When metrics attack: the challenges of innovation through acquisition

David leads our Client Innovation team globally. He has more than 20 years experience helping clients bring to market new products, services and business models.

 

Over recent years, innovation within many large organisations has withered as cost-cutting programmes have taken precedence and managers have avoided risk. One way to revive innovation is through acquisition and to buy all or part of a more innovative organisation.

In fact, a period of these kinds of acquisitions and divestments is likely as companies rebalance their portfolios and change to meet the challenges of the future. It’s no secret that Chinese and other emerging market companies are looking to enter European markets, and vice versa so, in theory, the opportunities for this ‘portfolio level’ of innovation are increasing.

Transforming this way can payback in spades, but it’s tricky. Acquisitions and divestments, if not managed correctly, can destroy value and a purchase that doesn’t grow, soon becomes a good will debt on the balance sheet. Having the idea of what to buy is not the difficult bit; scaling and monetising the company once bought, is.

Buying brains, new products, services and ideas may work in theory, but sales forces are often not set up to deal with the change of mode required. A sales team set up to sell products is going to struggle to sell solutions and outcomes overnight.  But this is part of the challenge of selling something new. You have to sell the whole idea because there’s no shared history or understanding, and often no scalable ecosystem to support the new offering.

Another challenge can be the way the existing culture measures progress and success, most commonly illustrated by profitability metrics.  And so we come to what is sometimes called the Innovators Dilemma: a company tries to do something significantly different and their metrics system tries to kill it, reporting that the new activity is too small; unprofitable; demands too much involvement of third parties and/or a host of other woes. This applies whether the innovation is acquired or developed internally.

To build a new capability through acquisition, at least half of the effort must be channelled into transforming the existing culture of the acquirer so that established metrics foster rather than exterminate the new ideas and technologies coming in, and ensuring the sales force are able to sell the complete solution, not just the product.

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