Innovation by Acquisition: What are the difficulties for large groups?

In their quest for innovation, large companies often turn to external growth, aiming to acquire promising startups or cutting-edge technologies. However, innovation through acquisition, while appealing in theory, presents significant challenges for companies, particularly in terms of integration and the realization of synergies.

Approach of Large Companies Towards Innovation Through Acquisition

In a context where fundraising is becoming increasingly complex, the acquisition of startups presents an attractive solution for large companies seeking innovation. This approach offers the opportunity to buy innovative companies at often reduced prices due to the pressure on startups to raise funds quickly. However, does this acquisition strategy truly serve as an effective lever to strengthen innovation within large groups?

While entrepreneurs highlight the impressive amounts they manage to raise, companies, on the other hand, tend to remain discreet about the costs involved and the results obtained from their mergers and acquisitions (M&A) activities. This reluctance can be explained by an alarming fact: nearly 70% of mergers and acquisitions fail to meet the strategic objectives set. Moreover, according to studies, 75% of companies that have made an acquisition encounter integration difficulties, thus hindering innovation potential and cultural alignment.

In short, while innovation through acquisition may seem like a fast track to innovation for large groups, it comes with its own set of challenges, particularly when it comes to integrating new businesses and realizing the true value of the synergies created. This approach is therefore only effective if accompanied by a clear vision and proactive management of the acquisition process and its integration into the company’s overall strategy.

The Reality of Innovation Through Acquisition: A Widely Spread Myth

In reality, believing that mergers and acquisitions (M&A) are a direct path to innovation proves to be a fallacy in nearly 90% of cases. Although appealing in theory, this approach faces significant obstacles that limit its effectiveness.

So, what is the most profitable innovation strategy for large groups? Three options generally present themselves.

The first is internal development, which may seem like an attractive solution, but it is often hindered by slow internal processes and a company culture that is resistant to risk and agility. In this case, innovation within the company is slowed down by existing structures, which hampers the rapid growth of products and services.

The second option is to hire consultants, an expensive solution, but one that unfortunately does not necessarily lead to a transfer of practical skills or a true cultural shift within the company.

Finally, the third option is acquiring startups, a seemingly simple strategy, but one that turns out to be far more costly and complex than it first appears. Integrating startups into a large company can be tricky, especially since the agility of startups conflicts with the more rigid processes of large companies. The merging of cultures and methods can therefore pose a significant barrier to innovation.

The main obstacle of acquisition lies in integration. Merging an agile startup, used to a flexible and responsive organization, with a large company that often has more rigid and hierarchical methods and culture is a major challenge. In reality, rather than achieving true integration, we often witness a juxtaposition, where the acquired startup continues to operate independently, without fully integrating into the company’s processes. This situation significantly limits the impact of innovation, as illustrated by Carrefour’s acquisition of Quitoque, where integration did not allow for the expected synergies to be maximized.

Thus, while acquisition may seem like a direct path to stimulating innovation, it comes with numerous challenges, particularly in terms of integration, which can make this strategy less profitable in the long term compared to other alternatives.

Alternative: Venture Building, an Agile and Diversified Approach

In light of the limitations of innovation through acquisition, an increasingly popular alternative is emerging: Venture Building. This method, both more affordable and less risky, involves identifying business opportunities and building teams of entrepreneurs capable of innovating quickly and agilely. Rather than buying a company or startup, large groups invest in creating new startups or entrepreneurial initiatives, allowing them to diversify risks while generating new growth drivers. Additionally, this approach keeps the company’s DNA intact and places it at the heart of the innovation process.

To succeed in Venture Building, several factors are essential. First, it is crucial to align with the market’s pace and quickly identify emerging trends to seize the best opportunities. Companies must be reactive and ready to adapt their strategy to remain competitive in the market.

Next, it is necessary to create an environment conducive to a dynamic entrepreneurial team, with a strong culture of agility and experimentation. This involves putting in place a flexible framework that fosters innovation and encourages calculated risk-taking.

Finally, implementing a co-ownership model (where employees and entrepreneurs share part of the capital) allows for aligning the interests of all stakeholders. This model promotes cohesion, boosts engagement, and ensures that innovation is embedded in the company’s long-term strategy.

Venture Building also offers numerous advantages. It enables better control of financial risks by spreading investments across several initiatives, while allowing the company to disseminate innovation and agility throughout its teams. This translates into the creation of custom assets tailored to the group’s needs and enhances the company’s attractiveness to talent, fostering an environment of collaboration, innovation, and controlled risk-taking. This model thus helps position the company for the future, offering the necessary flexibility to meet market challenges and seize new growth opportunities.

In conclusion, while innovation through acquisition may sometimes seem like an obvious solution, Venture Building represents a more flexible, diversified alternative that aligns with the current market challenges and the needs of large companies.