inflow from the investment is then used to fund the first two to three years of work, which is the project incubation window built in to keep existing operations running smoothly.
The success of this model depends on the following key factors:
1. Investor Credentials: The buyer must have advanced technology and tools in cloud computing, digital solutions, cybersecurity, AI, and data analytics that can drive significant changes and help shape an organization's competitive advantage. Additionally, their deep pockets provide the necessary financial support to make such investments.
2. Relationship Between Parties: Multi-billion dollar deals require a high level of trust between the parties involved. Companies with well-established brands, state-of-the-art products, public cloud (IaaS) solutions and large customer bases are frontrunners in this space.
3. Operating Model And Business Goals: The tri-party model has been prevalent in past deals, in which a big four firm has joined the partnership to bring in program management and change capabilities. The three parties involved need to break down the business outcomes into simple and measurable project goals with clear lines of accountability.
4. Commitment To Leadership: A partnership like this requires leadership commitment to focus on both day-to-day operational issues and strategic material decisions. The governance model must include an empowered group of leaders from the client's business systems and transformation unit, as well as senior engagement leaders from both the tech investor and the big four firm.
When executed correctly, a co-creation investment strategy can reduce the risk of returns due to demand instability and improve speed to achieving synergies. Big tech companies have been the frontrunners in this space, but many more global technology players can grow and expand their market share by following suit. With the right skill set and trust between the parties involved, this strategy can prove to be a successful and resilient M&A investment.
