Innovation Through Acquisition: The "Yes, But" Strategy

Wharton has an article that discusses why attempts to innovate by acquiring innovative companies doesn't always work.

Companies who once were acquisition-crazy, says Chaudhuri, soon realized that while buying technologies was easy, making them pay off was not. Indeed, researchers looking at mergers and acquisitions in tech fields have acknowledged for years that the challenges of successful acquisitions are significant, as are the challenges of post-acquisition integration. Yet they have also suggested that the strategy of buying young companies with early-stage technologies in emerging markets is a good way of hedging against the possibility of missing out on major technological advances. Further, they have generally agreed that once a purchasing company finds an integration strategy that works well, this strategy can be applied to almost any acquisition.

But after spending two years studying the M&A activity of three top communications equipment and software firms, Chaudhuri says those assumptions are wrong. "What I did was reframe how we look at acquisitions," he notes.

So much has been written about the problems with acquisitions and how they contribute so little to bottom line that I have to reach one of two conclusions.

1)All this "M&A" doesn't add value is wrong, and only focuses on a handful of high profile deals that are bad

or

2)Corporate leaders realize most acqusitions fail, but they think they will do a better job than everyone else. This is the "yes, but" strategy – I realize most people fail at this but I'm different. It makes sense, because you need some of that attitude to rise to the C-level in most companies. I just wonder how many executives/companies analyze their past M&A decisions to see if their supposed value was ever realized.

  • Frank

    M&A is about stock price, not “real” value.

  • Jason

    To answer question 2) – few to none. The odd thing about the corporate ladder is that the higher up you go, the number of decisions you need to make whereby one can judge your competence decreases. Look at it from this perspective – an incompetent secretary is unlikely to last long, but it can take an incompetent CEO (Phillip Purcell, for example) years before he/she gets his/her due. We tend to overestimate our abilities, rationalize our failures, and understimate the role of luck.

  • Jason

    Apologies if this gets double posted – don’t think my first shot went through.

    To answer question 2) – few to none. The odd thing about the corporate ladder is that the higher up you go, the number of decisions you need to make whereby one can judge your competence decreases. Look at it from this perspective – an incompetent secretary is unlikely to last long, but it can take an incompetent CEO (Phillip Purcell, for example) years before he/she gets his/her due. We tend to overestimate our abilities, rationalize our failures, and understimate the role of luck.

  • Rob

    Excellent point… and the comment pRoblem is on my side. The MT upgrade requires me to approve comments. I’ve turned that feature off, but it still isn’t working.