Maximize Value Creation From Technology Acquisitions

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This research report deals with the challenges facing corporations in how they create value and a sustainable competitive advantage from technology acquisitions. The research studies the important role technology acquisitions play in the ICT sector in particular, and identifies three key critical factors in maximizing value creation. These factors are explored in detail and a unique and practical "Virtuous Circle of Value Creation Model" is presented.

Published in: Business, Technology
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Maximize Value Creation From Technology Acquisitions

  1. 1. Fergal Lynch MBA Distinction 2013 Durham University Thesis Summary
  2. 2. 1. Background 2. The Problem 3. Methodology 4. The Solution 5. New Model Maximizing Value Creation from Technology Acquisitions
  3. 3. The research studies the important role technology acquisitions play in the ICT sector in particular, and identifies the critical factors in maximizing value creation. This research report deals with the challenges facing high-tech corporations in how they create value, and a sustainable competitive advantage from technology acquisitions.
  4. 4. Acquisitions are a crucial part of business for large corporations competing in the technology industry….
  5. 5. This research is focused on the phenomenon of large multinational firms buying smaller technology firms and integrating the acquired technology, talent and capabilities into the larger acquiring organization. Technology acquisitions are generally acquisitions of small technology-based firms by large, established firms so that the larger firm can “graft” the acquired technological capabilities onto their own resource base, which then acts as a vital source of innovation streams 1
  6. 6. Acquiring new technologies is vital to remaining innovative.
  7. 7. This provides a faster route to market.
  8. 8. ...means the alternative to develop capabilities in-house is simply too slow, resulting in a competitive disadvantage 1 The breakneck speed of innovation in the technology sector… …..coupled with short product lifecycles…
  9. 9. Technology acquisitions are a distinct subset of acquisitions, where the technology, the people and the capabilities they possess are a crucial part of the acquisition1 The intangible aspect and basis on the knowledge worker is what makes them so unique and requiring distinction from other acquisition types.
  10. 10. However, all too often these technology acquisitions fail…..
  11. 11. 1. Background 2. The Problem 3. Methodology 4. The Solution 5. New Model Maximizing Value Creation from Technology Acquisitions
  12. 12. Research results consistently show that the majority of acquisitions fail to deliver value. Acquisition Success Rates 83% of all deals fail to deliver shareholder value with 53% actually destroying value 2 58% of acquisitions are not successful as they fail to meet expectations and objectives 1
  13. 13. ..... and the potential value is never realized 1 + 1 = 0 Synergies are not achieved…..
  14. 14. ….and conversely shed light on the root causes for the challenges and business problems experienced. How to maximize value creation?
  15. 15. 1. What motivates acquisitions? 2. How is acquisition performance measured and how is value perceived? 3. What role does the acquisition process itself play? 4. What are the critical factors in small technology acquisitions? Thought process for getting to the answers....
  16. 16. How to view Acquisitions? The Different Perspectives on M&A
  17. 17. Considerations when discussing ”value” … acquisitions create value when the combined capabilities improve the firm’s competitive position in the market, which in turn produces financial operating results1 Consider both expected value realisation and serendipitous value creation2 A capabilities perspective is best applied1 … the acquired capabilities can create and sustain elements of competitive advantage for the firm. Increased Innovation and patent activity … it is not satisfactory to measure all acquisitions on the same performance …. the measures of performance should be closely related to the specific strategic objectives associated with the acquisition4 … the conclusion on value created may differ depending on the perspectives of the people involved, such as financial experts, operational managers and shareholders, and suggest that using multiple parameters gives a more enriched view of performance 3 We need a multi-faceted approach5
  18. 18. 1. Background 2. The Problem 3. Methodology 4. The Solution 5. New Model Maximizing Value Creation from Technology Acquisitions
  19. 19. This research examined the complete acquisition process and offers an original perspective on maximizing value creation from small technology acquisitions.
  20. 20. The research was conducted in a multinational corporation operating in the ICT sector. Semi-structured in- depth interviews with executives and senior personnel involved in each case. Eight separate technology acquisition cases were studied.
  21. 21. A Deductive Approach to the research. Research Conclusions Academic Literature Review Semi- structured interviews Comparing Theory and Findings from interviews Interview data analysis Basic hypothesis influencing interview questions and analysis
  22. 22. 1. Background 2. The Problem 3. Methodology 4. The Solution 5. New Model Maximizing Value Creation from Technology Acquisitions
  23. 23. An acquisition is a process rather than an event1. The outcome of an acquisition ultimately lies in understanding and managing the process of decision- making during the acquisition, and effective management of this process. Phase I Strategy Phase III Post-Acquisition Integration Phase II Planning Acquisition Day 1 • Strategy Creation • Strategic Fit • Grow or Buy • Target Selection • Cost/Benefit Analysis • Type of Merger • Information Gathering • Financial Analysis • Due Diligence • Technical Due Dilignce • Cultural Analysis • Define Value Drivers • Identify Synergies • Plan Degree of Integration • Autonomy • Cultural Fit • Speed of Integration • Organizational Integration • Integrating People and Teams • Integrating & Commercializing the Technology • Knowledge Transfer
  24. 24. Findings From the Case Studies Acq’n Case Critical Factors Outome / Value Created Positive Influencers Negative Influencers Case 1 + Physical autonomy preserved team identity. + Decision making autonomy for the product. + Onboarding support. - Poor technical due diligence. - Initially no control over their product. - Losing of pre-acquisition customer base. As Expected Case 2 + Onboarding support. + Good strategic fit for product/technology. - No support or trust shown to acquired mgmt. - No influence on product decisions. - Physically isolated in own satelite office Below Expected Case 3 + Great strategic fit for product/technology. + Fast integration and no ”dead-time”. - No influence on decisions affecting the product - No common understanding on product strategy. - Big company processes affecting productivity. Below Expected Case 4 + Strong engineering & management talent. + Good strategic fit for product/technology. + Onboarding support. - Slow and frustrating integration. No support. - Big company processes affecting productivity. - Poor technical due diligence. As Expected Case 5 + Strong engineering & management talent. + Fully trusted and empowered. + Leadership support and commitment. - Complex integration and company split-up. - Integrated to a team in different time zone. - Seemed no strategic fit for the product. Above Expected Case 6 + Retained decision making autonomy over the product. + Retained operational autonomy. - Slow integration and felt isolated. As Expected Case 7 - Poor technical due diligence. - Lacking strategic fit, reactionary purchase. Below Expected Case 8 + Leadership support and commitment. + Great strategic fit for product/technology. + Retained decision making autonomy over the technology / product. - Slow integration needed for knowledge transfer. - Resistance to change in acquiring organisation. Above Expected
  25. 25. Analysis and comparison of the findings from the individual cases revealed......
  26. 26. Corporate Level Business Unit Team / Individual ... that different factors impact at different levels in the organisation....
  27. 27. Corporate Level Business Unit Team / Individual Influential Key Critical Factors for Value Creation Observable Measures of Value Created ...and some factors are observable while others are influential
  28. 28. Corporate Level Business Unit Team / Individual Influential Key Critical Factors for Value Creation Observable Measures of Value Created • Motivated and inspired individuals. • New capabilities, culture and working practices learned. • Improved productivity. • Profits. • Increased market share & customer retention. • Competitive advantage. • Shareholder wealth increased. • Improved competences. • Acquired technology commercialized. • Retention of key employees. • Knowledge transfer and scale needs met. • New innovative products commercialized. • Improved operational performance. • Acquisition objectives achieved. • Commitment. • Leadership. • Listening to the acquired talent. • Sound technical due-diligence. • Cooperative planning, setting objectives. • Acquisition process perspective. • Autonomy and decision making. • Onboarding ”buddies”. • Speed of the integration. • Individual needs. • Meaningful and motivating work. • Strategic fit. • Leadership, trust & commitment to the acquisition. • Plans to productise the technology. • Decision making autonomy & relative standing. Critical Factor Mapping
  29. 29. 1. Autonomy and keeping decision-making and strategic influence over the technology. 2. Speed of Integration with a clear goal to commercializing the technology 3. Retention of Key Employees and Knowledge Transfer 4. Relative Standing, ability to influence and Commitment shown to the acquisition target
  30. 30. 1. Background 2. The Problem 3. Methodology 4. The Solution 5. New Model Maximizing Value Creation from Technology Acquisitions
  31. 31. 1. The primary focus needs to be on commercializing the technology. The leadership, trust, commitment, strategic fit, and autonomy of the acquired team (with the ability to influence decisions relating to the product) are all needed to make that happen. 2. Commercializing the acquired technology positively impacts on employee retention. While these talent acquisitions are to a large extent about people, it is a focus on the technology itself, getting it productized, that is needed to create sustainable value. 3. This focus underpins all other aspects that can derive value from the acquisition…. Although the focus may be on commercializing the technology this is not necessarily the ultimate goal or measure of success. Building A Practical Model This research extends the understanding of the relationship between the different factors and proposes a “Virtuous Circle of Value Creation” model linking all the critical factors that contribute to value creation from technology acquisitions. The multi-faceted measures of value created from acquisitions are contained within the virtuous circle model.
  32. 32. Virtuous Circle of Value Creation Model + Relative Standing+ Codifiable+ Smart people willing and able to absorb + Improved Competences Competitive Advantage Innovations Speed of Integration Measures of Value Creation Strategic Fit Effective Technical Due Diligence Cultural Fit Profits Market Share Patents Incubate, protect and support Customer Retention Increased Share Price Synergies achieved + + Having meaningful and motivating work + Autonomy + + Suportive Leadership Trust & Empowerment Co-operative planning Commitment to the Acquisition + + + + + Employee Retention Knowledge Transfer Successful Appropriation of Technologies and Capabilities Technology Commercialized
  33. 33. 1. Background 2. The Problem 3. Methodology 4. The Solution 5. New Model 6. Supplementary Information Maximizing Value Creation from Technology Acquisitions
  34. 34. Contact Information For enquiries relating to • Complete version of the research • Citation requests • Trainings, lectures or consultancy Contact the author Fergal Lynch MBA Global Business and Technology Management Professional

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