The Perils of Innovation by Acquisition

When capital is cheap, companies overdo it on M&A. Too many CEOs have fallen into the comfort zone of strategizing with bankers and external advisors, neglecting to build their internal capacity for innovation. Avoiding this trap requires a wholesale reinvention of a company’s governance, the goal of which is an integrated, internal innovation strategy where top-down and bottom-up innovation support one another.

For more than a decade, unprecedented amounts of cheap money have encouraged companies to outsource innovation through M&A. Too many CEOs have fallen into the comfort zone of strategizing with bankers and external advisors, scheming about which company to buy — and neglecting to build their internal capacity for innovation.  

In particular, leadership loses interest in internal innovation when interest rates are low because cheap money creates the illusion that acquisitions are easy. When funding is plentiful, executives can readily execute…

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This article was written by Bijan Khezri and originally published on hbr.org