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

Introduction

In their quest for innovation, large companies often turn to external growth, aimed at acquiring promising startups or cutting-edge technologies.

Approach

This approach, encouraged by the pressure on fundraising, gives rise to opportunities to buy startups at a reduced price. However, is it an effective strategy to strengthen innovation within large groups?

Does the takeover of a rising star bring a significant competitive advantage or is it just an announcement effect? While entrepreneurs brag about the amounts raised, companies remain discreet about the costs and results of their M&A transactions. This reservation may be explained by the fact that nearly 70% of these transactions do not achieve the expected strategic objectives, and that 75% of companies that have completed a merger or acquisition encounter integration difficulties.

Reality

In reality, thinking that M&A is a path to innovation is a false belief in 90% of cases.

So what is the most profitable innovation strategy? There are three options for a large group. First, internal development, which is often hampered by slow processes and a risk-averse corporate culture. Second, the use of consultants, which are expensive and without the transfer of practical skills. Thirdly, acquisitions, which are apparently simple but very expensive.

The main obstacle to acquisition is integration. Merging an agile startup with a large group with different methods and cultures is often difficult. Rather than real integration, we are witnessing a juxtaposition, where the acquired startup continues to operate independently. This approach limits the impact of innovation within the group, as illustrated by the example of Carrefour with Quitoque.

Alternative

An alternative is emerging: Venture Building. This more affordable and less risky method involves detecting business opportunities and building a team of entrepreneurs capable of innovating quickly. Investing in several entrepreneurial initiatives makes it possible to diversify risks and create new growth vectors, while remaining true to the company's DNA.

To succeed in Venture Building, he must respect the tempo of the market, create space for a team of dynamic entrepreneurs, and set up a co-ownership model to align the interests of all. This model offers better control of financial risks, disseminates innovation and agility throughout the company, and leads to the creation of tailor-made assets, reinforcing the company's attractiveness for talent and its ability to project itself into the future.