Software providers suffer from overreliance on M&A

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Grant Johnson
Grant Johnson

Something strange is happening in the technology world today. Remember when software development used to include breakthrough innovation and new offerings with exciting capabilities designed to take advantage of current trends and opportunities? That's not so much the case anymore. Consolidation among leading software companies has changed the overall dynamic of technological advancement. Many are taking the “stack” approach and zeroing in on acquiring companies with existing offerings, instead of making deeper R&D investments and focusing on continuous internal improvement. As a result, the industry is experiencing a real crisis in innovation.

Enterprise software buyers are often encouraged to take the “safer” stack approach. But if you believe in innovation, you should resist the hollow siren call of the stack and don't believe the hype that cheap corporate debt is better for the business world than R&D teams working together in the spirit of competitive innovation. Buying into the stack means eliminating choice from the marketplace. It's difficult to compare an all-you-can-eat buffet to a Zagat-rated restaurant that excels with world-class quality, innovation, creativity and customer service.

Today's smarter organizations are seeking alternative approaches to gain freedom from the stack. By renewing and increasing their investments in R&D, they are ultimately investing in their customers' success. Savvy business leaders should happily invest in creating industry-specific solutions that accelerate time to value and co-exist and interoperate with one another. This creates a scenario where one can quickly and safely test and fail different ideas – for example, being able to easily configure and extend key performance indicators to meet new challenges and opportunities. With an agile approach, users can drive business change instead of requiring IT to re-code systems. Real innovation, after all, happens when your customers use your software for their own great ideas.

Be wary of vendor lock-in, as it comes with a hefty cost (cue stream of maintenance fees). Don't be fooled by the massive buffet and promise of bottomless cups. As we speak, your competition might be seeing through the false sense of security that the stack offers and instead planning their next partnership with software companies that exist not solely to get acquired but, rather, to innovate, excel and change the playing field. These are the companies that outclass and redefine best of breed. They are the ones who ponder every morning how they can improve their customers' success, leverage the latest trends in technology and turn the software world on its head.

Grant Johnson is CMO of Pegasystems, which provides business process management software solutions, including CRM.

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