Organic Growth Pitfalls at Acquisition Companies

The Differences

Yesterday’s Atlanta Journal Constitution article (“New Focus Leads to ChoicePoint Loss”), related to ChoicePoint’s shift in growth strategy, highlights the peril of companies that have in the past grown through acquisition and suddenly shift to the identification of new growth opportunities from within their own ranks (organic growth). The pitfalls are not always apparent, and if they are not understood they can lead to less than desired results.

Obviously specific pitfalls differ for various types of companies (manufacturing companies, consumer products companies, retailers, etc.) because their acquisition requirements are not the same. But there are some common themes that cross these companies that can be overcome. And there are examples of companies that have overcome these pitfalls.

First of all, let’s understand that the acquisition approach to growth is distinct and different from the organic approach in several ways:

One, the mindset of acquiring companies is generally focused on increasing market share by absorbing companies in markets they want to be in. This mindset is somewhat “hyper-focused” on specifics and doesn’t tolerate the ambiguities found in organic growth initiatives. Generally the acquiring company has a set of screens and criteria that are set and vary little from acquisition to acquisition. In contrast, organic growth work must have a high tolerance for ambiguity and include a degree of unfocused activity.

Two, capital is the general fulcrum used as leverage in an acquiring company’s toolkit. Frankly the price must be right for a deal to go through and generally a great deal of effort goes into capital access and negotiation with the seller. Often “relationship ability” is a highly valued skill in the capital arena and this ability often incites power positioning. In the work of organic growth egos must be held in check and not be allowed to hinder good ideas.

Three, the capability valued most in an acquiring company is integration. The masters of integration can bring a newly acquired company into the fold effectively in a short period of time; getting the acquisition on board and generating results is the goal. Much of this work is business model, systems and process focused; highly internally focused. Organic growth requires a high degree of external focus to identify new opportunities.

Four Keys to Incorporating Organic Growth into an Acquisition Company

In Launch Institute’s work with acquiring companies going organic we have learned that attention to certain areas lead to higher levels of success. These address the pitfalls emerging from the differences highlighted above:


Understand the Differences
As described above, the differences reside in market orientation, business operating model, capabilities required and degree of involvement of employees. When Bank of America realized its need to add organic growth to its acquisition strategy, it gathered a very senior group of execs whose purpose was to understand the differences. This group immersed itself in the literature of innovation and organic growth, attended pertinent conferences, invited innovation “gurus” to meet with them and developed a “From-To” map that highlighted the differences and potential pitfalls. Once the “From-To” map was created the needs and implications were cataloged and specific projects were identified to be the “proving ground” for an Organic Growth Operating Model that needed to be compatible with the still ongoing Acquisition Operating Model.

Clarify the Goals
Helping the organization be clear on the purpose of the Organic Growth work is key to highlighting the differences as well as setting some specific objectives for the work. When BorgWarner defined significant growth objectives in 1999 of US$1.3 Billion over a five year period, they realized $700 million of this growth could come from acquisitions but $600 million would need to come from totally new ideas. This then set the ambition of the organic growth work. After this, strategic “Opportunity Zones” were identified in which the organic growth work
was focused.

Implement a Design and Innovation Process and Organization
To address the operating model change issues and ensure focus on the organic growth objectives companies have developed a process and organization. One of the best examples of this is BMW’s Global Innovation Process. The goal of this five step process is to identify unique technologies and features that fit into a set of five to seven “Innovation Fields”. The process starts with scouting for ideas and ends up with working prototypes that can be demonstrated to development engineers. The organization supports all activities in the process and ensures good ideas are swiftly moved into series production and this includes the inclusion of new acquisitions like MINI Cooper and Rolls Royce.

Address what you “Don’t Know You Don’t Know”
The primary work of acquisition is to manage what you know and to quickly answer the questions pertaining to what you “know you don’t know.” Organic growth comes also from exploring what you “don’t know you don’t know”. The best ideas often come from new questions, not addressing the same questions you have been addressing in the past. In this area of “exploration” companies must be willing to challenge their existing assumptions, to put their egos aside and admit a degree of “ignorance” related to the business and its markets, another reason to have a strong design and innovation process. A great example of this is Nokia’s use of “scouting teams” made up of senior engineers, designers and business development executives
temporarily living in the communities for whom they are designing new ideas.

Certainly ChoicePoint’s rapid movement to an internal “organic” growth strategy makes sense in light of its need to better focus its business. But key to their success will be the integration of their acquisition prowess with a new and distinct organic growth capability.