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Evaluating Growth and Innovation Strategies in the Software Sector

Marthin, Edgar LU (2026) INTL01 20251
Innovation Engineering
Abstract (Swedish)
This thesis examines the strategic trade-off between internal innovation and external
capability acquisition in the software sector. Software firms operate in markets where
innovation speed, scalability, and product-market timing are central to
competitiveness, making the choice between developing capabilities internally and
acquiring them externally particularly relevant. Prior research on software
acquisitions has mainly focused on individual transactions and short-term stock
market reactions. This thesis instead takes a firm-level perspective by comparing
software companies with different dominant growth and innovation strategies.
The study investigates whether acquisition-focused software companies are
associated with... (More)
This thesis examines the strategic trade-off between internal innovation and external
capability acquisition in the software sector. Software firms operate in markets where
innovation speed, scalability, and product-market timing are central to
competitiveness, making the choice between developing capabilities internally and
acquiring them externally particularly relevant. Prior research on software
acquisitions has mainly focused on individual transactions and short-term stock
market reactions. This thesis instead takes a firm-level perspective by comparing
software companies with different dominant growth and innovation strategies.
The study investigates whether acquisition-focused software companies are
associated with stronger financial performance than companies with a stronger
internal R&D focus. The hypothesis is that software-specific characteristics, including
recurring revenue, low marginal reproduction costs, modular product architectures,
and existing customer relationships, may make acquisition-led growth especially
attractive.
Using company-level financial data from Capital IQ, the analysis compares the two
groups across operating growth, profitability, market-based performance, and
expenditure-normalized outcomes. The results suggest that acquisition-focused firms
are associated with stronger operating financial performance, while research-and
development-focused firms show higher gross margins. Evidence for stronger
market-based performance is weaker. The findings are relevant for software
executives and investors evaluating build-versus-buy capital allocation, and for
researchers interested in firm-level innovation strategy beyond transaction-level
acquisition studies. However, the results should be interpreted as observational
associations rather than causal effects. (Less)
Please use this url to cite or link to this publication:
author
Marthin, Edgar LU
supervisor
organization
course
INTL01 20251
year
type
M2 - Bachelor Degree
subject
language
English
id
9248788
date added to LUP
2026-08-24 10:06:17
date last changed
2026-08-24 10:06:17
@misc{9248788,
  abstract     = {{This thesis examines the strategic trade-off between internal innovation and external 
capability acquisition in the software sector. Software firms operate in markets where 
innovation speed, scalability, and product-market timing are central to 
competitiveness, making the choice between developing capabilities internally and 
acquiring them externally particularly relevant. Prior research on software 
acquisitions has mainly focused on individual transactions and short-term stock
market reactions. This thesis instead takes a firm-level perspective by comparing 
software companies with different dominant growth and innovation strategies. 
The study investigates whether acquisition-focused software companies are 
associated with stronger financial performance than companies with a stronger 
internal R&D focus. The hypothesis is that software-specific characteristics, including 
recurring revenue, low marginal reproduction costs, modular product architectures, 
and existing customer relationships, may make acquisition-led growth especially 
attractive. 
Using company-level financial data from Capital IQ, the analysis compares the two 
groups across operating growth, profitability, market-based performance, and 
expenditure-normalized outcomes. The results suggest that acquisition-focused firms 
are associated with stronger operating financial performance, while research-and
development-focused firms show higher gross margins. Evidence for stronger 
market-based performance is weaker. The findings are relevant for software 
executives and investors evaluating build-versus-buy capital allocation, and for 
researchers interested in firm-level innovation strategy beyond transaction-level 
acquisition studies. However, the results should be interpreted as observational 
associations rather than causal effects.}},
  author       = {{Marthin, Edgar}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Evaluating Growth and Innovation Strategies in the Software Sector}},
  year         = {{2026}},
}