The flavour of the last few years has been innovation…across geographies, sectors and for every organisational structure from government to non-profit to corporates of any shape and size, innovation is now recognised as a critical differentiator in any successful business transformation. Despite this, almost all of the typical processes in post merger integration or transformation generate a behavioural pattern which actively discriminates against it. An example:
A Spanish company that I worked with took the issue of innovation extremely seriously. The head of innovation reported to the board and had considerable autonomy. Over 75% of the company’s new products / offerings were focused on a 3-year and beyond innovation cycle in terms of their expected delivery date. Two-thirds of the people involved in innovation mirrored the profile of the customer base from a social, demographic and economic perspective – in effect, they were involved in designing products and services for themselves. This generated a “closeness” to the needs of the customer base which was seen as hugely valuable and aligned with the brand and reputation of the business. The majority of employees in the innovation area came from outside the sector of the business.
The profile of innovation infected the rest of the business, from marketing to operations where there was a constant drive to think about the mundane or administrative in a creative way. Employees did not need incentive programmes or suggestion boxes to innovate – they did it as part of their day-to-day activity and it was part of their overall engagement in the company.
Following a major acquisition and integration process, the focus for the business moved rapidly towards cost reduction and risk management. All capital expenditure was managed very carefully. Each piece of spend was analysed on the basis of its expected deliverable which needed to be defined incredibly closely – a departure from the past and hard to do when you had previously been innovating on a 3-year product to launch timeline.
Within 6 months, the profile of innovation had changed. 60% of the population involved in innovation now were experienced sector strategists with at least 12 to 15 years’ experience in the sector, whose intuitive understanding of the customer base was more limited. Over 70% of product innovation was now focused on delivery within an expedited 6-9 months and the vast majority of the timeline given was given to the enhancement of the existing product portfolio rather than to the more radical sector-wide innovation.
Business performance over this period slumped – customer churn went up significantly, service levels dropped and voluntary employee turnover rose to its highest level in the company’s history. As the director responsible for customers said during the data gathering process, “this situation is not sustainable. The only differentiation between ourselves and our competitors was our ability to constantly innovate and we’ve lost that ability.”
At the start of this blog, I mentioned the inherent conflict between the need for certainty in transformation or post merger integration and the creative lack of certainty required in innovation. Whilst there are processes which exist to try and drive innovation forward around reward, investment, direction etc, the real issue is a people based one. Simply put, for an individual to put forward a new idea which will improve existing practices requires a degree of personal confidence related to the personal risk – that is, the risk of being seen as being ‘not focused’ or even worse, as someone who might be showing up his boss for not having thought through the idea beforehand. In reality, any major transformation engenders a great sense of personal risk and this discourages anyone who feels at all vulnerable in coming forward with ideas. Meanwhile, anything which cannot be quantified either in terms of spend or potential is discouraged. As a result, those individuals with innovation capabilities either wait for the company to return to its previous culture or they leave.
I’ll return to some solutions around this at later date and would welcome any feedback around your experiences in this in the meantime.
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Categories: Consulting, Post merger integration, Transformation
Tags: human capital, innovation, Merger integration, Performance
7 replies ›
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Hi there this is kinda of off topic but I was wanting to know if blogs use WYSIWYG editors or if you have to manually code with HTML.
I’m starting a blog soon but have no coding experience so I wanted to get advice from someone with experience. Any help would be enormously appreciated!
Hi there, as far as I can see, it is very much wysiwyg. However my experience is only with WordPress who make the process remarkably simple. Look forward to reading your musings! Ben
Ben, this is a particularly interesting article and one I’ve personally wrestled with in a couple of deals I’ve been involved in.
My feeling is the PMI process that we tend to follow is concerned with risk minimisation as opposed to risk management. It makes me feel uneasy when the synergies being sought are the typical FTE reductions to be had in shared services, or supplier rationalisation. It’s all operational stuff; it leaves the loftier and higher risk opportunities ‘out of scope’.
Given the commonly touted methodological approach to integration only serves to negate the true opportunities to be had, it should be replaced by more enlightened approach that actively seeks out the transformative and riskier opportunities as part of the integration process.
Agreed Toby. I hate to blame my former employers but sadly the nature of what is acceptable from an accounting principles perspective drives the initial debate around synergies, hence you rarely see business cases with highly explicit revenue synergy numbers. Coupled with an understandable reluctance on the part of the vendor to ‘show his hand’ where synergies are concerned, what ends up happening is a very diluted target…and that usually becomes the focus for the integration. One might call it a lack of ambition…or a high level of risk adversity!!
Didn’t get your comments, Alto…your thoughts on this?