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.
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