How Acquisitions Can Revitalize Companies
Although most companies undertake acquisitions with an eye toward fueling growth, the resulting infusion of new ideas, perspectives and processes can produce lasting benefits that are broader and deeper.
When you ask corporate executives why they are making a particular acquisition, they usually offer a strategic explanation, such as “The geographic spread lines up perfectly with where we are,” or “Their product portfolio has remarkable synergy with ours.” If you ask them two years later how the company has benefited from the acquisition, the answer is often dramatically different. They tend to focus at that point on the “softer” factors with comments such as “They made us rethink our decision-making processes,” or “They introduced us to a new approach to product development,” or simply “They shook up our culture.” Usually, these softer considerations had nothing to do with the original impetus for the acquisition, yet they often turned out to be critical to the direction of their companies.
Indeed, revitalization is an important outcome of acquisition and should be a strong consideration when making the decision to acquire. In my research, I analyzed the acquisitions and subsequent performances of a number of large, successful companies, several of which, at some point in their histories, had become rigid and inert in their thinking — a well-known phenomenon that has been labeled thesuccess trap.1 (See “About the Research.”) The analysis showed that the acquisitions helped the companies restore a sense of vitality to their businesses and unleashed a subsequent surge in performance. Indeed, the acquired companies often stimulated the acquiring companies to develop new perspectives and different ways of doing things at times when they were most needed. Acquisitions kept their organizations fresh and vital. Even if the companies did not pursue acquisitions for this reason, the process of buying businesses and deciding how to integrate them into their corporate structures enabled acquirers to renew themselves before their products and operating methods became outdated.
Consider the case of Pfizer, the pharmaceutical giant that acquired Warner-Lambert, a conglomerate that included the pharmaceutical division Parke-Davis, in June 2000. Management’s rationale for this acquisition was fairly straightforward — it wanted to gain full control over the anticholesterol drug Lipitor, which it had been jointly copromoting with Parke-Davis. After the acquisition, Pfizer intended to sell off Warner-Lambert’s other divisions while integrating Parke-Davis into its corporate structure. In the midst of this process, however, Pfizer saw that many of Parke-Davis’ functions were organized differently from its own.
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1. This is often referred to as thesuccess trap or acompetency trap. See, for instance, D.N. Sull, “Why Good Companies Go Bad,” Harvard Business Review 77 (July/August 1999): 43–52; D. Miller, “What Happens After Success: The Perils of Excellence,” Journal of Management Studies 31 (1994): 325–358; D.A. Levinthal and J.G. March, “The Myopia of Learning,” Strategic Management Journal 14 (1993): 95–112.
2. Personal communications, February to April 2003.
