Innovation is typically a strength for organizations that grow inorganically. But whether it started out of a garage like Medtronic, out of a lab like Carbon 3D, or as a spin-off like Trello, it’s likely that this innovation manifested organically, in a free-flowing manner propped up by intuitive trial and error. This nimble innovation allows companies to react quickly to the market, customers, and new science. It’s what separates a startup from larger, less agile companies.

It’s a common fear amongst companies and their leaders that an acquisition marks the end of innovation; from here on out, the objectives are solely revenue and market penetration. “Innovation was fun while it lasted, but every company needs to grow up and manage to the bottom line,” echos a common misconception. However, this type of thinking must be challenged for two reasons:

  1. Further market penetration and continued growth require innovation with different intent and focus. Unfortunately, the approach and positioning that worked for early adopters aren’t going to be what works for the majority. External factors weigh in, too: according to a 2020 study by McKinsey, 96% of respondents have changed their go-to-market model as a result of the COVID-19 pandemic.
  2. The market will not stop evolving, and neither can your offerings. Product and service innovation cannot cease, but the approach must be matured. Innovation maturity spans beyond product innovation to focus on services, processes, customer experiences, and business models. A 2021 study by Deloitte finds that organizations with higher innovation maturity were nearly twice as likely to have revenue gains over 20%.

For this article, we will focus on the second point: when companies merge, innovation doesn’t vanish but must mature and become more focused. M&A transactions offer the ideal time to enter the next phase of innovation – new ideas and voices must be brought in to provide fresh perspectives. Realizing the deal thesis, where 1+1 > 2, requires harnessing new ideas, developing bold market strategies, and evolving offerings to meet the ever-changing needs of a growing and expanding customer base.

But as companies mature and gain real market penetration and brand recognition, several side effects take place: switching costs increase, resources become more scarce, internal projects compete for their time, new investors add increased pressure, and a growing number of cooks in the kitchen make it more complicated to drive progress. As a small company, it’s necessary to align all resources behind a single piece of innovation to maximize the likelihood of success. In addition, growth and M&A bring forth a plethora of new ideas and opportunities, and the challenges turn towards prioritization and resource allocation to ensure the best ideas get the resources they need to be successful.

To embrace these challenges and instill a laser-focused approach to innovation, CREO often recommends that companies invest time and resources to formalize their innovation, project, and product management functions. Post-Merger Integration (PMI) initiatives, in our experience, are most successful when companies implement the structure to:

  • Organize the intake of ideas and opportunities. An opportunistic approach to ideation works perfectly well in a small organization but fails to capture the entire landscape of possibilities as the company matures. Harnessing this organized chaos into a more refined process ensures voices are heard up and down the organization and that no stone goes unturned.
  • Assess and prioritize opportunities against company goals. Opportunity cost increases as the company grows. Understanding, documenting, and distributing the criteria for which ideas will be assessed allows leadership to prioritize the fewest, most important initiatives that will have the greatest impact.
  • Build business cases for top concepts. A gut feeling is no longer a valid reason to chase a new target; projects started through such intuition alone have a greater risk of failure and earn less stakeholder trust. Business cases allow for a more objective vetting of concepts and gain greater buy-in of chosen projects.
  • Align and empower teams to execute. Executing on innovation and bringing new concepts to reality requires dedicated time and resources with a clear remit and expectations. This doesn’t necessarily mean full-time dedication of team members, but relying on time around the fringes isn’t enough. Team charters and operating plans offer a great start to this effort.

While innovation and execution of new ideas may increase in complexity as your company grows, innovation can deliver the following benefits when approached methodologically and intentionally:

  • Drive deal value. Though the risk is greater, the reward grows exponentially. Moreover, with an established presence in multiple markets post-merger, the impact of successful innovation can be realized far more quickly and widely.
  • Retain barriers to entry. If your company isn’t innovating and embracing ever-evolving preferences, your competition probably is. And as the adage goes, the best market protection (defense) is a strengthened value proposition (offense).
  • Most importantly, maintain a culture that retains and attracts talent. As a leader, if you’re concerned that innovation will take a seat on the bench to idly watch market penetration, then your staff is equally shaken. Maintaining an entrepreneurial and innovative culture while refining the approach is critical to attracting the type of talent that will take your company through this next stage of growth.

An acquisition or merger offers a truly exciting time in a company’s history and can provide a launchpad for renewed innovation. CREO has been thrilled to take several of our partners through this renewed and refined post-merger innovation journey, and we are eager for the journeys that await. We believe that a culture that continuously embraces innovation is necessary for sustainable and robust growth.