Diversification only works if customers want the new product.
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March 16, 2020
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Summary. The standard explanation for failed M&A deals points to integration as the problem. It turns out that this is more of a problem for companies that are acquiring complementary businesses that they know quite well. That’s because integrating the new business isn’t entirely the story. Your customers need to have a reason to like the new combination, which may require change as well as integration.
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According to most studies, between 70 and 90 percent of acquisitions fail. Most explanations for this depressing number emphasize problems with integrating the two parties involved.That’s perfectly true, but my experience suggests that integration problems are particularly severe in cases you wouldn’t necessarily expect — when the acquisition is a related diversification, that is a “complementary” business, which the acquirer understands quite well. The case of Quadrant illustrates my observation.
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Graham KennyisCEO ofStrategic Factorsand author of the best-selling book Strategy Discovery.He is a recognized expert in strategy and performance measurement who helps managers, executives, and boards create successful organizations in the private, public, and not-for-profit sectors. He has been a professor of management in universities in the U.S., and Canada. You can connect to or follow him onLinkedIn.
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How to develop a winning strategy—and put it to work.
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