Large companies do tend to struggle with innovation and are at a disadvantage versus a start-up due to many challenges such large organizations face. Such large companies tend to be bureaucratic and are heavily influenced to meet financial targets and make decisions solely focused on this. Another aspect a large company faces, it must focus on protecting is market share dominance for a specific industry to allow for appropriate cash flow and profits to keep the company viable. It becomes challenging for management to allocate capital in supporting new ideas or possible entry into new market segments if have competitors continuously threatening you. To this end, a large company tends to be conservative to allow a market to mature (being risk adverse) in order to avoid bleeding capital on a quarterly bassis in supporting such innovative initiatives. Large companies do not like such risk without a good understanding of the return. Innovation Through Acquisition
We see this activity commonly used in the IT industry and continuous to gain more and more momentum. EMC Corporation (I am employed by) transformed the data storage industry with the introduction of visualization/cloud computing, data analytics, and data duplication. These innovative products were not developed within the engineering teams at EMC (we actually tried, but unable to gain considerable share) but were acquired through companies such as VMware, Isilon, and Data Domain. It has been a great success and has proved a model allow large companies to leverage their capital in such away to become risk adverse.
I agree that innovation through acquisition can be a viable strategy for a large company, but it does motivate a few questions. What do you think makes acquisition more tolerable than internal R&D? Is it really more cost-effective to buyout a company than it would be to hire extra personnel? In your particular example, do you know why EMC faltered while those companies thrived?
ReplyDeleteThere is a lot of acquisition of innovations in tech. I expect one of the big analyst firms has done an analysis of the ROI on this approach (to address Dave's question above). Given the insane pace at which technology advances and the wide array of innovation options, it seems that it would be better to watch the market and pick up those who are heading in a winning direction while they're still affordable. But that means your company has to be good at assimilation and integration of people and products/services into your own.
ReplyDeleteA small but well-regarded sensor company was recently acquired by a big automation giant. Here we are a year later and all the best people from the sensor company are jumping ship, delivery times were too long before and now they're worse, [and other assorted negatives].
Looks like you have a similar idea to Luke! In case you don't get to my comment on his post, I will reciprocate my comment. In order for a company such as Gerber to be successful in using an acquisition as a means of innovation, they should maintain the acquired company's name and branding. This would prevent the parent company's brand and image from presenting the same problem it would had they tried to innovate on their own (i.e. Gerber only being associated with baby food).
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