10 Reasons to Outsource Innovation in M&A

The innovation failure rate is between 80-90%.

Innovation fails when teams lack long-term strategy and don’t adapt to changing circumstances.

While many companies innovate in-house, sometimes it makes more sense to outsource innovation. Firms can be incredibly successful when they use external parties to generate ideas and strategies.

Research shows the best innovators use a combination of in-house innovation and external collaboration.

The age of innovation in M&A

The Covid-19 pandemic meant that 2020 undoubtedly saw more M&A conducted almost fully digitally than any other year.

From origination right through to signing on the dotted line, there are now very few steps in an M&A process where the buyer’s physical presence is absolutely required such is the level of innovation present in M&A now. Innovation is what underpants M&A now.

Agile M&A is at the heart of this, using a combination of analytics, skills, and software to make the process of acquiring another company as seamless as possible.

Innovation - and Agile M&A - should be at the core of your company’s merger or acquisition. Below, we look at just some of the advantages of outsourcing innovation in M&A

How do you decide what to outsource and what to keep in-house?

In order to be successful and have an Agile M&A process, you need to figure out what you do best.

Start off by asking yourself:

"What are the strengths of your team?"

By focusing on what you do best, you can leverage the strengths of your team, while optimizing the talent of external individuals and companies.

There are many times when outsourcing innovation is not only a viable, but advantageous option. If we take a look at the tools available to M&A professionals, there are many innovative options.

While firms may be tempted to build these tools in-house, these products require extensive R&D, resources, and ongoing maintenance.

So, what are the reasons to outsource?

Here are 10 reasons why you should outsource complex innovation (in lieu of building in-house):

1. Avoid chaos

Innovative processes can be chaotic. When you lack the necessary structure, it can be difficult to realize tangible results and create a useful tool for your team.

You may look at a tool and feel confident in your ability to recreate the technology, but this is rarely the case. By outsourcing innovation, you can eliminate this chaos.

2. Leverage diverse expertise 

By collaborating with experts, you can realize more innovative results. If you always ideate with the same group of people, it can be difficult to discover anything truly new.

That’s why it’s important to access a diverse set of viewpoints (from outside your firm). Get fresh insights—from experts—to brainstorm new ideas.

An excellent example of such approach could be Empeek who provides custom telehealth software development services. By listening to the quite conservative healthcare industry pains and utilizing technology they realised an innovative idea. It would never happen without openness and all-side collaboration.

3. Manage and report innovation 

When innovating in-house, the scope of activities changes over time as responsibilities are passed along to different professionals and various teams.

This irregularity makes accountability elusive, slowing progress and cannibalizing outcomes. By outsourcing innovation, it can be easier to manage, report, and advance innovation.

4. Capitalize on specialties 

By outsourcing innovation, you can take advantage of innovative technologies that solve very specific problems. For instance, many deal teams use spreadsheets and emails to complete deals. This isn’t always the best way.

Here are just a few M&A tools you can use to improve your process:

• Pellucid (Pitchbooks): reuse content and automate data retrieval, analysis, and visual graphs.
• R Programming Language (Analysis): analyze large data sets extracted from multiple sources.
• Cognitiv+ (Contract Analysis): find issues, flag documents, and indicate the need for deeper review.
• Tableau (Data): use predictive analytics and forecasting to figure out risks and opportunities.

5. Realize cost benefits 

At DealRoom, through our work with corporate development professionals, sellers, and buyers, we know how beneficial outsourcing innovation can be.

We work with a F500 company that spent one million per year in-house developing what amounted to be an inadequate project management system.

After replacing their in-house software with DealRoom—at 1/8th the cost—they doubled their productivity.

6. Save time 

As the F500 example demonstrates, companies spend years and millions of dollars developing in-house technology that ends up being ineffective.

By outsourcing innovation, you can avoid this struggle and loss of time. In addition to saving time in the innovation process, you can save time day-to-day by using better technology.

By using DealRoom to automate diligence requests and collaborate in real time, teams reduce their workload by 50% and increase productivity by more than 25%.

7. Beat your competition

If small firms try to innovate in-house, it is impossible for them to keep pace with large corporations that invest millions of dollars each year.

Many small firms spend time recruiting specialists to develop software on their own, try to hire developers full time in Ukraine or in any other country with high-professional specialists and appropriate price. For many of them it could be a really good strategy but this process inevitably takes time.

In the meantime, the competition collects valuable data as their AI learns.

The alternative is to outsource to a specialist company and immediately compete.

8. Benefit from a mature process

By outsourcing innovation, you get to use mature technology. With mature technology, most of the initial bugs and faults have been worked out. You get to skip the experimentation involved with in-house development by outsourcing.

9. Utilize tools that are tested and maintained

Likewise, you have access to mature tools that are continuously tested and maintained. If you build something in-house, R&D and ongoing maintenance will be costly.

Alternatively, you can collaborate with a team who is dedicated to researching, testing, maintaining, and continuously improving a specific product or service.

10. Minimize risk and failure

It’s not surprising, but companies fear failure when it comes to innovation. This is understandable since 80-90% of innovation fails. Failing innovation costs a lot of money and at times, leads to managers losing their jobs.

Conclusion

By outsourcing innovation, you minimize this risk of failure.

Innovation is a word that gets thrown around a lot by companies, with many failing to appreciate the concept in its fullest sense.

Our view is that innovation is not just developing new products or services. Innovation means using state-of-the-art thinking and processes to arrive there. This is as true for M&A as any other process.

If your company hasn’t fully grasped the opportunity that innovation represents, the advantages above should provide some insight into why you need to outsource your innovation processes as soon as possible.