The Acquisition of Innovation

by Brian J. Dooley

The pursuit of innovation remains one of the cardinal issues of business today. Innovation is viewed as the secret ingredient permitting companies to grow, to remain competitive, and to develop products and strategies capable of ensuring the firm's survival. Yet internal innovation is fraught with problems. Ideas abound, but the essential screening and testing processes are both costly and uncertain. Testing can be expensive and may not yield accurate results; screening may miss important technological advances. One method of avoiding these problems is to source innovation from outside the firm, typically through acquisition of a smaller firm with a demonstrated product or expertise in a desired area. Debate over the role of M&A in improving innovation has continued since the heyday of acquisitions in the 1990s, among policy makers, academics, and the public.