Some Acquisitions Leave Opportunity on the Table.

Author:Walker, John T.

Throughout history, industrial companies have looked to acquisition to bolster market position and accelerate growth.

It is interesting that the rationale CEOs often give for a combination is the very thing they mess up in execution--namely, leveraging capabilities and exploiting synergies. The Harvard Business Review suggests 70 to 90 percent of acquisitions fail. The number one reason? Inability to live up to advertised outcomes.

Management teams routinely overestimate savings and the market effects of portfolio integration. Recently, aerospace and defense consolidation has been on the upswing with the 2018 United Technologies Corp. acquisition of Rockwell Collins, the largest in aerospace history

In announcing the acquisition, CEO Gregory Hayes said the combined company will develop systems that are "more electric, more intelligent, more integrated, more connected and more cost-effective. Imagine the ability to combine these systems, architecture to reduce weight, to reduce cost for the airlines ... [the acquisition] gives us the scale to innovate."

There is nothing wrong with this sentiment, but making it happen is much more difficult.

If companies like UT, Northrop Grumman and others hope to capitalize on the benefits sold to Wall Street, they need to be mindful of the role research and development plays in these combinations and watch for several warning signs.

One of them is unfamiliarity with R&D operations/investments and capabilities. This one is the most troubling, yet it is the most common. Executives simply don't have a detailed understanding of their R&D ecosystem--what they have, why it is important, or what it will do for them in the marketplace.

Corporations in this situation have forgotten that R&D is a strategic asset and should be managed as such. Often companies of this type are overly tactical in their thinking and occasionally power-politics gets in the way of greater transparency. Integration teams may compile research-and-development data, but they do little in the way of analysis to fully exploit its market potential.

Another problem is the inability to conceptualize leap-forward combinations of capabilities. For some companies, the creative spirit that drives discovery is absent or unpracticed. Innovation most often occurs by combining things in ways not previously considered. Companies that do not exercise their creative muscles should not expect to lead in the marketplace. Usually this is a second-order problem...

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