Managing Innovation in the Merger Mania Era

In today’s business climate, a trend has emerged due to the state of the current economy.  Mergers have become more prevalent in order to encourage rapid corporate growth. Mergers can be an effective way of skill transfer and resource sharing, but does this strategy support corporate innovation?

The answer is no, innovation does not exist in the face of a merger; they are incompatible. Innovation is the successful commercialization of convention. Many companies confuse innovation with invention. The reason why innovation is not present in mergers is that in order to commercialize inventions efficiently, one has to have systems in place to gather and use a huge amount of information (e.g. market size, market segments, customer needs, competition, new technology, etc.).  As companies increase in size, they necessarily increase the size of the product portfolio, and as a result, increase the amount of information they need exponentially — it becomes unmanageable. The problem in most of the big companies is that they are too big to be managed effectively. Especially in “innovation management.”

Many big companies do not possess the incentive programs that promote innovation throughout their company, from top management to the bottom.  The programs for many of these companies are based on their ability to create value.  Current business situations and companies all follow these guidelines: (This is taken from ‘The Power of Pull’, by J. Hagel et al., 2010.)

1. There is not enough to go around
2. Elites do the deciding
3. Organizations must be hierarchical
4. People must be molded
5. Bigger is better
6. Demand can be forecasted
7. Resources can be allocated centrally
8. Demand can be met

Do you want to work for a company that is run this way?  Who would?  When a merger takes place, all of these problems and issues are compounded.  Is this the way that companies are going to be run in the future?  That is a resounding NO.  They can’t be run this way for three reasons:

1. Digital infrastructure is so huge.  It makes these kinds of business decisions old.  There are 25 Petabytes (10^15) created every day and thrown into the internet.  This is 70 times larger than the Library of Congress.
2. Flows of knowledge instead of stocks of knowledge.  The real value is not in the data, it’s the result of what you can get with the data.  An example of flows of knowledge to a stock of knowledge would be a patent.  You want to use a patent as a negotiating ploy to create more value.  Possibly trade with someone else who has a patent and create something together that will have a larger result than one patent alone could have.  There is a transient flow of knowledge that has value, not the stock or storing the data.  Use it or lose it.  There is not even enough storage capacity in the world to hold all the data that is being created each day.  Do something with the data you see because you may not be able to store it.
3. More institutional innovations.  Companies and people need to create new business models.  People in general don’t like change.  They feel threatened by change so they fight actively against it.  In fact, people are usually incented to prevent change from occurring. So everything is working against the change play and yet things are changing so fast that the current way of doing things gets undermined very quickly.  So companies and people within the companies are both frustrated and unwilling to do anything about it.  It’s pretty tough.  There is no doubt that this is a huge change due to there being so much information available that it is forcing companies to change their business model.

That’s why it’s moving from a push (technology, ‘build it and they will come’) to a market pull.  You have to understand the needs and wants of your customer first.  Those needs and wants are changing so rapidly because there is so much information out there.   Business models have to change therefore creating the change. The ability keep up with this change requires a dynamic business model and constant evolution. When you can successfully harness this competency, your company is successfully managing innovation.

Richard Kouri Ph.D.
Executive Director, BioSciences Management Initiative
Department of Management, Innovation and Entrepreneurship
Jenkins Graduate School of Management
Poole College of Management, NC State University