Chief Strategy Officer, SEI.
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You don't have to look far to find news about another tech consolidation these days. From Broadcom and VMware to Adobe and Figma, some of the biggest industry names are acquiring smaller companies in an effort to build their influence, expand capabilities and keep up with the competition.
Though the intent of these mergers and acquisitions (M&As) is to improve business functions, they can bring about a host of operational and cultural challenges. But this doesn't mean consolidation is a bad idea—quite the opposite. If approached in the right way, consolidation can be a powerful tool to generate growth for both the acquiring and acquired companies. But what is the right way?
By taking a proactive approach to addressing operational and cultural challenges, company executives can maximize the benefits of consolidation and emerge stronger than ever before. This requires flipping the script on traditional acquisition strategies, placing a greater emphasis on cultural fit, embracing new ways of working and empowering people to drive change.
The Dynamics Of Market Convergence
Consolidation in the tech space isn't new by any means, and one of the central reasons for an increase in M&As is that very few of the "true" best-of-breed players are left. This is particularly present in the pure-play software-as-a-service (SaaS) space. In the past, companies would specialize in a single area and do that one thing really well. But these days, it's becoming increasingly rare to see a SaaS company that sticks to one service or product. Instead, we're seeing more and more businesses trying to be all things to all people.
There are pros and cons to this. On the one hand, this can make it harder for customers to find a solution that truly meets their needs. After all, with so many companies being a jack of all trades, it can be difficult to find a provider specializing in the specific thing customers need. On the other hand, consolidation can bring together organizations with different areas of expertise, allowing them to create more complete solutions that are better suited to customers' needs. So how do you make sure your M&A falls into the latter category?
It's no secret: Companies must always be looking for growth opportunities. In the human capital and professional services spaces specifically, this means developing new technologies or products. The issue is companies often find these new products make less of a splash than they hoped. So instead of trying to build out every HR or finance function, top providers are now acquiring pinpoint solutions provided to a specific customer base. By doing this, they can bring in new areas of expertise while maintaining their existing solutions. As a result, customers can benefit from having access to a broader range of solutions from a single provider.
Big Fish Aren't Inherently Superior To Little Fish
It's commonly assumed that the larger organization possesses all the strengths, but this isn’t always the case. Larger firms are prone to issues like layers of bureaucracy, long-tenured employees who may be resistant to change and office space that isn't being fully utilized.
Smaller firms are often able to hire better talent and have stronger relationships with clients because they tend to pivot quickly to meet the ever-changing needs of their clients. This is often a result of their more intimate company culture, where collaboration and communication are prioritized. Additionally, smaller firms tend to have a more entrepreneurial spirit, with employees feeling empowered to take risks and innovate. These cultural factors can give smaller firms a competitive advantage that larger firms may struggle to replicate.
Understanding The Impact Of A Consolidation
Not all acquisitions are created equal. Companies need to ensure they're acquiring solutions that truly meet the needs of their customers without diluting the impact of their original technology in the process. Mergers and acquisitions have the potential to bring about significant changes for all parties involved. So it's vital to be conscious of the far-reaching, complex impacts that a consolidation can have on you and your customers.
How It Can Affect Your Customer
When considering a consolidation, executives must ask, "Will the acquisition result in a better customer experience or lead to confusion and frustration?" Customers may initially be excited about the prospect of having access to more solutions, but things can sour quickly if the experience doesn't live up to expectations. Everything from how users log in to access the product to the phone number needed to reach your accounting department can lead to disruptions that create major pain points for customers.
How It Can Affect Your Company
While consolidations can be challenging for customers, they can also pose some risks to your company. If you're part of the larger firm, for example, your excitement to integrate the newly acquired technology might keep you from addressing the cultural aspect of the merger. In some cases, the two cultures might not be a good fit right away, which can cause issues like high-level leaders and top performers leaving. Though it's natural to focus on how an M&A can enhance your offerings, more consideration must be placed on how this move fits into your overall business values, beliefs and team dynamics. If the cultures clash or aren't compatible, it can lead to disengaged employees, decreased productivity and a failed acquisition.
Flipping The Script For Good
Consolidations can have a huge payoff, but they require a change in perspective and a willingness to embrace new ways of working. If your company can embrace the culture and expertise of the smaller firm, and the acquired team is willing to work with you to find synergies and grow together, the potential for success is enormous.
Ultimately, consolidations hinge on the people involved. So if you're in the midst of one, keep an open mind, communicate often and embrace what made both firms successful in the first place.
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