Learning Across Growth Activities

Lesson 9 - Learning across growth activities

9.1 Learning across corporate development activities

Acquirers can learn to manage corporate development activities such as acquisitions. Beyond experience, firms may benefit by developing codified guidelines - so-called M&A handbooks (Zollo and Singh, 2004) - and setting a dedicated M&A department (Trichterborn et al., 2015). Yet, firms do not typically engage in just one type of corporate development activity. Instead, they often manage a portfolio of corporate development activities. It is not unlikely that firms may have set up strategic alliances to, for instance, organise the value chain and collaborate with suppliers; set up contracts with leading partners; be considering divesting parts of their business activities and be simultaneously screening potential targets while still integrating another firms acquired last year. This is quite likely to be an adequate depicting of a medium- to large-sized firm (if not corporate firm) at any given point in time (see e.g., Villalonga and McGahan, 2005).

Despite managing such portfolios, few firms consider the possibility of learning across different corporate development activities (cf. Bertrand et al., 2014). Certainly, there is some evidence that firms can learn to become better at managing alliances (Sampson, 2005), divestitures and even acquisitions can be learned with extensive experience (Haleblian and Finkelstein, 1999). Yet, few firms seem to pay attention to learning across the different types of corporate development activities and this may prove more beneficial. It is already hard for most companies to learn to do one activity well (these strategic activities are heterogeneous, infrequent, and complex, so learning across alliances, divestitures, and acquisitions may be a stretch for most firms).

Interestingly though that is precisely what some of the most seasoned corporate development experts seek to do. Particularly, Dow Chemical is one of the few, if not the only, company that is reported to have invested serious efforts to learn across different activities (Bingham et al., 2015).

So, what companies can do to learn across different corporate development activities? Why is it important? To answer these questions, at least two key notions are relevant, i.e., experience transfer and transfer mechanisms.

9.2 Experience transfer

One first possible element available to firms to learn across alliances, divestitures, and acquisitions is 'experience'. However, given that it is already challenging for firms to learn through experience in one type of activity (Barkema and Schijven, 2008), how can firms learn from different types of experience?

For one, as argued in prior work (e.g., Haleblian and Finkelstein, 1999), experience should be related to the task at hand. What is then required for companies to learn across corporate development activities when related experience is required. Zollo and Reuer (2010) studied whether firms can learn acquisition integration well using prior alliance experience. Their study is one of a few to address this issue and reveals that, for such experience to be beneficial, it should be highly related to the nature of acquisition experience. Particularly, they find that the more an acquisition resembles an alliance (i.e., low level of integration and characterised by high levels of relational quality) the more beneficial alliance experience to acquisition outcomes. This suggests that there is some evidence that suggests that firms may be able to learn across different corporate development activities, in this particular case alliances and acquisitions.

9.3 Transfer mechanisms

Transfer mechanisms are a wider term to cover all materials and activities aimed at transferring knowledge across people, divisions, and the wider organisation. Such mechanisms may be codified M&A handbooks or M&A training that executives rely on as input into the decision-making and execution processes. Often these handbooks are available in digital form via online systems. The next figure shows just such an online tool developed by Midaxo, one of the leading M&A tool content developers, relied upon worldwide by numerous serial acquirers. Codified tools and mechanisms such as these are instrumental in making sure experience transfer happens (Zollo and Winter, 2002).

Since codified guidelines are static and may actually hinder adaption to deal idiosyncrasies (Heimeriks et al., 2012), it is important to note that firms have a wide array of transfer mechanisms at their disposal. As Bingham et al. (2015) describe in detail in their study, companies can use a large variety of such mechanisms, including coaching, training, town-hall meetings, handbooks, and staffing solutions to name a few. Described in detail in their articles, these mechanisms form the glue that enabled Dow to learn across different corporate development activities. Over a period of around ten years, Dow has relied on a set of experts in its corporate function to distill, distribute, and adjust lessons and process insights which enabled it to generate and reapply lessons not just within one but also across multiple different corporate development activities.

9.4 The importance of 'learning across corporate development activities'

So, why is it is important to understand how companies learn across these activities? First of all, firms are forming more and more joint ventures and are engaging in a lot of acquisitive activity as well. Recently, McKinsey (2014) reported that companies expect to joint ventures are on the rise again; yet, typically companies manage these deals individually rather than as a portfolio of activities (and this speaks only of joint ventures!) as the next figure shows.

The other (and more important) reason for this is that companies that are able to learn across corporate development activities are likely to yield higher growth and performance figures. Since such activities are of central importance to implementing the firm's corporate strategy (and usually involve significant investments), being able to derive superior learning from each activity and across activities will advance the firm's ability to perform.

Recent work confirms these suggestions. Work by Capron and Mitchell (2010), for example, reports that companies which combine different types of corporate development have a 46% greater chance to survive over a 5 year period than those relying mainly on alliances, 26% greater chance than firms relying solely on acquisitions and 12% more chance than those relying in organic growth. Interestingly though, their study also reports