Orient your firm towards innovation, then target smaller firms to bring
in further creativity and innovative cultures. PHOTO | FOTOSEARCH
By SCOTT BELLOWS
In Summary
In 2001, tech giants Hewlett-Packard Company and
Compaq Computer Corporation, both publicly traded firms on the New York
Stock Exchange, shocked the technology world by announcing their merger
to create an Sh8.7 trillion technology behemoth.
The two firms operated similar business lines and
endeavoured to maximise on efficiencies by reducing staff and benefiting
from shared resources to form the then largest server, personal
computer, imaging, and printing company in the world.
Hewlett-Packard stood as the dominant player in the
merger. Its executives recognised that it struggled with creativity and
innovation. Therefore, the entity strategised over the fastest way to
bring an innovative culture to the company.
The board settled on acquisition as the best course
of action and identified its target. Compaq, in contrast, thrived as an
innovative leader in the technology industry. The firm benefited from
creativity along its supply chain, processes, human resources, and
products at the time. The two companies’ boards agreed to a merger.
Unfortunately for the new combined organisation,
the entity did not realise gains in innovation. As research conducted by
Scott Helm and Fredrik Andersson confirm, a corporate culture allowing
and championing risk taking by staff and fostering proactiveness stand
as key antecedents, or causes, of innovation within a firm.
Claus Langfred further researched the roll of
individual and team autonomy positively influencing innovation and
organisation performance. The new Hewlett-Packard placed their own
trusted managers in charge of most company departments. It hoped that
Compaq employees would diffuse their innovative and creative practices
into the Hewlett-Packard dominated infrastructure.
Such approaches did not work. Retaining the
bureaucratic rigid management overseeing formerly creative employees
kills risk taking, eliminates rewards for proactiveness, and stifles
autonomy through too much oversight and mountains of approvals.
Numerous Business Talk articles in the Business Daily
highlight the positive impact that innovation holds on firm
performance. Innovation stands as a desirable organisational outcome
that critically boosts short-term and long-term organisational outcomes
such as customer growth, market penetration, client satisfaction, and
firm revenue growth.
Ever since the Hewlett-Packard lesson in 2001,
mergers and acquisitions grew in popularity among technology firms to
harness innovation. Facebook famously bought Instagram in 2012, Atlas
Solutions in 2013, and WhatsApp in 2014, among others.
Google acquired dozens of smaller technology firms
in the past 15 years including Android in 2005, YouTube in 2006,
Motorola Mobility in 2011, and QuickOffice in 2012.
Researchers Michael Hitt, Robert Hoskisson and
Duane Ireland specifically look into the gains that parent companies may
gain from acquisitions or dominant firms from mergers. Do the outcomes
warrant the acquisition effort unlike in Hewlett-Packard and Compaq? The
answer? It depends on the managerial commitment to innovation. If an
arguably historically lethargic firm like Xerox would buy Snapchat, as
an example, then Xerox would need its executive and mid-level management
committed to innovation or else the benefits of Snapchat’s corporate
culture of creativity would get lost in the newly combined entity.
Similarly, if formerly innovative but declining
firms and departments like Twitter, MySpace, or Polaroid merged with
Forbes magazine’s most innovative companies Apple, Amazon, or General
Electric, managerial buy-in towards innovation and creativity must occur
or the new culture could kill-off performance of both units in the
combined firms.
How might a firm ensure managerial commitment to
innovation? The resulting conditions following completion of an
acquisition affects managerial intent. If a board of directors utilises
acquisition as a substitute for developing innovation internally, then
the results of the purchase would become lackluster. Boards must watch
out for a decrease in innovation following an acquisition in most
instances.
Negative relationship
Acquisitions result in larger combined
organisations. Innovation often exists in a linear negative relationship
with firm size. The larger the company then the lower the potential for
innovation without intentionality. Organisations pass through various
degrees of organisation. Larger firms typically become over-organised.
Instead of few approvals required in smaller firms, larger firms usually
introduce multiple processes, policies, and procedures in order to
standardise and control every aspect of firm activity.
Firms like Google famously buck the over-organised trend for
large companies by intentionally building in autonomy and eliminating
bureaucracy at all levels of the organisation. Employees even famously
can control 20 per cent of their own work time to focus on any project
they choose. Google birthed some of its most impressive innovations
through 20 per cent time such as Google Maps, Gmail, and Google News.
So, orient your firm towards innovation. Then, target
smaller firms to bring in further creativity and innovative cultures to
your organisation. Should large Kenyan technology firms such as Craft
Silicon or Safaricom buy smaller innovative technology companies like
TracoPay or Djuaji? Should the large players buy one of the business
incubators or shared workspaces to benefit from new innovative
technology thinking that may come from NaiLab, mLab, or iHub?
Take a look at your own firm. What is your
propensity towards innovation? Does your firm retain a solid history of
first-in-market processes or products? Which Kenyan companies do you
find might make logical merger targets?
Discuss innovation with other Business Daily readers through #KenyanInnovation on Twitter.
Scott may be reached on scott@ScottProfessor.com or on Twitter: @ScottProfessor
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