M&A and Corporate Growth Strategies

Part I: Corporate growth strategies summary of readings

Capron and Mitchell in their Finding the right path (2010) publication summarize their
findings on the growth pattern of the companies and argue that the majority of them rely
extensively on one path to growth (Capron & Mitchell, 2010, p. 103). This approach is not
always the key to success as research shows that companies combining growth resources
have a 46% higher chance of survival than the ones relying on a single way (Capron,
Mitchell, 2010, p. 103).
In addition to this theory the authors provide us with a practical guideline, based on their
research and case studies of numerous companies development patterns, to apply when
implementing a companys growth plan by means of organic growth, agreements, alliances or
acquisitions. The authors claim that the key topics such as internal resource availability, the
value perception of these between the partners and finally the level of engagement with the
resources provider need to be considered in order to select the right mode of growth. In other
words, the combination of expansion methods should not be random but depend closely on
the strategic goals and capabilities a company has.
Internal development is generally perceived as the quickest way to reach growth by a
company, but it is not always the preferred one as the authors determine. Particularly when
the existing resources for instance know-how or technology are not advanced enough, a
company is better off by seeking external possibilities to obtain them as in the case of
General Electrics CT scan launch, where due to insufficient internal resources, GE decided
to go with a licensing agreement with a company Disco.
The authors conclude that acquisitions despite being the most complex method to implement
might be particularly beneficial in situations where the strategic assets are at stake and a high
level of collaboration with a partner is needed (Capron & Mitchell, 2010, p. 107).
To illustrate the idea that a combination of growth ways is crucial to the sustainable growth
the authors refer to the case of Eli Lilly that successfully applied multiple growth strategies
ranging from internal development through partnerships and acquisitions (Capron &
Mitchell, 2010, p. 106).
As we learn from the following article by Olson, Van Bever and Verry (2008) finding a
successful path of growth in the past does not make successful companies immune to growth
stalls, as their analysis in the When growth stalls (Olson et al.,2008) presents. Against the
common understanding of the root causes of growth stalling, not the external factors, but
mainly the internal factors within management control are attributed to the growth end.
Based on their study (Olson et al., 2008) of roughly 500 U.S. and foreign companies they
concluded that 87% of the reasons of a growth stall are caused by the controllable factors. In
the article the authors focus on analyzing of the four main reasons identified as premiumposition captivity, innovation management breakdown, premature core abandonment, and
talent bench shortfall (Olson et al., 2008, p. 52). The first reason is illustrated based on the
Levi Strauss case that experienced a sharp decline in the revenues after the record year 1996
with 35% revenue decline by the end of 2000.
The second most common stall factor among the studied firms has been identified as the
innovation management breakdown described as the inability to create new product offerings
to sustain future growth. The main cause appears to be the decentralization of the R&D
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activities paired with the high pressure on revenue generation as presented in the case of
3Ms growth decline in the 70s.
The two other major causes identified by Olson et al., 2008 are attributed either to a
premature core abandonment due to a leading belief in an existing market saturation or a lack
of strong talent bench in the companys executive level in charge of the strategy definition, as
illustrated in the Hitachi case (Olson et al., 2008, p.58).
In conclusion, the authors propose a set of practices to support the management in
anticipating a possible growth stall, known as the red flag test as shown in Olson et al., 2008,
p.60). Furthermore they offer a set of four innovative practices such as the appointment of a
core-belief identification squad or a shadow cabinet to name a few, in order to enable the
management team to notice the signals of stalling early on and implement counter measures.
References:
1. Capron L, Mitchell W. 2010. Finding the right path. Harvard Business Review 88 (78): 102-107.
2. Olson MS, Van Bever D, Verry S. 2008. When growth stalls. Harvard Business
Review 86(3): 50-61.

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