M&A is Not a Strategy – Taking a Look at Intel
We are indebted to Blogger Steve Cheney (Steve’s Blog: Thoughts on technology, business and strategy) for his very incisive statement concerning Intel’s recent major acquisitions of McAfee for $7.7 billion, Infineon’s wireless businesses for $1.4 billion and Texas Instruments’ cable modem product line. Cheney’s comment was that M&A activity does not substitute for having a good strategy. In particular, “M&A should be used to augment a corporate strategy, not as a strategy to grow in and of itself.” Despite, or perhaps because of Intel’s great success as the world’s largest semiconductor chip maker, it has an unenviable record with acquisitions aimed at diversification. This past pattern could repeat again with the new acquisitions.
The question is whether Intel is willing to go beyond being the acquirer and move onto the path where it remakes itself as a different kind of organization. This does not happen often, but it does happen, as seen in the case of IBM under CEO’s Lewis Gerstner and currently Sam Palmisano. This remaking is not as essential where a company makes a series of smaller, bolt-on acquisitions which can be readily absorbed by the acquirer or even kept as autonomous or semi-autonomous business units, but this is not the case with Intel’s recent transactions.
Cheney’s observation is well worth considering, especially now that M&A’s have quickly “roared” back on the radar screen. The glut of cash in corporate accounts, coupled with cheap credit and meager returns from organic growth options has made pulling the M&A trigger very attractive for many companies. But, does having the money and even getting a good “deal” make that deal a success?
If a company like Intel turns out to have a “not invented here” attitude, there is little gain even from a good acquisition. If that is the case, in its post merger integration it cannot freely seek out and experiment with its new assets, creating breakthrough synergies as it goes about emerging as a newly combined entity.
Even though Intel may want to go beyond its lucrative chip making base, its strategic thinking may be captive of that very success. It may find it difficult to make the stretch moves to question its premises and open up fruitful avenues to leverage the new assets that come to it through these major transactions.
The issue here is not the usual question of fit, but one of the willingness to change. Even the best “deal”, or having all of the right techniques and integration tools may not make the difference if companies cannot see their significant acquisitions as a “windows of opportunity” and a signal call to renew themselves.
The “aha” insight here is that the real basis for success, or failure, for companies taking on major acquisitions is whether they take on the challenge of making the necessary leap in imagination and embody a will to change. In the end, it may be this lack of willingness of acquiring companies to recast themselves that is the real cause for the high failure rate for acquisitions – that is, a failure to meet expectations and performance levels. This can quickly change when companies becomes honest with itself about how much they are willing to transform theirs basis of operation as they move forward to take on these major acquisitions. Their willingness to change has to be at least equal to the scale of venture they are in the process of carrying out.
Conversation with Francois Gossieaux and Ed Moran: Part II
The corporate development or an integration group that cracks this nut as they bring their target into the fold will definitely be at an advantage. They would say, “Let’s start identifying the tribes that matter, asking the leaders are, how they communicate, who we need to communicate with, etc.” When this approach is carried out, the quality of the integration has to increase. The hidden value that comes from the target has to be improved.
Ed Moran, Co-author of The Hyper-Social Organization
JC: How does a company migrate from being a collection of “business” processes to becoming network of “social” processes?
EM: I am going to guess that “socializing” the integration processes is not on the “deal checklist.”
I argue that understanding the tribes within the target company should be on at least the post merger “to do” list.
When you think about social media and you thing about your target that you just acquired has a bunch of tribes, both within it – engaging in the day to day operations of that company, and also tribes of customers that company dealt with on a day to day basis, you start to realize how important it is to understand who these tribes are, who is important within them and how they could help the company in core business processes. When I acquire a technology company, I acquire it because they have people, products and patents that are interesting to me. If you engage in social media, you start to understand the company’s tribes. Essentially, you will do that in due diligence. You will understand the chances for combining products, what the value proposition is, what might be issues with the products that you might not be aware of on the surface. When you get to the post merger integration phase you can think about how you will really be able to connect much more effectively with these new employees who are going through a wrenching experience now having their company being absorbed, the uncertainty of what that means for their future and their careers.
Engaging with these people allows you to understand the dynamics of the relationships with those tribes. Who are the people that are important? How is product development done? Does customer care process have any processes that could easily be rolled into your customer care? Is there something that you can learn from the organization?
We believe that the culture will be extensively impacted by social media. It will be the way our culture is defined and transferred between people in the company. If you understand these factors, you understand how critical social media is as far as how people are interacting with one another. How are they using this in their business processes?
Let me flesh out what we mean by social processes. When we socialize a process, it is not something that it is not something that needs to be done from the top down. People are socializing processes. In most companies right now, people are doing things that are probably not their “official” jobs within their job description, because they like it, they are good at it and they have a passion for it. We found through our research and our studies that organizations that allow people to do that, to cross over boundaries and do things outside their job descriptions actually increase the quality of their outputs.
Some companies expand the process outside the organization, which is a marked shift from the past. You look at what are the present processes that are important and ask how they can be socialized. Some of these could go outside of the company. For example, marketing could be successfully handed off to the tribe, with the result that the internal marketing effort is shut down, realizing that the people that are already using the product are doing a great of generating demand and awareness
Follow Us!