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Buying Resources, Processes, and Values

Buying Resources, Processes, and Values

Buying Resources, Processes, and Values

Managers often think that acquiring rather than developing a set of capabilities makes competitive and financial sense. Unfortunately, companies’ track records in developing new capabilities through acquisition are frighteningly spotty. The RPV framework can be a useful way to frame the challenge of integrating acquired organizations. Every time one company acquires another, it buys its resources, its processes, and its values. Acquiring managers therefore need to begin by asking, “What is it that really made this company that I just bought so expensive? Did I justify the price because of its resources—its people, products, technology, or market position? Or was a substantial portion of its worth created by its processes and values—its unique ways of working and decision making that have enabled the company to understand and satisfy customers; develop, make, and deliver new products in a timely way; and to do so within a cost structure that gave it disruptive potential?”

If the acquired company’s processes and values are the real drivers of its success, then the last thing the acquiring manager wants to do is to integrate the company into the new parent organization. Integration will vaporize many of the processes and values of the acquired firm as its managers are required to adopt the buyer’s way of doing business and have their new-growth proposals evaluated according to the decision criteria of the acquiring company. If its processes and values were the reason for its historical success, a better strategy is to let the acquired business stand alone, and for the parent to infuse its resources into the acquired firm’s processes and values. This strategy, in essence, truly constitutes the acquisition of new capabilities.

If, on the other hand, the company’s resources were the primary rationale for the acquisition, then integrating the firm into the parent makes a lot of sense—essentially plugging the acquired people, products, technology, and customers into the parent’s processes as a way of leveraging the parent’s existing capabilities.

The RPV model can illuminate Daimler-Benz’s acquisition of Chrysler and its subsequent efforts to integrate the two organizations. Chrysler had few resources that could be considered unique in comparison to its competitors. Much of its success in the market of the 1990s was rooted in its processes—particularly in its heavyweight-team product design process, which could create classy new designs in twenty-four months. Chrysler’s values were also worth a lot, because it could design and produce a car with one-fifth as many overhead employees as Daimler. What would have been the best way for Daimler to leverage the capabilities it acquired in Chrysler? By keeping it independent and infusing Daimler’s resources into Chrysler’s processes and its cost structure. Instead, as Wall Street began its demanding drumbeat for cost savings, analysts with little sense for processes and even less for values pressured Daimler management into consolidating the two organizations in order to cut costs. We suspect that integrating the two companies will compromise many of the key processes and the values that made Chrysler such an attractive acquisition.

In contrast, many of Cisco Systems’ acquisitions worked well—because, we would argue, it has kept resources, processes, and values in the right perspective. Most of the companies that Cisco has acquired were small firms less than two years old: early-stage organizations whose market value was built primarily upon their resources, particularly their engineers and products. Cisco has a well-defined, deliberate process by which it essentially plugs these resources into the parent’s processes and systems, and it has a carefully cultivated method of keeping the engineers of the acquired company happily on the Cisco payroll. In the process of integration, Cisco throws away whatever nascent processes and values came with the acquisition, because those weren’t what Cisco paid for. On a couple of occasions when the company acquired a larger, more mature organization—notably its 1996 acquisition of StrataCom—Cisco did not integrate. Rather, it let StrataCom stand alone, and infused its substantial resources into the organization to help it grow at a more rapid rate.[26]

[26]See Charles A. Holloway, Steven C. Wheelwright, and Nicole Tempest, “Cisco Systems, Inc.: Acquisition Integration for Manufacturing,” Case OIT26 (Palo Alto and Boston: Stanford University Graduate School of Business and Harvard Business School, 1998).