Now that the global economy is on the rebound, large companies are once again trying to buy their way into growth rather than developing their innovation competency. Most of these efforts are likely to be ill-fated, according to Joyce Wycoff, writing in her Heads Up on Organizational Innovation weblog.
“It’s relatively easy to develop the next new thing – once. It takes a completely different approach to develop a long-term innovation engine. It starts with a mindset that seems to be outside the norm in today’s business climate where SBC would rather buy AT&T and risk billions than develop the internal competency needed to create the future of the company. US companies now have over a trillion dollars in cash, so, once again, they are trying to buy growth rather than develop an innovation competency.”
Joyce cites an article from Strategy & Leadership (a publication of the Woodside Institute) which explains why acquisition isn’t an effective way to innovate:
“Though sometimes effective in the short term, this strategy of innovation through acquisition usually fails because the acquiring corporation overestimates the value of synergies and underestimates the post-merger integration difficulties. In any case, innovation by acquisition is always at enormous cost, either in cash or stock, to the shareholders of the acquiring corporation. Shareholders see far higher returns when companies successfully innovate organically.”
This thought-provoking article also recommends some innovation metrics that you may find to be valuable in your organization. You can download the article here.