Consolidation of companies, mergers, and acquisitions are common
in every industry. But it isn’t a random decision that the company takes but
usually has a lot of planning and strategic development involved. Some consolidations
seem most natural, but should it be done is where the strategizing comes in. As
mentioned in “The Coherence Premium” by Paul Leinwand and Cesare Mainardi, a
company is said to be coherent if it answers three questions “How are we going
to face the market?”, “What capabilities do we need?” and “What are we going to
sell and to whom?”. These questions make a lot of sense because a company is
successful if it does one thing really well or better than its competitors. Some consolidations make sense if we can
clearly answer the above question even after the consolidation. This is what
makes some strategic mergers a success and some an outright failure.
The acquisition of Pixar by Disney in 2006 is one of the
most successful ones. At the time of the acquisition, Disney was falling behind
on the creativity and it was not doing that well in the animation department as
it lacked the skills in computer graphics. Pixar, on the other hand, had produced hits in this department like “Toy Story”, ”Finding Nemo” and “The
Incredibles”. The deal could still answer the three questions clearly which
means the companies were coherent together as well. What made the acquisition
so successful is that Disney let Pixar do what it does best – animation and Disney took over the role of production and distribution.
This clear division of tasks meant that Disney let everyone play to their strengths
which led Disney to be the best in the world of the animated movie. Disney also recognized
a cultural difference and it didn’t impose its culture over Pixar rather incorporated
them into the company. It let Pixar continue working the way they were and create
great animations which they were best at. Disney’s strategy to acquire the
required skills and empower the acquired company helped Disney release movies
like “Frozen” (profit $400+ million), “Inside Out” (profit $279.51 million)
which have been immensely popular worldwide.
Another successful acquisition is of Instagram by Facebook
in 2012 for $1 billion. Facebook made a strategic decision of acquiring Instagram
which was becoming very popular in a very short period. Facebook recognized the
potential of this company and how it can soon become a big competitor and acted
on it fast. Facebook was already in the social media business and analyzed what
it was lacking. So, acquiring an upcoming start-up in the same industry made
sense. Instagram has now completely changed the way Facebook displays ads and
Instagram alone has generated ad revenue of $9 billion in 2018. The company was
still coherent in Leinwand and Mainardi’s terms, and it was a profitable acquisition
for Facebook.
All these successful Merger & Acquisitions, consolidations when
analyzed, circle back to the fact that there was coherence around capabilities and
how the leadership strategized around these competencies to make the business a
success.
(1) Article: The
Coherence Premium(Leinwand and Mainardi, Harvard Business Review, June 2010)
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.