Evaluation and reflection on RELX's corporate strategy of high-technology acquisitions

Executive summary

The purpose of this report is to provide evaluation and reflection on the implementation process of corporate strategy by assessing the acquisition strategy of RELX, a global provider of information-based analytics and decision-making tools for professional and business customers across a range of industries. As a high-technology company, RELX employees over 33,000 people, of which 10,000 are technologists with half of those employed as software engineers. RELX consistently acquires other businesses as part of its overall strategy where it makes selective acquisitions in high-growth markets that support the company’s organic growth strategies and are natural additions to the existing businesses.

The process of strategy implementation is often the hardest aspect of strategic management, and in many cases, it is during the implementation phase that strategic initiatives fail. To assist with strategy implementation, Hubbard et al. (2018) have developed a model which considers the elements that are necessary to effectively implement strategy. This report reflects on these strategy implementation issues concerning capabilities, people, leadership and culture. In this regard, capabilities are discussed in the context of high-technology, or knowledge capabilities, which are relevant to the context of RELX.

Having understood these factors, the report provides recommendations which should be considered if an acquirer is to realise the full value in high-technology acquisitions. These recommendations include:

• Capability gap analysis
• Due diligence
• Retention of key people 

Company background

Founded in 1992 through the merger of Reed International and Elsevier, RELX Group (RELX) is a global company providing information-based analytics and decision-making tools for professional and business customers across a range of industries. Its businesses operate across four market segments:

• Risk
• Scientific, Technical and Medical
• Legal
• Exhibitions

Each of these businesses Ause data and analytics to provide solutions for their customers in their respective markets and industries. For example, the Risk business provides risk management, identity management, fraud detection and prevention, credit risk decision-making and compliance solutions to its customers (RELX, 2021). The company serves customers in more than 180 countries, has offices in 40 countries and employs more than 33,000 people – of which 10,000 are technologists with more than half employed as software engineers (RELX, 2022a). RELX is publicly listed on the New York, London and Amsterdam stock exchanges with a market capitalisation of USD54.2bn (RELX, 2022b).

Corporate strategy and M&A

Mergers and acquisitions (M&A) is an approach in which corporate strategy can be implemented and over recent decades it has emerged as an important strategy for achieving sustainable competitive advantage (Hubbard et al., 2018). Implementing M&A strategy has been found to be a faster approach to diversification rather than internal development, but for the strategy to be effective it should ‘add value to the combined businesses, over and above the value of each business’ (Hubbard et al., 2018, p.257). Therefore, the successful implementation of M&A is critical to the success of firms or businesses that pursue M&A as a corporate strategy.

According to its Annual Report, RELX’s main strategic priority is the ‘organic development of increasingly sophisticated information-based analytics and decision tools that deliver enhanced value’ to its customers (RELX, 2022c). This organic development is supported through transforming the core business, by building new products and expanding into higher growth geographies and adjacent markets, with the strategy supplemented by ‘selective acquisitions of targeted data sets and analytics, and assets in high-growth markets that support [the company’s] organic growth strategies and are natural additions to [the] existing businesses’ (RELX, 2022b).

Whilst there are few practical differences between mergers and acquisitions, given the importance of acquisitions for RELX’s corporate strategy, this report will focus mainly on the acquisition aspect of M&A with acquisition here referring to ‘the successful purchase by one organisation of enough shares in another organisation to obtain decision-making control over it’ (Hubbard et al., 2018, p. 288).

Motivations for acquisition

Taking the resource-based view of the firm, which is concerned with identifying the resources and capabilities necessary for a firm to maintain its sustainable competitive advantage (Lioukas et al., 2016), the motivation for adopting acquisitions as a method to implement corporate strategy should be related to ‘leveraging, developing or increasing the capabilities [original emphasis] of the organisation’ (Hubbard et al., 2018, p.289). Capabilities here refer to ‘the processes, systems or organisational routines that an organisation uses to deploy its resources for productive use’ (Hubbard et al., p. 107). Capabilities based on technical aspects are hard for competitors to imitate so are barriers to entry for other competitors. This is because in high technology industries, technological capabilities are tied to the skills of people rather than products (Chaudhuri and Tabrizi, 1999).

According to Ranft and Lord (2000), many acquisitions seek to acquire the technical expertise and skills of people and teams, or specific technologies, and are motivated by the desire of the acquirer to bolster their strategic high-technology capabilities. This motivation can be clearly seen in RELX’s acquisition of ThreatMetrix, a digital identity platform, which the Risk division acquired for £580M in 2018. According to RELX (2020), the acquisition added ‘digital identity capability as a natural complement to its existing robust physical identity suite.’ The press release also specifically noted the advantages to the business in integrating ThreatMetrix’s capabilities in ‘device, email and social intelligence’, which will help it provide both physical and digital identity solutions for the Risk business (RELX, 2018). The importance of RELX’s strategy of acquisition is clearly apparent in the comments of the Risk and Business Analytics CEO, who noted in the press release, ‘the acquisition is in line with our organic growth driven strategy, supported by acquisitions of targeted data sets and analytics that are natural additions to our existing business’ (RELX, 2018).

Strategy implementation issues

Once formulated, the next step is to implement the chosen strategy. However, it is during the implementation phase that issues arise which can cause the strategic initiative to fail. Indeed, research has shown that 70% of change initiatives fail to achieve their desired results (Miller, 2002). To assist with strategy implementation, Hubbard et al. (2018) have developed a model which considers the elements that are necessary to effectively implement strategy. These elements include environment, the business strategy itself, capabilities, systems, leadership, structure, people and culture. In understanding how the model works, they note that the strategy must be consistent with the capabilities of the organisation and the context of the external environment. They suggest that implementation issues ‘will clearly by influenced by [the] assessment of the environment, the strategy chosen and the current capabilities’, and in turn, the implementation elements ‘will themselves influence the strategy, capabilities and performance’ of the organisation that is implementing the strategy (Hubbard et al., 2018, p. 348). The following section will evaluate how the implementation elements of capabilities, people, leadership and culture influence strategy implementation.

High-technology capabilities

As discussed above, the corporate strategy of acquisitions in high-technology firms is motivated by the desire to obtain technical expertise and skills of employees, teams, or specific technologies so that the acquirer can enhance their strategic capabilities. However, implementation issues arise because these capabilities are most often situated in the knowledge of the target firm’s human capital (Ranft and Lord, 2000). Leonard-Barton (1992) extends this argument suggesting that knowledge-based capabilities reside not just in individuals, but in a complex combination of employee knowledge and skills, technical and managerial systems, and the values and norms associated with the various types of knowledge and knowledge processes. Therefore, because technological capabilities are built on a complex range of factors, simply transferring individual expertise in the implementation process of knowledge transfer during an acquisition is insufficient to guarantee success. RELX’s strategic focus on capabilities, and not products, will ultimately help to ensure the success of its acquisitions strategy.

People not products

In high-technology industries, such as RELX, people not products are the key to successful implementation of acquisition strategy. This is because technological capabilities are tied to the skills of individuals and their socially complex relationships. Therefore, retention of human capital is imperative to the success of acquisitions in high-technology firms because there is a tendency for these valuable employees ‘to leave during the post-acquisition transition period, resulting in the loss of their knowledge and skills’ (Ranft and Lord, 2000, p. 299). However, a firm’s valuable knowledge doesn’t just reside in the upper echelons with top management, but also elsewhere in the organisation, for example, in particular roles such as software engineers, or within teams or groups (Leonard-Barton, 1992). In high-technology firms, financial incentives have been found to be key to retaining these highly skilled workers (Balkin and Gomez-Mejia, 1990). With more than 10,000 technologists employed across the company, through its consistent acquisitions strategy, it can be assumed that RELX is cognisant of these types of challenges. For example, in its annual report, the company specifically notes that it has processes for reviewing, executing and managing its acquisitions strategy (RELX, 2022a).

Leadership and culture

Acquisitions are highly complex change events, and in many cases, do not lead to higher performance. These events represent major change for the organisation, so they generally create a great deal of uncertainty (Kavanagh and Ashkanasy, 2006). Therefore, during acquisition integration, the role of leadership is important in guiding the activities of the organisation’s people towards achieving shared goals (Junni and Sarala, 2014). This intent can be seen in Hubbard et al.’s (2018, p. 377) definition of leadership, which is ‘the ability to develop and articulate a vision of the future for an organisation or a unit of the organisation, to motivate others to buy into that vision and to get it implemented.’

Leaders can reduce uncertainty by choosing to implement the acquisition strategy quickly. This has the potential to provide a more stable structure, and through initiatives such as incentive systems, provide employees with more certainty around their career prospects and their ability to adapt to the culture in the new organisation (Schweizer and Patzelt, 2012). Acquisitions that are motivated due to acquiring high-technology capabilities should move quickly in integrating the target company into its existing structure. This is particularly important where the acquirer is absorbing a smaller entrepreneurial company (Bower, 2001) such as in the example of RELX’s acquisition of ThreatMetrix.

However, a quick integration can present problems for cultural adaptation, which is easier to achieve through a slower paced integration process (Ranft and Lord, 2002). This is due to dealing with differing company values, which can include shared assumptions about things like behaviours, rewards and recognition, and what the company ultimately stands for (Bower, 2001). If there is no alignment of vision and values, it is highly unlikely that the new people will be motivated to achieve the goals of the acquisition. As well as undertaking normal due diligence, the acquirer can also undertake ‘cultural due diligence’ to mitigate the risk of cultural misalignment (Bower, 2001, p. 100). The role of the leader in implementing acquisitions strategy is in leading change, so if leaders are to be effective change agents, they need to be skilled in change management practices (Kavanagh and Ashkanasy, 2006).

Key issues and recommendations

As can be seen from the above discussion, which examined corporate strategy in the acquisition context, the process of implementation might be the most difficult part of the strategic management process in the organisation. Acquisitions in high-technology industries add further challenge, so it’s important to approach acquisition strategy differently depending on the type of industry. For example, product life cycles for high-technology products can be much shorter than other industries, and the relentless speed of innovation can mean that products become obsolete, or that market share and profits cannot be sustained without continuous product development. Companies have the choice of developing in-house or they can look externally to purchase the capabilities needed to sustain its competitive advantage (Chaudhuri and Tabrizi, 1999).

When looking at why some companies succeeded and other failed, Chaudhuri and Tabrizi (1999) found that the companies that were successful in pursuing an acquisitions strategy focused on capabilities not products. Based on the work of Chaudhuri & Tabrizi (1999), there are several factors that need to be considered if an acquirer is to capture the real value in high-technology acquisitions. If followed, these factors should help mitigate against the risks and challenges in implementing acquisitions strategy, which we have discussed relating to capabilities, people, leadership and culture.

Capability gap analysis

Before any business or corporate strategy can be implemented, there needs to be a gap analysis. This ensures that the strategy is consistent with the requirements of its current and expected future environment; and its capabilities are consistent with the strategy being pursued (Hubbard et al., 2018). In the case of acquisitions in high-technology industries, this gap analysis helps to highlight which capabilities the organisation needs, so then the choice becomes whether to develop in-house or acquire another company (Chaudhuri and Tabrizi, 1999).

Due diligence

Once a target has been found, suitable due diligence needs to be carried out to ensure the candidate is a good fit for acquisition. Because the focus should be on long-term capabilities not products, it’s important for the due diligence process to go beyond the usual strategic, financial, and legal checks, and examine whether the target firm’s products reflect real expertise, so are not easily replicable (Chaudhuri and Tabrizi, 1999). As noted above, understanding cultural fit in the due diligence process is also important. In the case of the RELX acquisition of ThreatMetrix, the opportunity for a more thorough due diligence would have been supported by the pre-existing relationship between the two companies in which they already shared customers and understood each others’ products and solutions (RELX, 2022a).

Retention

Having acquired the target company, it’s critical that the acquirer retain key people, because capabilities are not worth anything if they walk out the door following the acquisition (Chaudhuri and Tabrizi, 1999). As discussed above, high-technology capabilities reside in key individuals, such as software engineers, so these teams – which are the source of the capability – should be kept together within the new structure. Retention of key personnel can be influenced through financial incentives and rewards, so that the employees in the acquired organisation have incentives to stay (Ranft and Lord, 2002). Additionally, it helps to keep the leader of the acquired firm in charge and resist the temptation to tell the newly acquired people how to run their operations (Chaudhuri and Tabrizi, 1999). Ultimately, for an acquisition to be successful, it’s important for leaders to sell the vision and give clear direction to show how the purchased company fits in to reduce uncertainty.

Conclusion

This report has sought to provide an evaluation of implementation issues in corporate strategy. This was achieved by examining and reflecting on corporate strategy implementation in the context of acquisitions with examples provided from RELX’s purchase of ThreatMetrix. It was argued that the process of implementation may be the most difficult aspect of strategic management, with acquisitions in high-technology industries adding further complexity due to product life cycles and the need to retain key people and teams, such as software engineers, as these types of capabilities reside in people not products. Finally, drawing on the work of Chaudhuri and Tabrizi (1999), several factors were discussed that need to be considered if an acquirer is to capture the real value in high-technology acquisitions. These include undertaking a capability gap analysis and comprehensive due diligence prior to acquisition; and retention and leadership initiatives that should be considered to make sure that key people don’t leave the organisation so that the desired capabilities don’t walk out the door.

References

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RELX. (2018). RELX Group announces definitive agreement to acquire ThreatMetrix. https://www.relx.com/~/media/Files/R/RELX-Group/documents/press-releases/2018/relx-acquire-threatmetrix.pdf

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RELX. (2021). RELX annual report and financial statements 2020. https://www.relx.com/~/media/Files/R/RELX-Group/documents/reports/annual-reports/relx-2021-annual-report.pdf

RELX. (2022a). RELX annual report and financial statements 2021. https://www.relx.com/~/media/Files/R/RELX-Group/documents/reports/annual-reports/relx-2021-annual-report.pdf

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