There was a great article, “Acquisitions That Make Your Company Smarter” by Nima Amiryany and Jeanne W Ross, in the MIT Sloan Management Review that showed why many companies fail to integrate successfully the knowledge and processes from companies they acquire, even if the acquisition was to acquire the knowledge. It is a phenomenon that I have seen repeatedly, where large game companies will acquire smaller companies to give them international expertise, experience leveraging IP, knowledge of a new platform, etc., yet fail to integrate that information and best practices into the parent organizations. It ends up lessening the value of the acquisition and often disheartening the experts who were acquired and see areas they can improve the parent’s business.
Acquisitions focused on incorporating knowledge are fundamentally different than other acquisitions. The expertise of the acquired company represents a crucial part of its collective knowledge that gives it a competitive advantage. The acquiring company is interested in something that a group of people have created that involves their vision, ways of working together and approach to carrying out certain activities. The acquiring company is primarily interested in the skills and processes, not the products, of the target company.
One of the best examples of such an acquisition was Disney’s acquisition of Pixar in 2006. By purchasing Pixar, Disney brought in knowledge of cutting-edge animation that it did not have. Thus, the success in the deal should not be measured just by the profit from Pixar’s pictures but also from the incremental profit Disney captured with all of its animated films.
Another example is Pfizer’s purchase of Icagen (now Neusentis) in 2011. This deal gave Pfizer expertise in pain research that it previously did not have.
Why it is difficult
Despite these huge successes, knowledge acquisitions more often end in failure. Amiryany and Ross refer to the situation as the “golden goose conundrum”
- The acquiring company does not want to kill the goose that lays the golden eggs by disturbing the social structures and routines that made the company they bought attractive.
- Conversely, the acquisition was not made to admire the goose, the acquiring company wants to learn how to lay golden eggs of its own.
To overcome this conundrum, companies have tried multiple tactics, many of which do not work in practice. Some try a formal acquisition strategy with an integration team. This often fails because acquisition leaders are unlikely to be specialists in the kind of knowledge the acquiring company hopes to gain (or else they would not have had to make the acquisition.
Another often-tried, rarely successful, tactic is to put in place communication tools and practices. These can take the form of wikis, data depositories or simply the exchange of documents and playbooks. This often fails because employee’s believe they understand the target’s knowledge but actually usually understand less than they think. This overconfidence misleads them when they are trying to use the knowledge, and then apply it incorrectly.
Only on-the-job learning enhances both the acquisition performance overall and post-acquisition knowledge. Whether success is measured in overall performance, financial performance or innovation, only on-the-job learning helps the odds of knowledge integration.
Ensuring smoother knowledge transfer
Given the importance of integrating knowledge for the long-term success of the acquiring company, both companies need to focus on the steps for the integration to be successful. The authors point to six steps for a more effective knowledge transfer:
- Define tangible deliverables. Create groups mixed with employees of both companies to work on a task with a tangible deliverable. This tactic helps employees understand their differing approaches and agree on an end product that commingles both strengths.
- Provide cultural training. Help employees understand the fundamental differences between their companies’ business approaches so that they understand each company’s DNA.
- Let employees provide the solution and the approach. Key employees are much more aware of how their unit can benefit than acquisition specialists. Ask them to come up with a checklist of practices and needed steps that could ensure knowledge transfer.
- Assign boundary spanners. Look for energetic, curious, all-rounders confident enough to win people over to their cause and to move in different spaces. Such individuals can motivate others to share knowledge across boundaries as long as the cause they believe in is taken into account.
- Create a buddy system. If the target company is small enough, match every employee with an employee of your company. Even if it is a large acquisition, match key employees from the target company with ones in the acquiring company.
- Make it competitive. Promote some positive competitiveness among employees; reward them for adopting new habits and help make new practices stick.
The importance of integrating the knowledge of an acquired company cannot be overstated, it is this knowledge that will help your entire organization jump to the next level. The three key steps in doing this successfully are:
- Do not rely on acquisition specialists. The only way to succeed is by having your best people work with their counterparts in the acquired company.
- Communication tricks are not the answer. A bunch of documents, PowerPoints or Wikis is not going to transfer knowledge that your team will use appropriately.
- Get teams to work together on real projects. True interaction and cooperation is the best way to transfer knowledge as part of an acquisition.