How to maximize innovation during M&A Integration

Innovation during M&A integration

Buyers speak a great deal about innovation or doing investments on the target organization’s business during the M&A integration in the board room.In reality, rarely do these innovation programs actually happen.The deal teams bake in the innovation or improvements in the target organization in their financial projections, but these innovation points are not put in action by the integration team.
Most of the acquirers focus immediately on cost synergies post deal closing to achieve their synergies targets. At the same time, acquirers do not focus on innovation or give it a high priority.

Maximising Innovation through M&A Integration

  • According to Steve Jobs, Innovation distinguishes between a leader and a follower.When acquirers intend to acquire a company for a strategic purpose like buying a target organization for its product innovation capability, they need to be very specific on what they mean and how they will achieve their strategic objective.Many of us use Innovation very loosely because it has become a catch all phrase like Leadership and Strategy that can mean whatever someone wants it to mean.
  • Innovation can mean different things to different people.For some, innovation is a breakthrough industry game changers where as for some, Innovation means some changes to product features or functionality. Others see Innovation as a process improvement initiative that is worth considering.Economist defines it best as Innovation is a fresh thinking that customers value.
  • It is very important for the buyers to be clear what specific type of innovation capability is most important and that needs to be present in the target organization in order to acquire.

Incorporate innovation through the M&A integration

  • The acquirer needs to evaluate its target screening methodology to reflect how much importance do they place on innovation.Do acquirers place a premium on target companies that display substantive innovation potential?
  • The acquirer also needs to assess the innovation potential of the target company during the due diligence.The acquirer needs to have a detailed look at the target organization’s historical innovation track record, their innovation processes and systems and their talent directly responsible for leading innovation efforts going forward.After that the acquirer needs to ensure that the key employees responsible for leading innovation efforts are retained and the processes followed for innovation continue post the acquisition.

M&A integration vs Innovation

  • In any M&A integration, it is necessary to ensure that the base business revenues does not get eroded.Then the integration team needs to achieve Steady state operations.
  • The immediate priority for the integration office is to align the target organization’s business process to that of acquirer.At this point there is no need to optimize any of the processes or commit to any innovation. The tasks for innovation should happen in the future after the combined organization reaches steady state operations.
  • The only issue is that acquirers do not address the innovation or optimization after they reach steady state operations.The integration office gets dissolved and integration team moves to work on other deals.As a result, the long term value creation potential, including some of the most valuable innovation opportunities get left on the piece of paper.

Innovation framework

The acquirer needs to identify opportunities to drive specific types of innovation at each stage of integration through specific priority initiatives.

Game Changer

  • The integration team looks to address white spaces in evolving domains and can help in sourcing and adapting completely new ideas from outside the norm.These needs to be implemented after the target company is fully integrated and reaches steady state operations. This delivers the long term innovation potential that was envisioned by the buyer.
  • The integration office track discontinuities in the market to identify white spaces and then builds solutions.The target company’s employees also need to be comfortable working with uncertainties.
  • By achieving these objectives, the buyer can fundamentally shift the way the industry operates.

Market Changer

  • The integration team looks to achieve innovations that can strengthen the existing products/services. The target organization’s skilled employees can be involved in sourcing and adapting ideas to strengthen their existing service offerings.They are able to do this by providing better outcomes with a refreshed business model.The integration team needs to start implementing these innovations immediately after closing.
  • During the integration, the buyer needs to validate if the innovation is only about R&D and new products and services or does the target know how to innovate business models driven by customers?
  • The impact would be the differentiation provided by the target organization which would help the buyer to acquire as well as retain their customers.This is because customers love differentiation.

Work Changer

  • The integration team identifies best practices and continuous improvement in meeting predictable outcomes that are better, faster and cheaper.
  • During the integration, the team needs to validate whether the target has an innovation culture and capabilities where new ideas are flowing from multiple teams.
  • This stage of integration will give an incremental impact to the acquirer.

Innovation is critical during M&A integration

Innovation distinguishes a leader from a follower.The same is applicable in M&A integration where the ability to maximise innovation during M&A integration distinguishes between a leader and a follower.



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