RESEARCH & IDEAS
The Surprisingly Successful
Marriages of Multinationals and
Social Brands
Q&A with: James E. Austin and Herman B. Leonard
Published: December 15, 2008
Author: Sarah Jane Gilbert
What happens when small iconic brands
associated with social values—think Ben &
Jerry's—are acquired by large concerns—think
Unilever? Can the marriage of a virtuous
mouse and a wealthy elephant work to the
benefit of both? Professors James E. Austin
and Herman B. "Dutch" Leonard discuss their
recent research. Key concepts include:
• Such mergers pose unusually difficult
challenges because the merging entities are
often strikingly different in philosophy and
operating styles as well as in scale.
• For the small company, an acquisition by a
larger firm can allow much more rapid
scale-up.
• For "elephants" a carefully considered and
executed acquisition provides access to new
ideas and radically different business
approaches.
• Large companies recognize that preserving
the social icon's distinctive culture and
business approach is essential to preserving
its key success factors.
• These fusions provide additional evidence
that social enterprise is becoming an
integral and embedded part of the
marketplace and enriching avenues for
businesses to generate simultaneously
commercial and social value.
What happens when giant multinational
corporations acquire relatively small companies
that enjoy iconic status as socially progressive
brands?
According to recent research out of Harvard
Business School, such marriages can be good
for business and good for society.
With an eye to providing guidance to
managers and stimulating reflection among
scholars, a new working paper by HBS
professors James E. Austin and Herman B.
"Dutch" Leonard looks at how and why such
acquisitions occur and how to manage the new
combinations most effectively.
"Can the Virtuous Mouse and the Wealthy
Elephant Live Happily Ever After?" focuses on
acquisitions of three social icons: Tom's of
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Maine acquired by Colgate, Stonyfield Farm
Yogurt purchased by Danone, and Ben &
Jerry's bought by Unilever. (Similar deals
include L'Oreal's deal for The Body Shop,
Cadbury Schweppes' acquisition of Green and
Black's, and Coca Cola purchasing a significant
interest in HonestTea.)
As the authors write, "Making a virtuous
mouse and rich elephant merger work is a
delicate, but potentially high-value undertaking
in terms of generating both greater economic
and social value."
Austin and Leonard agreed to join forces in
an e-mail Q&A with HBS Working Knowledge
to explain more.
Sarah Jane Gilbert: Your work examines
the concept of a company being either a
"mouse" or an "elephant." What are the
characteristics of the two?
James Austin and Dutch Leonard:
Actually, the key descriptor is not simply a
difference in size but rather in kind. We are not
referring to every small company, but only to
those that have become social icons because an
integral part of their distinctiveness and success
is rooted in the social value—and values—that
they bring to the marketplace … hence our
nomenclature refers to "virtuous mice." And
there are a lot of large companies attracted to
these successful social icons, but not all
"wealthy elephants" are capable of entering into
a successful marriage with this special breed.
Q: Why is acquisition such an attractive
strategy for the "mice"?
A: A carefully executed
acquisition—through a well-designed
agreement—can have many advantages over
other ways of going to scale.
Compared to organic, self-funded growth, it
can allow much more rapid scale-up—for
example, through the ability to reach new
markets faster through the existing distribution
network of the acquirer, or through the ability to
invest quickly in significantly expanded
facilities. Compared to an IPO, it allows the
careful delineation of accountability and
performance. An IPO puts pressure on the
social icon to perform in standard, measured
terms familiar to a stock market analyst.
Through an agreement, a social icon can define
with its acquirer terms of accountability for its
performance that may be much better suited to
what it is trying to accomplish. For example, it
may set performance goals for the medium term
that emphasize expanding sales, with
profitability to follow with a lag—rather than
having to produce high profitability along with
rapid expansion from the start.
And, finally, a key virtue of acquisition
from the perspective of the mice is that it may,
if structured correctly, provide access to
managerial systems and capabilities that are
needed for going to and operating at scale that
would take the social icon years to build.
So structured correctly, an acquisition
strategy can effectively marry the brand
strength and "social technology" know-how of
the icon with the access to capital and
managerial capabilities of the acquirer. The two
organizations can be quite
complementary—indeed, when these
arrangements are going to work out well, they
have to be complementary—and that is why the
search for a partner should be deliberate and
careful.
Q: What is attractive about these
arrangements from the perspective of the
"elephants"?
A: Most successful large companies excel at
business planning, allocation of capital, and
execution. Many are also good at product
innovation in the small, continuous
improvement of their existing products, and
some are good at larger-scale innovation like
developing quite new products. But few are
good at exploring significantly new ideas and
radically different business approaches.
Empirically, it is hard for these more novel
ideas to compete inside large businesses in
business planning and investment allocation
processes against better defined, more
traditional innovations.
So, while it is not impossible, it is less likely
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that large and successful companies will be the
setting for the development of the kinds of
novel combinations of business and social ideas
that constitute the special social technology that
our small firms are inventing. This implies that,
if large companies want to get the benefits of
these new products and the potential growth of
these markets, acquisition may be the most
effective route and, indeed, it may be the only
effective route.
Q: How can elephants protect the
mouse's social value and brand integrity?
A: The more effective large companies have
recognized that preserving the social icon's
distinctive culture and business approach is
essential to preserving its key success factors.
Consequently, they retain a large degree of
organizational independence so as to prevent
"contamination" of the social technology.
This stands in contrast to the common
approach in acquisitions to integrate and
rationalize the assets into the new owner's
systems, structure, and culture. Some of the
specific mechanisms used in successful
mouse-elephant agreements include governance
structures and processes that give the "mice"
review and even veto power over actions by the
"elephants" that might jeopardize those
elements that are deemed essential to the social
values underlying the brand's integrity.
Retaining the social entrepreneur in the joint
venture is highly desirable. It is important for
the large company to recognize that they do not
fully understand or have mastery over the social
technology and therefore need to respect the
social icon's distinctive knowledge and
competencies. In fact, it is most productive to
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view the acquisition as an opportunity for
learning this new approach and identifying how
it can enrich the rest of the company's
operations.
Q: What are some obstacles that
companies considering these kinds of
acquisition strategies need to be mindful of?
A: Avoid assuming that these acquisitions
are the same as others. Failing to understand
and appreciate the social value dimension of the
mice's missions or failing to respect their
distinctive operating culture can create
incompatibility and conflict that will probably
cancel the courting or sour the marriage. Don't
look first for cost rationalizations, but rather
concentrate on the top line growth
opportunities. The former often disrupt the very
culture that is essential to the mice's success.
Q: So, in the end, do mice and elephants
live happily ever after?
A: The marriages we have looked at are still
in their early stages, so we will need to continue
observing how they unfold. Nonetheless, the
emerging evidence suggests that both the
virtuous mice and the wealthy elephants are
well on their way to attaining their respective
goals.
Scaling is occurring, thereby enabling the
social entrepreneurs to achieve greater impact.
Market penetration and positive financial results
are being achieved, thereby meeting the large
companies' aspirations. There have been bumps,
but it does appear that the partners are capable
of learning and adjusting, and are well on their
way to capturing the potential synergies.
From a broader perspective, these fusions
provide additional evidence that social
enterprise is becoming an integral and
embedded part of the marketplace and enriching
the avenues for businesses to generate
simultaneously commercial and social value.
Q: Do you think these kinds of deals will
become more frequent?
A: Definitely. For one thing, the number of
social entrepreneurs developing new for-profit
organizations with a social component is
growing and is likely to continue to grow. Once
their concept is worked out and proven, these
organizations will naturally want to seek scale,
both to capture the potential economic gains but
also to maximize their social value. Their
owners and initial investors will, just as
naturally, want to find some appropriate exit
point (or, at least, liquidity event). And, for a
variety of reasons, being acquired (through a
well-designed acquisition agreement!) may be
the preferred form of both scale and exit or
liquidity.
Large companies will continue to seek out
ways to enter into the emerging market
segments that place a premium on the social
dimensions that accompany the inherent
attractiveness of the innovative products. The
social entrepreneurs have mobilized a social
technology that is very difficult for the big
companies to replicate, so acquisition is an
efficient route into these new segments and
business approaches.
About the author
Sarah Jane Gilbert is a Web product
manager at Harvard Business School.
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