According to our frame, usually not!
Here’s how we define open innovation in Open Innovation Works:
The key to understanding whether a particular M & A move should count as Open Innovation is that third bullet: By acquiring another company, are you intending to generate something manifestly new?
Most of the time, the purpose of M & A is inorganic growth: Adding the acquired firm’s reliable existing customers and their reliable purchases of reliable products and services to your balance sheet. That might very well be wise business practice if the costs math out. But this isn’t the right place to be innovative! You’d be adding uncertainty and novelty pressures to a situation that should be focused on effective integration and reduction of margins.
There are lots of reasons to acquire that have nothing to do with innovation. For example:
- Acqui-hire (acquiring a business primarily to access its talent)
- “Catch & kill” (purchasing a competitor, possible future competitor or other entity whose market actions get in your way, in order to shut it down)
- Expanding capacity (straightforward purchase of a solid business to add its efforts to yours.
All of that said, M & A can play a unique and important role in open innovation. One of the engines we describe in detail is the prove-out journey, a series of increasingly meaningful joint experiments. M & A can be the culmination of such a journey, fully realizing the new value that the partners jointly create along the way. You get not only true open innovation, but also a very high quality due diligence process because you’ve been building together all along.
M & A is also open innovation when it shifts a firm’s direction acting as a sort of gravitational slingshot. For example, Apple acquired the chip design firm PA Semi in 2008 as a step toward game-changing, fully-owned in-house chips for their hardware — and look where they are now. That’s gold star open innovation!
Look, in the end, does it matter if your M & A practice is open innovation or not? What matters is this: If you’re seeking open innovation benefits from your M & A, like understanding the shape of important trends, exploring and adopting new technologies or looking to change the direction of your firm, you need to choose partners and measure appropriately. And if you’re not seeking open innovation benefits from your M & A, make sure you’re seeking them somewhere else.
Whatever the reason for your M & A practice, it’s a delicate process. More firms have been successful recently, but it still requires careful execution in due diligence and in integration.