Internal efforts are just as important to corporate development as mergers and acquisitions, according to a recent study conducted by the Association for Corporate Growth (ACG). ACG is a nonprofit corporate development organization with approximately 5,000 members representing 2,500 companies throughout the United States, Canada, and the United Kingdom.
The study, conducted in April, polled 97 corporate growth officers and CEOs. Participants were asked to rank the importance of various expansion methods relative to the importance to the individual’s company in three different categories: 1995-Five Years Ago, 2000-Today, and 2000-Five Years From Today.
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Poll results suggest that new and improved product introductions (with an average score of seven, 10 being the highest) are placed at a higher importance to today’s executives than mergers and acquisitions (with an average score of six). Poll participants also projected that the development of new products would continue to be important to business development five years from now (with an average score of seven).
“This clearly shows that corporate growth is about more than mergers and acquisitions, never mind the public attention M&A receives,” said Chris Gebelein, ACG International’s president. “Most corporate development officers, myself included, spend much of our time helping our organizations develop new businesses and improving our product innovation process.”
Companies that go this route may have to be a little more patient.
“New product development is in many ways less risky than acquisition, but development takes longer, so the financial impact takes longer as well,” said Gebelein.
Companies that opt to develop new products could not only create new jobs but also improve the office atmosphere.
“Give people free time to create new things, rather than budget 100 percent of their time to traditional office responsibilities,” suggested Gebelein.
As companies reevaluate priorities, many are rethinking organizational barriers and encouraging collaboration between different areas of a large company.
“A lot of us are spending time studying the innovation process,” Gebelein said. “You learn pretty quickly that hierarchical, traditional office structures are not fostering a lot of creativity.”
The ACG study also revealed that the executives polled found that identifying new geographic markets for distribution ranked equally as important as mergers and acquisitions. Both scored an average of six.
Gebelein cited Europe and Japan as two examples of markets outside companies are investigating.
“For people who have not exploited markets that are similar to what they have in this country, new markets are opening up in developed countries overseas,” Gebelein said.
Even though trends may show slight shifts to other growth methods, mergers and acquisitions are still an effective way to broaden a business’s base, according to Jerry Lefkowitz, managing partner of Lefkowitz, Garfinkel, Champi & DeRienzo.
“Businesses have to decide if it fits into their plan,” Lefkowitz said. “When Textron first started, they bought all kinds of different companies.”
Headquartered in Providence, Textron, Inc., is a multi-industry company; considered the nation’s first conglomerate, its operations in aircraft, automotive, industrial and finance employ 68,000 people in 30 countries. It was founded by the late Royal Little from failed or failing textile companies before World War II.
Lefkowitz also cited increased efficiency and cost cutting as advantages.
“By merging and getting bigger, companies cut costs,” he said.
The flip-side of mergers is the creation of duplicate positions – particularly in middle management – which can lead to layoffs.
“Those are the casualties of mergers,” Lefkowitz said. “The top guys get their golden parachutes and they bail out.”
