There is something sadly all-too familiar about this finding. Companies whose business development groups are charged with finding companies to acquire in turn seek targets that are creative and innovative. They have fast-time processes to be early to market. Their R&D and Engineering staffs are bright and inspired.

Typically the large company is looking to bring the dynamic group into its fold. As the deal makers fold their tents to embark on the next hunt once the contract is signed, all the focus on innovation blurs in the frenzy to enfold this stalwart band of outcasts into the big parent.

The story is repeated in high tech acquisitions the majority of the time. But why? The answer is not complex. First, the deal makers were driven first worshipping at the false god’s alter: financial synergy. For the most part, financial synergy means nothing more than cutting costs – overhead, duplication, and just as frequently the brains and leadership that inspired the brains.

The few best practice companies that were able to retain their innovation streams were sure to make their business development groups looked for issues of chemistry and culture as significant clues to whether the people would integrate well into the acquirer. Not surprisingly, the integration methodology of these successful acquirers innovation had methodologies very similar to alliance best practices.

• Implications:
• The loss of innovation in the never-ending cycles of the merger and acquisition craze has cost billions in lost revenues and long term erosion of competitive advantage.
• Companies that are successful at retaining their innovation streams during acquisitions also tend to have very strong alliance programs. This gives them a much broader range of options with a clear decision making method to choose between an alliance and an acquisition.
• Careful attention to the Best Practices in generating innovation would yield great rewards.

• Evidence:
• While the success rate of strategic alliances has climbed steadily during the last fifteen years as best practices have proliferated, the success level of acquisitions has not shown similar success. The drivers for acquisitions and alliances are often quite different. Acquisitions are often made to add a revenue stream, without concern for the underlying innovation that created it. Many alliances are also done to enhance revenues, but there is an implicit understanding that neither partner can control the other, therefore cannot stifle the other’s cultural imperatives. Cisco Systems is one of those companies whose acquisitions have been quite successful. Cisco starts with the premise that an acquisition that does not preserve the innovative capacities of the acquired company is a failed acquisition. Practices, metrics, and rewards are all aligned to achieve the goal of innovation.

After studying scores of companies and conducting interviews with hundreds of executives over the last few years, there is both a sadness and excitement about the matter of innovation.

The sadness lies in the failed initiative to preserve, protect, and defend the creative spirit of so many people and the companies that fostered their innovation. There is no way to measure the loss. The synergy of spirit to co-create is in-bred into the human psyche, it is among our deepest and most soulful yearnings. To kill this spirit by poor practices, neglect, and disrespect is akin to stifling the energy of youth.

But there is an exciting note to these findings. There are Best Practices and they work. Best Practices can and do create Engines of Innovation. The task ahead is not to belabor the failures of the past, but to build on the solid foundation of successful practices will generate even more and better new practices. The risk is small and the reward is great.

Robert Porter Lynch