How to Grow your Company

For instance, the Romanian automaker Dacia manufactured licensed versions of French Renault models for more than 30 years without ever developing a single indigenous model (Renault acquired Dacia in 1999). Conversely, the Korean automaker Hyundai initially developed cars in collaboration with Ford; but ultimately, Hyundai successfully marketed its own models.

If a contract is not sufficient to grow your company, consider alliances—these more involved borrowing relationships typically facilitate more substantial collaborative resource sharing. An alliance has the greatest chance of success when your partner’s goals are aligned with yours and when the scope of collaboration is focused on a few points of contact. Much like a string quartet, focused and compatible alliances involve a limited number of players who know their roles and require limited contact as they weave their parts together.

If you find that you can’t align the goals of the alliance or need to develop an overly complicated partnership to manage a complex set of goals and activities, a full acquisition may be a better option.

Sometimes, focused alliances ripen into acquisitions, as the partnership becomes more complex over time. For instance, Eli Lilly initiated an alliance with Seattle-based ICOS to develop the drug Cialis for ed treatment. After Cialis succeeded in the erectile-dysfunction market, the partners saw an opportunity to use the drug’s base chemistry to develop a treatment for cancer and other medical conditions. Eli Lilly viewed these additional markets as an interrelated part of its growth portfolio and decided to acquire ICOS rather than continue the alliance, putting it on a sounder footing to manage the complicated activities involved in the development and trial of related products.

Rule 4: Define an integration path before embarking on an acquisition. Acquisitions are the best solution when unified ownership and centralized control will help you exploit combined resources more fully than you could achieve with an independent ally, even through a complex collaboration. But unlocking this value can be a challenge. Acquisitions require many steps to exploit their potential value. Too often, you get swept up in the potential of a deal and fail to lay the groundwork for how to make the deal work—until it is too late—because you discover that you should not have done it in the first place or because you start down a flawed integration path only to realize that there was an easier route to accessing the value of the new combination.

The real killer of most failed deals is weak post-merger integration. Negotiating deals is fun; figuring out how to make them work and then actually doing what that takes is harder. Integration is often ambiguous, time consuming and contentious, so you look for short-cuts. Take the example of Compaq. In the mid-1990s, facing competitive pressures from IBM, Dell and others, it acquired Tandem Computers, a producer of high-end business computers, and Digital Equipment Corporation, a leading maker of computers, hoping that they would allow it to compete with the likes of IBM as a broad-based computer manufacturer. But Compaq had no blueprint for integrating or exploiting the acquired firms and struggled to make the pieces fit together. The resulting fragmentation damaged its ability to compete with better-integrated makers, resulting in its acquisition by Hewlett-Packard in 2002.

Even firms experienced in M&A struggle with this piece of the puzzle. Some manage to develop templates that fit various types of acquisitions, but most need to adapt their approach as they move into new markets and businesses. In a real sense, post-merger integration is more job-shop ingenuity than assembly-line automation. If you learn to map the integration process in a way that key people will embrace, then acquisition is a valuable option. If you cannot identify every step, at least specify the major way stations along the route to creating integrated value. Neglect this critical component of merger success and even a potentially successful deal will waste your time and money—and possibly kill your career.