Innovation through acquisition: Can businesses buy their way into innovation?
Big firms are hungry for more innovation than they can generate themselves, and acquisition offers them the opportunity to promote good ideas with corporate scale.
Related content
Culture clash - the challenge of innovation through acquisition
Despite political turbulence and currency volatility, UK companies are ready to do deals—especially if merger and acquisition (M&A) activity allows them to get their hands on valuable innovations. In uncertain times acquisitions offer routes to innovation that internal resources alone cannot provide.
In a recent survey of 200 business leaders in the UK, conducted by The Economist Intelligence Unit (EIU) and sponsored by Rackspace, two-thirds of respondents agree that acquisition is a good strategy for enhancing innovation, while the same proportion believes that the acquisition of innovative start-ups is a critical success factor in their industry.
Those beliefs translate into action: 59% of respondents say their company has acquired at least one smaller, innovative firm during the past five years, and just over half (51%) are now actively searching for new acquisitions. A further 40% say that their company will consider an acquisition over the next three years, should the right opportunity present itself.
Indeed, M&A activity is increasingly driven by a thirst for innovation, according to a recent report from professional services firm Deloitte. Globally, companies spent US$300bn on “disruptive, innovation-related” M&A deals in 2016, four times more than in 2012, its study found. For large companies with deep pockets acquisition offers the opportunity to find winning ideas and amplify them to corporate scale. According to our survey, over half of UK respondents (57%) believe that the resources of a large company, together with the agility of a smaller firm, “create a strong combination”.
But acquisitions are difficult to get right. According to a study by US management consultancy AT Kearney, as many as 60% of M&A deals fail to deliver value.2 Acquiring for innovation may be especially challenging, as the ability to innovate is a facet of an organisation’s culture that can all too easily be snuffed out. Business leaders who wish to innovate successfully through acquisition must be adept at integrating organisational cultures and keeping talented staff on side.
Integrating culturesThere are many attributes companies look for in an acquisition, including access to a wider market of customers and innovative technology. For 22% of UK respondents, a corporate culture similar to their own is a key trait in a potential target.
“There have been examples of companies where we think the technology’s good,” Mr MacLeod explains, “but there’s a lack of cultural ‘fit’, and that’s as important to us as having a technology fit. If y you don’t have the culture aspects, then the integration will almost certainly fail.”
Company culture, Mr McLeod points out, defines how people work together to achieve business goals. This has particular relevance when it comes to innovation: it can be hard to launch a new product, for example, or arrive at a new scientific breakthrough against a backdrop of misunderstanding or even mistrust. A poor cultural fit can be highly disruptive, throwing projects off the track and delaying crucial decisions.
Successfully integrating a company post-merger is a critical success factor for any deal. Handled badly, it can undermine the value that the acquired company brings to its new owner. With innovative firms the challenge is especially complex: how can the buyer integrate the acquired firm without snuffing out its innovative spark?
There is little agreement among survey respondents: 30% believe the acquired companies should operate as a separate entity, with the exception of common functions such as finance; 28% believe it should do so only until it reaches a certain level of maturity and should then be gradually integrated; and 27% believe that once that maturity is reached, it should be quickly integrated.
Johnson Matthey sees value in closely integrating acquisitions into the main firm. “That’s how you create the necessary synergies,” says Mr MacLeod. “Products can maintain their own brand identity under a new owner, but with people and processes we need unity, so that both internally and externally there’s an understanding of what our opportunity is and what we bring to the market.”
The challenge of integrating two companies while preserving the culture that makes the acquired firm valuable calls for considered and deliberate management. The authors of the 2017 M&A Integration Survey Report by professional services company PwC say that change, or at least compromise, is necessary. Managers, they argue, must define their desired behaviours, highlight internal role models who demonstrate those behaviours, and provide meaningful incentives for employees to make the necessary changes.
The ability to manage cultural integration explicitly is often undermined by a shallow understanding of what organisational culture really is, a report from strategy firm McKinsey & Company argues. “Culture is much deeper than a good first impression, a sense that you share the same values or the more trivial practices, say, of wearing (or not wearing) jeans on Fridays.” But too often, the authors say, managers focus on the wrong things, “addressing the most visible expressions of culture, rather than the underlying management practices and working norms”.
As an example of how things should be done, the authors point to the integration of two European industrial companies, where managers from both sides identified ten potential cultural goals as joint areas for improvement, joint areas of strength, or areas of difference. “Quickly achieving the benefits of their similarities created the momentum and trust required for addressing many of the thornier issues the managers faced,” they write.
Talent mattersThe co-operation of senior executives at the acquired firm can make or break an acquisition. In our survey, 27% of respondents say that the willingness of senior executives from the acquired firm to stay at the company had a significant bearing on the success of their acquisitions.
Hikma Pharmaceuticals, a UK-headquartered drug manufacturer, has acquired a number of firms to access innovative technologies and international markets. According to Bassam Kanaan, the company’s chief strategy and corporate development officer, securing the commitment of the executives at the company being acquired is just as important. “If you get that right and you have their consensus and commitment, then by the time the acquisition is finalised, they will do much of the work of driving the integration on the business’s behalf.”
But for innovation to continue, talented employees at all levels—especially those responsible for advancing products, process or strategy—must see the value the acquisition offers them personally.
“We put a great deal of effort into communicating to acquired employees about the new opportunities we can offer them,” says Mr McLeod. “We explain that we bought their company because of their technology, but now we want to do more. We want to invest in their technology, we want to add to it. It’s important they see how their technology benefits from being part of [us]. It’s their chance to take their science and ideas even further and do even more with it.”
James Fillingham, head of transaction services at PwC, describes how the firm handles its own integrations: “We take what they [acquired employees] are good at, we put them in a place with people who think in a like-minded way, and then we put in place a framework to help us industrialise and commercialise that more effectively.”
“We love to hit the revenue targets, but actually, retaining those people and retaining what made them special is more important, because if you do that well, it enables them to continue to grow, to continue to develop the next idea, and then to take it to the next level. If we can make that work, on a big, PwC-sized playing field, at that point we’ve developed real value.”
UK business leaders clearly see acquisition as a valid innovation strategy. To make it work, they must position their company as a platform for good ideas and an amplifier for the ambitions of talented employees.
How PWC innovates through acquisitions
James Fillingham, head of transaction services, on the role that acquisition plays in the global advisory firm's innovation strategy:
“We take what they [acquired employees] are good at, we put them in a place with people who think in a like-minded way, and then we put in place a framework to help us industrialise and commercialise that more effectively.”
“We love to hit the revenue targets, but actually, retaining those people and retaining what made them special is more important, because if you do that well, it enables them to continue to grow, to continue to develop the next idea, and then to take it to the next level. If we can make that work, on a big, PwC-sized playing field, at that point we’ve developed real value.”
How PWC innovates through acquisitions
James Fillingham, head of transaction services, on the role that acquisition plays in the global advisory firm's innovation strategy:
“We take what they [acquired employees] are good at, we put them in a place with people who think in a like-minded way, and then we put in place a framework to help us industrialise and commercialise that more effectively.”
Related content
Culture clash - the challenge of innovation through acquisition
Despite political turbulence and currency volatility, UK companies are ready to do deals—especially if merger and acquisition (M&A) activity allows them to get their hands on valuable innovations. In uncertain times acquisitions offer routes to innovation that internal resources alone cannot provide.
In a recent survey of 200 business leaders in the UK, conducted by The Economist Intelligence Unit (EIU) and sponsored by Rackspace, two-thirds of respondents agree that acquisition is a good strategy for enhancing innovation, while the same proportion believes that the acquisition of innovative start-ups is a critical success factor in their industry.
Those beliefs translate into action: 59% of respondents say their company has acquired at least one smaller, innovative firm during the past five years, and just over half (51%) are now actively searching for new acquisitions. A further 40% say that their company will consider an acquisition over the next three years, should the right opportunity present itself.
Indeed, M&A activity is increasingly driven by a thirst for innovation, according to a recent report from professional services firm Deloitte. Globally, companies spent US$300bn on “disruptive, innovation-related” M&A deals in 2016, four times more than in 2012, its study found. For large companies with deep pockets acquisition offers the opportunity to find winning ideas and amplify them to corporate scale. According to our survey, over half of UK respondents (57%) believe that the resources of a large company, together with the agility of a smaller firm, “create a strong combination”.
But acquisitions are difficult to get right. According to a study by US management consultancy AT Kearney, as many as 60% of M&A deals fail to deliver value.2 Acquiring for innovation may be especially challenging, as the ability to innovate is a facet of an organisation’s culture that can all too easily be snuffed out. Business leaders who wish to innovate successfully through acquisition must be adept at integrating organisational cultures and keeping talented staff on side.
Integrating culturesThere are many attributes companies look for in an acquisition, including access to a wider market of customers and innovative technology. For 22% of UK respondents, a corporate culture similar to their own is a key trait in a potential target.
“There have been examples of companies where we think the technology’s good,” Mr MacLeod explains, “but there’s a lack of cultural ‘fit’, and that’s as important to us as having a technology fit. If y you don’t have the culture aspects, then the integration will almost certainly fail.”
Company culture, Mr McLeod points out, defines how people work together to achieve business goals. This has particular relevance when it comes to innovation: it can be hard to launch a new product, for example, or arrive at a new scientific breakthrough against a backdrop of misunderstanding or even mistrust. A poor cultural fit can be highly disruptive, throwing projects off the track and delaying crucial decisions.
Successfully integrating a company post-merger is a critical success factor for any deal. Handled badly, it can undermine the value that the acquired company brings to its new owner. With innovative firms the challenge is especially complex: how can the buyer integrate the acquired firm without snuffing out its innovative spark?
There is little agreement among survey respondents: 30% believe the acquired companies should operate as a separate entity, with the exception of common functions such as finance; 28% believe it should do so only until it reaches a certain level of maturity and should then be gradually integrated; and 27% believe that once that maturity is reached, it should be quickly integrated.
Johnson Matthey sees value in closely integrating acquisitions into the main firm. “That’s how you create the necessary synergies,” says Mr MacLeod. “Products can maintain their own brand identity under a new owner, but with people and processes we need unity, so that both internally and externally there’s an understanding of what our opportunity is and what we bring to the market.”
The challenge of integrating two companies while preserving the culture that makes the acquired firm valuable calls for considered and deliberate management. The authors of the 2017 M&A Integration Survey Report by professional services company PwC say that change, or at least compromise, is necessary. Managers, they argue, must define their desired behaviours, highlight internal role models who demonstrate those behaviours, and provide meaningful incentives for employees to make the necessary changes.
The ability to manage cultural integration explicitly is often undermined by a shallow understanding of what organisational culture really is, a report from strategy firm McKinsey & Company argues. “Culture is much deeper than a good first impression, a sense that you share the same values or the more trivial practices, say, of wearing (or not wearing) jeans on Fridays.” But too often, the authors say, managers focus on the wrong things, “addressing the most visible expressions of culture, rather than the underlying management practices and working norms”.
As an example of how things should be done, the authors point to the integration of two European industrial companies, where managers from both sides identified ten potential cultural goals as joint areas for improvement, joint areas of strength, or areas of difference. “Quickly achieving the benefits of their similarities created the momentum and trust required for addressing many of the thornier issues the managers faced,” they write.
Talent mattersThe co-operation of senior executives at the acquired firm can make or break an acquisition. In our survey, 27% of respondents say that the willingness of senior executives from the acquired firm to stay at the company had a significant bearing on the success of their acquisitions.
Hikma Pharmaceuticals, a UK-headquartered drug manufacturer, has acquired a number of firms to access innovative technologies and international markets. According to Bassam Kanaan, the company’s chief strategy and corporate development officer, securing the commitment of the executives at the company being acquired is just as important. “If you get that right and you have their consensus and commitment, then by the time the acquisition is finalised, they will do much of the work of driving the integration on the business’s behalf.”
But for innovation to continue, talented employees at all levels—especially those responsible for advancing products, process or strategy—must see the value the acquisition offers them personally.
“We put a great deal of effort into communicating to acquired employees about the new opportunities we can offer them,” says Mr McLeod. “We explain that we bought their company because of their technology, but now we want to do more. We want to invest in their technology, we want to add to it. It’s important they see how their technology benefits from being part of [us]. It’s their chance to take their science and ideas even further and do even more with it.”
James Fillingham, head of transaction services at PwC, describes how the firm handles its own integrations: “We take what they [acquired employees] are good at, we put them in a place with people who think in a like-minded way, and then we put in place a framework to help us industrialise and commercialise that more effectively.”
“We love to hit the revenue targets, but actually, retaining those people and retaining what made them special is more important, because if you do that well, it enables them to continue to grow, to continue to develop the next idea, and then to take it to the next level. If we can make that work, on a big, PwC-sized playing field, at that point we’ve developed real value.”
UK business leaders clearly see acquisition as a valid innovation strategy. To make it work, they must position their company as a platform for good ideas and an amplifier for the ambitions of talented employees.
Culture clash - the challenge of innovation through acquisition
Culture clash - the challenge of innovation through acquisition
Despite political turbulence and currency volatility, UK companies are ready to do deals—especially if merger and acquisition (M&A) activity allows them to get their hands on valuable innovations. In uncertain times acquisitions offer routes to innovation that internal resources alone cannot provide.
Related content
How PWC innovates through acquisitions
James Fillingham, head of transaction services, on the role that acquisition plays in the global advisory firm's innovation strategy:
“We take what they [acquired employees] are good at, we put them in a place with people who think in a like-minded way, and then we put in place a framework to help us industrialise and commercialise that more effectively.”
“We love to hit the revenue targets, but actually, retaining those people and retaining what made them special is more important, because if you do that well, it enables them to continue to grow, to continue to develop the next idea, and then to take it to the next level. If we can make that work, on a big, PwC-sized playing field, at that point we’ve developed real value.”
Innovation through acquisition: Can businesses buy their way into innovatio...
Big firms are hungry for more innovation than they can generate themselves, and acquisition offers them the opportunity to promote good ideas with corporate scale.
The race to acquire German innovation
The race to acquire German innovation
Large German companies, particularly those in the country’s innovative engineering and manufacturing sectors, have recently been making headlines as acquisition targets for foreign suitors. In 2016 the €4.5bn (US$5.4bn) acquisition of pioneering robot maker KUKA by Chinese appliance manufacturer Midea exemplified growing Chinese interest in German investments.
Related content
Innovation through acquisition: Can businesses buy their way into innovatio...
Big firms are hungry for more innovation than they can generate themselves, and acquisition offers them the opportunity to promote good ideas with corporate scale.
How PWC innovates through acquisitions
James Fillingham, head of transaction services, on the role that acquisition plays in the global advisory firm's innovation strategy:
“We take what they [acquired employees] are good at, we put them in a place with people who think in a like-minded way, and then we put in place a framework to help us industrialise and commercialise that more effectively.”
“We love to hit the revenue targets, but actually, retaining those people and retaining what made them special is more important, because if you do that well, it enables them to continue to grow, to continue to develop the next idea, and then to take it to the next level. If we can make that work, on a big, PwC-sized playing field, at that point we’ve developed real value.”
Related content
The race to acquire German innovation
Large German companies, particularly those in the country’s innovative engineering and manufacturing sectors, have recently been making headlines as acquisition targets for foreign suitors. In 2016 the €4.5bn (US$5.4bn) acquisition of pioneering robot maker KUKA by Chinese appliance manufacturer Midea exemplified growing Chinese interest in German investments. This is driven by China’s “strategic plan to be much more focused on innovation … to enable them to shift to a more advanced industrial society”, Martin Reitz, chief executive of investment bank Rothschild Germany, told the Financial Times.
But acquisition is also a source of innovation for German companies themselves. A recent survey of business leaders in Germany, conducted by The Economist Intelligence Unit (EIU) and sponsored by Rackspace, shows that the country’s large firms are hungry to buy companies that can help them innovate. Of the 200 German respondents to the our survey, all drawn from companies with US$1bn or more in annual revenue, seven out of ten agree that acquisition is a good strategy for innovation. And one-half say they have acquired at least one smaller, innovative firm in the past five years.
However, our survey also reveals that there is strong competition for acquisitions in Germany, and merging corporate cultures while maintaining the creative spark continues to challenge firms eager to buy their way into innovation. “If you don’t achieve a common corporate culture, it will fail in the long run,” says Eike Böhm, chief technology officer at the Wiesbaden-headquartered warehouse equipment manufacturer KION, which has made two big acquisitions in the past 18 months.
Challenging decisionsAmong survey respondents who have made acquisitions in pursuit of innovation, the most common reasons are “making products and services more innovative” (44%) and “making internal processes more innovative” (43%), although German respondents are more likely to have conducted an acquisition to adopt a more innovative business model than their peers from the UK (33% vs 26%). German companies are also twice as likely to have bought a company to neutralise an emerging competitive threat than those from the UK (16% vs 8%).
However, the clearest distinction between German and UK firms with respect to their approach to innovation through acquisition is their primary reason not to acquire through innovation. German firms which have failed to acquire a smaller, innovative firm in the past five years cite as their chief reason—with 42% of respondents—that other companies outbid them or moved faster on their acquisition targets (see chart 1). In the UK, only 29% of respondents chose this option.
So why do German companies get outbid and overtaken? As a recent report by German law firm Heuking Kühn Lüer Wojtek observes, most mergers and acquisitions (M&As) in the country involve private rather than listed firms. This makes it harder to establish the appropriate price for the target while also making extended auctions more likely, thus driving up the price. “I think there is huge competition [in the German M&A market],” notes Dr Böhm.
Financing acquisitions is the most common challenge to innovation through acquisition, our survey reveals, cited by 45% of respondents. But this is not for lack of funding sources, according to Heuking Kühn Lüer Wojtek, whose report notes that “money is available in the market at all ends, and does not appear to make deals complicated”. Dr Böhm concurs, saying he does not see a “lack of money” around. The challenge of securing that finance, therefore, may lie in making the business case for an innovative investment. By its nature, investing in an innovative product or business model is a gamble, and it would appear that German firms are struggling to justify their bets.
Cultural resistanceThe second most commonly cited challenge (44% of respondents) is integrating acquired firms into their corporate culture and organisational structure.
KION, whose roots lie in manufacturing forklift trucks, made two significant acquisitions in recent years—Egemin and Dematic—both of which brought expertise and innovation in the field of warehouse automation. This has allowed the company to present a broader, more integrated suite of offerings to its customers. “An acquisition must create additional value,” Dr Böhm explains. “If you just acquire to be larger, this doesn’t make sense.”
According to Dr Böhm, the key to the successful integration of corporate cultures is to avoid “imperialistic behaviour”, as he puts it. “This is what causes massive resistance, because the employees aren’t stupid. They’ve done a good job and had a very good performance and good profitability, and then they have to listen how to do their business. They will ignore this. It will not work. Then you cause resistance.”
Instead, Dr Böhm suggests, the best approach is to “cherry-pick” the strengths of the acquired company that best complement those of the acquirer. Dematic’s engineers were experts in agile engineering while KION had a culture of value engineering, so the combined operation married the two approaches.
A common mistake is to assume that the obligation to change rests solely with the acquired firm. In fact, the acquirer must itself adapt to ensure that the innovative qualities of the acquisition target are preserved and fully exploited. “To build a new capability through acquisition, at least half of the effort must be channelled into transforming the existing culture of the acquirer, so that established metrics foster rather than exterminate the new ideas and technologies coming in,” consultancy PwC warns.
There is little agreement among respondents on the best way to manage an acquired business once the deal is complete. Over one-third of German respondents say that apart from common functions such as finance, the best way is to allow the acquired firm to operate as a separate entity, indefinitely. But more believe the acquisition target should be integrated into the larger company once it reaches a certain level of maturity, either quickly (29%) or gradually (24%).
The pace of integrationIn KION’s case, though, the Dematic integration happened within the space of a few weeks. Dr Böhm puts this down to preparation, while also noting that the staff of Dematic—which had two private equity owners—were “very happy” to have found a home in a company that was trying to create sustainable growth, rather than sell them on. “They were also interested in a fast integration,” he adds.
In Dr Böhm’s view, rapid integration helps employees to stay focused on the task at hand. “In my career, I experienced [various] integrations that failed, because they [took] too long,” he explains. “People lost focus and momentum.”
It is also vital that personnel from the acquired firm, particularly senior staff, can see that the acquisition broadens their horizons. This means ensuring that they are successfully integrated into teams across the group, rather than being segmented off with other employees who joined through the acquisition. “You have to give the people a career path [where] they can contribute and feel that they are important—that they have responsibility over [people representing] the entire company, not just the acquired guys,” says Dr Böhm. “All over the company, we created mixed teams.”
It is most important, however, to have a clear integration strategy before you choose your acquisition targets. “You have to think how to integrate, and then find the company to acquire.”
These are lessons that will prove strategically crucial, and increasingly so. Almost half (49%) of the survey’s German respondents say their companies are actively pursuing acquisitions of innovative firms, and 40% would consider such an acquisition if an opportunity arose. If competition is already fierce, it’s only going to heat up even more. Those who succeed are likely to be the ones who know what they want and are ready to make the most of the innovation they have acquired.
Innovation through acquisition: Can businesses buy their way into innovatio...
Big firms are hungry for more innovation than they can generate themselves, and acquisition offers them the opportunity to promote good ideas with corporate scale.
Related content
Culture clash - the challenge of innovation through acquisition
Despite political turbulence and currency volatility, UK companies are ready to do deals—especially if merger and acquisition (M&A) activity allows them to get their hands on valuable innovations. In uncertain times acquisitions offer routes to innovation that internal resources alone cannot provide.
In a recent survey of 200 business leaders in the UK, conducted by The Economist Intelligence Unit (EIU) and sponsored by Rackspace, two-thirds of respondents agree that acquisition is a good strategy for enhancing innovation, while the same proportion believes that the acquisition of innovative start-ups is a critical success factor in their industry.
Those beliefs translate into action: 59% of respondents say their company has acquired at least one smaller, innovative firm during the past five years, and just over half (51%) are now actively searching for new acquisitions. A further 40% say that their company will consider an acquisition over the next three years, should the right opportunity present itself.
Indeed, M&A activity is increasingly driven by a thirst for innovation, according to a recent report from professional services firm Deloitte. Globally, companies spent US$300bn on “disruptive, innovation-related” M&A deals in 2016, four times more than in 2012, its study found. For large companies with deep pockets acquisition offers the opportunity to find winning ideas and amplify them to corporate scale. According to our survey, over half of UK respondents (57%) believe that the resources of a large company, together with the agility of a smaller firm, “create a strong combination”.
But acquisitions are difficult to get right. According to a study by US management consultancy AT Kearney, as many as 60% of M&A deals fail to deliver value.2 Acquiring for innovation may be especially challenging, as the ability to innovate is a facet of an organisation’s culture that can all too easily be snuffed out. Business leaders who wish to innovate successfully through acquisition must be adept at integrating organisational cultures and keeping talented staff on side.
Integrating culturesThere are many attributes companies look for in an acquisition, including access to a wider market of customers and innovative technology. For 22% of UK respondents, a corporate culture similar to their own is a key trait in a potential target.
“There have been examples of companies where we think the technology’s good,” Mr MacLeod explains, “but there’s a lack of cultural ‘fit’, and that’s as important to us as having a technology fit. If y you don’t have the culture aspects, then the integration will almost certainly fail.”
Company culture, Mr McLeod points out, defines how people work together to achieve business goals. This has particular relevance when it comes to innovation: it can be hard to launch a new product, for example, or arrive at a new scientific breakthrough against a backdrop of misunderstanding or even mistrust. A poor cultural fit can be highly disruptive, throwing projects off the track and delaying crucial decisions.
Successfully integrating a company post-merger is a critical success factor for any deal. Handled badly, it can undermine the value that the acquired company brings to its new owner. With innovative firms the challenge is especially complex: how can the buyer integrate the acquired firm without snuffing out its innovative spark?
There is little agreement among survey respondents: 30% believe the acquired companies should operate as a separate entity, with the exception of common functions such as finance; 28% believe it should do so only until it reaches a certain level of maturity and should then be gradually integrated; and 27% believe that once that maturity is reached, it should be quickly integrated.
Johnson Matthey sees value in closely integrating acquisitions into the main firm. “That’s how you create the necessary synergies,” says Mr MacLeod. “Products can maintain their own brand identity under a new owner, but with people and processes we need unity, so that both internally and externally there’s an understanding of what our opportunity is and what we bring to the market.”
The challenge of integrating two companies while preserving the culture that makes the acquired firm valuable calls for considered and deliberate management. The authors of the 2017 M&A Integration Survey Report by professional services company PwC say that change, or at least compromise, is necessary. Managers, they argue, must define their desired behaviours, highlight internal role models who demonstrate those behaviours, and provide meaningful incentives for employees to make the necessary changes.
The ability to manage cultural integration explicitly is often undermined by a shallow understanding of what organisational culture really is, a report from strategy firm McKinsey & Company argues. “Culture is much deeper than a good first impression, a sense that you share the same values or the more trivial practices, say, of wearing (or not wearing) jeans on Fridays.” But too often, the authors say, managers focus on the wrong things, “addressing the most visible expressions of culture, rather than the underlying management practices and working norms”.
As an example of how things should be done, the authors point to the integration of two European industrial companies, where managers from both sides identified ten potential cultural goals as joint areas for improvement, joint areas of strength, or areas of difference. “Quickly achieving the benefits of their similarities created the momentum and trust required for addressing many of the thornier issues the managers faced,” they write.
Talent mattersThe co-operation of senior executives at the acquired firm can make or break an acquisition. In our survey, 27% of respondents say that the willingness of senior executives from the acquired firm to stay at the company had a significant bearing on the success of their acquisitions.
Hikma Pharmaceuticals, a UK-headquartered drug manufacturer, has acquired a number of firms to access innovative technologies and international markets. According to Bassam Kanaan, the company’s chief strategy and corporate development officer, securing the commitment of the executives at the company being acquired is just as important. “If you get that right and you have their consensus and commitment, then by the time the acquisition is finalised, they will do much of the work of driving the integration on the business’s behalf.”
But for innovation to continue, talented employees at all levels—especially those responsible for advancing products, process or strategy—must see the value the acquisition offers them personally.
“We put a great deal of effort into communicating to acquired employees about the new opportunities we can offer them,” says Mr McLeod. “We explain that we bought their company because of their technology, but now we want to do more. We want to invest in their technology, we want to add to it. It’s important they see how their technology benefits from being part of [us]. It’s their chance to take their science and ideas even further and do even more with it.”
James Fillingham, head of transaction services at PwC, describes how the firm handles its own integrations: “We take what they [acquired employees] are good at, we put them in a place with people who think in a like-minded way, and then we put in place a framework to help us industrialise and commercialise that more effectively.”
“We love to hit the revenue targets, but actually, retaining those people and retaining what made them special is more important, because if you do that well, it enables them to continue to grow, to continue to develop the next idea, and then to take it to the next level. If we can make that work, on a big, PwC-sized playing field, at that point we’ve developed real value.”
UK business leaders clearly see acquisition as a valid innovation strategy. To make it work, they must position their company as a platform for good ideas and an amplifier for the ambitions of talented employees.
Innovation through acquisition: Can businesses buy their way into innovatio...
Big firms are hungry for more innovation than they can generate themselves, and acquisition offers them the opportunity to promote good ideas with corporate scale.
Bridging the strategy implementation gap
Bridging the strategy implementation gap
Most companies, however, find this difficult in practice. In prior Economist Intelligence Unit (EIU) research, 61% of respondents acknowledged that their firms often struggle to bridge this gap, and just over half of strategic initiatives were completed successfully. To gain a more in-depth understanding of this complex field, the EIU interviewed Joseph Jimenez, CEO of Novartis, and Donald Sull, Senior Lecturer at the MIT Sloan School of Management, about strategy implementation. To learn more download our article below.
Related content
Steering through collaboration: CFOs driving new priorities for the future
It is well established that the modern CFO has a more strategic role to play in a business, but a clear action plan to achieve this is lacking. A key element of this is helping the business to deal with change. Some changes are planned: launching a new product or service, setting up operations in a new region or acquiring a competitor. Others may be unexpected: a major disruption to supply-chain operations, the emergence of new regulation and legal reporting requirements or the unpredictable impacts of global economic uncertainty.
Either way, when asked about the biggest challenges they face in executing their day-to-day activities, change is a recurring theme, according to a new survey of 800 CFOs and senior finance executives, conducted by The Economist Intelligence Unit. Managing unexpected changes to financial forecasts and adapting finance processes to rapidly evolving business models are top of mind.
Managing unexpected changes to financial forecasts and adapting finance processes to rapidly evolving business models are top challenges finance executives face in executing their day to-day activities.
Finance executives are also concerned with identifying how to align strategic, financial and operational plans towards common objectives and meaningfully analysing data across business units and regions. “All functions are working to meet these challenges and, as a finance head, we have to have visibility across all functions, how they are progressing [towards meeting goals] and ensuring that their direction is in line with overall strategic goals,” says Lalit Malik, CFO of Dabur, an Indian consumer goods manufacturer. It is incumbent upon CFOs therefore to be prepared not only to help their own function navigate uncharted territory, but the rest of the business too. That means breaking down the silos that commonly exist in organisations, in order to collaborate closely across functions, sharing information and data in the pursuit of common objectives.
All functions are working to meet these challenges and, as a finance head, we have to have visibility across all functions, how they are progressing [towards meeting goals] and ensuring that their direction is in line with overall strategic goals - Lalit Malik, CFO of Dabur, an Indian consumer goods manufacturer.
The clear custodian of collaboration
There are a number of reasons why the role of leading cross-company collaboration around steering should fall to the CFO and their team. First, through the activities of budgeting, the finance function is the custodian of the clear, quantitative expression of management expectations and determines how resources such as cash and people will be allocated in order to achieve them. In our survey, 90% of respondents say that finance should facilitate collaborative enterprise planning to ensure that operational plans are aligned with financial and strategic plans.
Second, through performance management, the finance function is the gatekeeper for critical data that illustrate how well—or otherwise—the company is rising to the challenge of change. That includes data relating to sales, supply chain and delivery, which need to be reported back to the business in ways that help drive improved decisionmaking. Our survey reveals that companies in which finance executives feel empowered to drive strategic decisions across business functions are more likely to report a higher financial performance in fiscal year 2016/17 and 2017/18 and anticipate higher growth rates for 2019/20.
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Transforming data into action
As businesses generate and manage vast amounts of data, companies have more opportunities to gather data, incorporate insights into business strategy and continuously expand access to data across the organisation. Doing so effectively—leveraging data for strategic objectives—is often easier said than done, however. This report, Transforming data into action: the business outlook for data governance, explores the business contributions of data governance at organisations globally and across industries, the challenges faced in creating useful data governance policies and the opportunities to improve such programmes. Learn more by downloading our whitepaper below.
Rethinking professional services in an age of disruption
Closing the Gap: Designing and Delivering a Strategy that Works
To understand why many organizations fail to bridge the gap between strategy design and delivery, The Economist Intelligence Unit (EIU), sponsored by the Brightline Initiative, undertook a global multi-sector survey of 500 senior executives from companies with annual revenues of $1 billion or more.
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Steering through collaboration: CFOs driving new priorities for the future
It is well established that the modern CFO has a more strategic role to play in a business, but a clear action plan to achieve this is lacking. A key element of this is helping the business to deal with change. Some changes are planned: launching a new product or service, setting up operations in a new region or acquiring a competitor. Others may be unexpected: a major disruption to supply-chain operations, the emergence of new regulation and legal reporting requirements or the unpredictable impacts of global economic uncertainty.
Either way, when asked about the biggest challenges they face in executing their day-to-day activities, change is a recurring theme, according to a new survey of 800 CFOs and senior finance executives, conducted by The Economist Intelligence Unit. Managing unexpected changes to financial forecasts and adapting finance processes to rapidly evolving business models are top of mind.
Managing unexpected changes to financial forecasts and adapting finance processes to rapidly evolving business models are top challenges finance executives face in executing their day to-day activities.
Finance executives are also concerned with identifying how to align strategic, financial and operational plans towards common objectives and meaningfully analysing data across business units and regions. “All functions are working to meet these challenges and, as a finance head, we have to have visibility across all functions, how they are progressing [towards meeting goals] and ensuring that their direction is in line with overall strategic goals,” says Lalit Malik, CFO of Dabur, an Indian consumer goods manufacturer. It is incumbent upon CFOs therefore to be prepared not only to help their own function navigate uncharted territory, but the rest of the business too. That means breaking down the silos that commonly exist in organisations, in order to collaborate closely across functions, sharing information and data in the pursuit of common objectives.
All functions are working to meet these challenges and, as a finance head, we have to have visibility across all functions, how they are progressing [towards meeting goals] and ensuring that their direction is in line with overall strategic goals - Lalit Malik, CFO of Dabur, an Indian consumer goods manufacturer.
The clear custodian of collaboration
There are a number of reasons why the role of leading cross-company collaboration around steering should fall to the CFO and their team. First, through the activities of budgeting, the finance function is the custodian of the clear, quantitative expression of management expectations and determines how resources such as cash and people will be allocated in order to achieve them. In our survey, 90% of respondents say that finance should facilitate collaborative enterprise planning to ensure that operational plans are aligned with financial and strategic plans.
Second, through performance management, the finance function is the gatekeeper for critical data that illustrate how well—or otherwise—the company is rising to the challenge of change. That includes data relating to sales, supply chain and delivery, which need to be reported back to the business in ways that help drive improved decisionmaking. Our survey reveals that companies in which finance executives feel empowered to drive strategic decisions across business functions are more likely to report a higher financial performance in fiscal year 2016/17 and 2017/18 and anticipate higher growth rates for 2019/20.
Download Complete Executive Summary PDF
Transforming data into action
As businesses generate and manage vast amounts of data, companies have more opportunities to gather data, incorporate insights into business strategy and continuously expand access to data across the organisation. Doing so effectively—leveraging data for strategic objectives—is often easier said than done, however. This report, Transforming data into action: the business outlook for data governance, explores the business contributions of data governance at organisations globally and across industries, the challenges faced in creating useful data governance policies and the opportunities to improve such programmes. Learn more by downloading our whitepaper below.
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Safe Cities Index 2019
Cities across the globe are growing in size and in terms of how connected they are. Which cities are best at keeping their citizens safe and how do they do it? An updated version of the Safe Cities Index 2017, the 2019 index covers 60 cities across the globe and defines how to measure security in a rapidly urbanising world.
Visit the Safe Cities hub for more interactive content >>
Five-star cities: Asia’s best cities for work and recreation
The 2019 bleisure barometer: Asia’s best cities for work and recreation evaluates the bleisure potential of various cities in Asia-Pacific, based on a survey of global business travellers. It reveals that while Asia’s top bleisure destinations provide the right balance of business activity, high-quality infrastructure and top-flight leisure experiences, many less obvious choices stand out for different reasons, often involving opportunities for cultural exchange.
The key findings are:
Tokyo is Asia’s best bleisure destination, ranking first out of 26 cities in the region. The Japanese capital is joined by Singapore, Sydney, Hong Kong and Melbourne as a “five-star” bleisure city, as determined by a quantitative barometer constructed for this programme, based on survey responses. Raw scores and number of stars may not correlate perfectly, as the former is an absolute measure and the latter a relative one (see appendix I for the full methodology of barometer and star scoring). Less-affluent cities comprise most of the one-star destinations, with notable exceptions. Business travel may prove arduous in the emerging metropolises of South and South-east Asia, but greater GDP is hardly the only predictor of a high bleisure score. New Delhi and Hanoi tie for second (alongside Beijing and Hong Kong) in the category measuring opportunities for cultural experiences, providing them a leg up over cities with stronger infrastructure and a bigger international business scene. Shanghai and Beijing, often criticised for their poor urban environments, rank highly on business aspects such as quality of international links and level of digital connectivity, helping them best more ostensibly liveable cities, including Auckland, Brisbane, Seoul, Taipei and Wellington, in the overall ranking. Wealthy Adelaide falls in the one-star category, dragged down by low scores for quality of food and beverage and opportunity for cultural experiences. Ease of transportation is the top urban factor in a successful business trip. Other key aspects include street safety and quality of business venues, according to our survey. Regional differences emerge in these findings, with Asian executives prioritising transportation, while Europeans are less concerned about safety than those hailing from elsewhere. Dining out and enjoying local heritage are the chief ways busy business travellers unwind. These two factors rank well ahead of the third-place finisher, visiting an art museum or gallery. Regional nuances crop up here too: Asian executives are less likely to frequent the local drinking scene and more inclined to visit an amusement park.The report, including full scoring and star bracket methodology, as well as an infographic and video, can be found at: https://fivestarcities.economist.com/
Flexible cities: The future of Australian infrastructure
As this report finds, cities need smarter and more flexible infrastructure to address these challenges— infrastructure that can make better use of existing space and resources, and that can adapt in accordance with uncertain, fast-moving future realities.
The idea of ‘flexible’ or future-proof cities is becoming more important. Imagine a roadway that works for today’s vehicles as well as tomorrow’s autonomous cars, an energy system that can provide reliable power despite spikes in usage (such as those that may come from greater adoption of electric cars), pylons that are mindful of overhead drones, a building that transforms depending on needs of its inhabitants, or an autonomous rail system that can double its capacity simply through changes to its operating algorithms.
Delivering infrastructure that is more responsive and flexible to future needs requires technological innovation as much as it does new approaches to planning, financing and procurement.
In this report, The EIU investigates the challenges facing cities and urban infrastructure in the near future, and the global trends and innovations in infrastructure that will be crucial in response. With an eye to international best practice, it focuses on the challenges and opportunities pertinent to Australia. Here, major cities are facing significant population growth forecasts that call into question their ability to continuously provide a high quality of life for their citizens. Challenges pertain to both meeting infrastructure need, and in delivering solutions, through effective planning, financing and collaboration, in time and on budget.
The key findings of the research include:
Australia is experiencing a number of growing pains. Population growth in cities is a universal trend—urban population is expected to rise by two-thirds by 2050 globally—but it is particularly acute in Australia, where cities must meet double or greater user demand without conflicting with the global targets set by the Paris Agreement and Agenda 2030. Such growth challenges the capacity and sustainability of cities’ infrastructure and the networks that connect them. Planners must also reckon with an ageing population, deteriorating infrastructure, adverse environmental change and evolving working patterns, altering the dynamics of how people operate in and navigate cities. A failure to respond to these challenges could result in declining economic productivity and threats to the quality of life for which Australian cities are renowned. To meet future demands, infrastructure builders across the globe are considering how they can expand the capacity of existing infrastructure and bolster the flexibility of new works. Updated networks like roads, railways and pipelines often need to accommodate twice their original usage demand without changing their physical footprint. The effective adoption of digital technology will be key to this transformation, such as updating metro systems with driverless trains and automatic controls, informed by large amounts of real-time data, to allow a more efficient use of capacity. Water and energy supply systems must also prove reliable in the face of natural disasters, shifts in market prices (such as oil or gas price shocks) or changes to supply sources (backups for solar generation, for example). New technological techniques and applications can help builders work more quickly, safely and cost-effectively. The design, construction and maintenance of infrastructure projects are increasingly driven by digital technologies, unlocking cost and time savings in building roads, railways and entire city centres. The cost and energy required to build with the highest safety margins could be reduced by remote monitoring through embedded sensors. Efficient, low-impact construction techniques will be important to reduce the disruption that construction and repairs have on metropolitan areas, too. Stakeholders are increasingly reliant on data to plan, build and optimise projects. Data generated by citizens and connected infrastructure are increasingly critical in delivering and operating smarter cities. Governments and infrastructure providers increasingly benefit from adding this data to their modelling and scenario planning. Open data can also allow citizens and third parties to solve problems or invent new applications that benefit all, from crowdsourcing potholes or reporting crime, to building new navigation apps. Australia’s state and federal governments, citizens, and commercial partners are still grappling with data ownership issues, but all are working to address the challenges. Mature financing and procurement practices help Australia attract international investment. Attractive markets encourage international competition for infrastructure procurement. Indeed, many of today’s projects are contracted to international players who bring advanced, ambitious proposals to government. And as demand for more advanced, flexible projects rises, players are increasingly presenting envelope-pushing approaches to win bids. Collaboration between governments, universities and commercial players is increasing, sparking innovation. Universities are playing a larger role in the advancement and application of infrastructure technology by partnering with private companies and government. New forms of collaboration are also more apparent among federal, state and local governments, and between governments and the private sector, potentially easing the problems posed by the historically disjointed nature of decision-making and long-term planning on major infrastructure. Australia has a strong record of robust infrastructure investment. Its leaders, institutions and businesses have identified the urgency and importance of responsible and smart infrastructure initiatives. As a result, Australia is well placed to wrestle with the challenges it faces, and, as it navigates infrastructure challenges earlier and with greater urgency than some other countries, could be a model for how other countries—in the OECD and in Asia-Pacific—can build smarter, more flexible, next-generation infrastructure in their cities.
A growing challenge: Hospitals operating in cost-constrained environment
A growing challenge: Hospitals operating in cost-constrained environment
Across the U.S., hospital executives are feeling pressure. Although growth rates in medical costs have slowed in recent years, hospitals now need to manage budgets within new payment contracts, such as value-based reimbursement and bundled payments. Unsurprisingly, then, an Economist Intelligence Unit (EIU) survey, sponsored by Prudential, revealed that costs are a dominant concern for hospitals and will shape business strategies in the years to come.
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The need to get better value from healthcare investment has never been more important as ageing populations and increasing numbers of people with multiple chronic conditions force governments to make limited financial resources go further.
These pressures, along with a greater focus on patient-centred care, have raised the profile of VBHC, especially in European healthcare systems. Sweden, with its highly comprehensive and egalitarian healthcare system, has been a leader in implementing VBHC from the beginning, a fact that was underscored in a 2016 global assessment of VBHC published by The Economist Intelligence Unit.
This paper looks at the ways in which Sweden has implemented VBHC, the areas in which it has faced obstacles and the lessons that it can teach other countries and health systems looking to improve the value of their own healthcare investments.
Breast cancer patients and survivors in the Asia-Pacific workforce
With more older women also working, how will the rising trend of breast cancer survivorship manifest in workplace policies, practices and culture? What challenges do breast cancer survivors face when trying to reintegrate into the workforce, or to continue working during treatment? How can governments, companies and society at large play a constructive role?
This series of reports looks at the situation for breast cancer survivors in Australia, New Zealand and South Korea. It finds that while progress has been made, more needs to be done, particularly in South Korea, where public stigma around cancer remains high.
The Cost of Silence
Cardiovascular diseases levy a substantial financial toll on individuals, their households and the public finances. These include the costs of hospital treatment, long-term disease management and recurring incidence of heart attacks and stroke. They also include the costs of functional impairment and knock-on costs as families may lose breadwinners or have to withdraw other family members from the workforce to care for a CVD patient. Governments also lose tax revenue due to early retirement and mortality, and can be forced to reallocate public finances from other budgets to maintain an accessible healthcare system in the face of rising costs.
As such, there is a need for more awareness of the ways in which people should actively work to reduce their CVD risk. There is also a need for more primary and secondary preventative support from health agencies, policymakers and nongovernmental groups.
To inform the decisions and strategies of these stakeholders, The Economist Intelligence Unit and EIU Healthcare, its healthcare subsidiary, have conducted a study of the prevalence and costs of the top four modifiable risk factors that contribute to CVDs across the Asian markets of China, Australia, Hong Kong, Japan, Singapore, South Korea, Taiwan and Thailand.
Download the report to learn more.