Acquisitions as part of strategy
Acquisition is a great way of expanding a business’ capability. A story hit the news on October first, 2019 about Tesla Motors’ acquisition of DeepScale, a computer vision start-up that specializes in Deep Learning, which is a part of the Artificial Intelligence field.
In this article, we discuss the reasons why Tesla may have done that from the strategy management perspective.
Pioneers and Innovators
Anyone who’s been following Tesla Motors for any amount of time will be able to tell you that one of the key features of their cars, one that’s got them quite a bit of attention, is the Autopilot feature.
Autopilot is essentially Tesla Motors’ brand of self-driving cars which is both an incredible achievement and a controversial one.
Because of the inherent dangers involved in putting what is essentially a 2-ton robot on the road and asking it to drive around at high speeds while making it’s own decisions on what is and isn’t safe, Tesla has had a lot to prove in terms of safety and confidence that the software will make the right decisions reliably.
Most people will intuitively understand that there are all kinds of challenging questions around autonomous driving vehicles, for instance who is responsible for a bad decision that causes an accident?
The challenge the engineering team faces, however is quite different. More often than not, the question they have to address is whether or not the car has all the information necessary to make the right decision, and whether or not it’s capable of crunching the numbers and processing the data to do so.
When the engineers hit a wall with the amount of data they can gather and process, the rest of the issues become almost academic, since they are blocked from delivering the self-driving capability at the level they were aiming for.
A Competitive Edge
Enter DeepScale, a start-up that specializes in processing very large amounts of data, very quickly, through a process called Deep Learning, while being very efficient in the use of energy and hardware.
In simple terms, they specialize in getting the most useful information from the largest possible data set with really small computers.
DeepScale is an innovator in this regard because they have been able to launch ground breaking applications in this space that set them apart from their competition.
In pairing with Tesla’s existing self-driving capabilities, the software developed by the DeepScale team could drive significant improvements in a very short amount of time, allowing Tesla to remain ahead of its competition.
When deciding whether or not this acquisition is the right move for Tesla, the management team would have had a good look at it’s own capabilities and compared them to what DeepScale’s software can do, and would have realized that DeepScale has features that would take Tesla a fair amount of time and effort to develop.
One factor to consider, once the management team has identified a capability gap, is whether it would be cheaper to develop it in house, or to buy it.
In Tesla’s case, the decision was that the efforts required to build the features they wanted wouldn’t be worth it compared to buying them outright.
As an added advantage, Tesla’s technical team could have made the recommendation to make the purchase to keep the technology out of competitors’ hands and keep them from jumping ahead of Tesla by short-cutting their own R&D.
Of course, it goes without saying that this acquisition is taking place because DeepScale made the strategic decision to retain the rights and details of its technology privately, rather than making them available to the world through open source. This decision made by their management team predisposed them to this multi million-dollar acquisition that is sure to open up interesting doors for the team and to help their innovations gain traction.
How can a consultant help?
Most companies operate with a very loose map of their capabilities and a road map of their future that often exists only in the minds of their managers.
Evaluating the pros and cons of an acquisition such as Tesla’s can be virtually impossible without a clear view of the company’s future plans, timeline and capabilities that can be communicated across teams and to different decision-makers to make sure they provide the best insight possible.
On top of being able to prepare the necessary information and empower the right teams to make such strategic decisions, a management consultant can help define the current and future states of the business, draw the road map to bridge the gap, as well as evaluate the company’s ability to integrate any newly acquired entities.
Merger and acquisition due diligence
When it comes to acquisitions or mergers, the news articles almost always overlook the very important question of whether or not the acquired company is actually going to deliver results.
In the business world, it’s fairly common for one company to acquire another to expand its operations and capabilities, only to discover that the two companies have such different work practices, that it would be easier to build the capability from scratch than to integrate the two.
There is a significant measure of due diligence that can be improved through the use of a solid strategic management team who can determine how smoothly an integration can take place before the deal is closed. For companies that lack the manpower to carry out the analysis, a management consultant can be an invaluable asset.