Connecting the Dots between Innovation and Leadership --"Rifle-shot" Acquisitions
Published: October 04, 2006 in Knowledge@Wharton

This was a great article from Knowldege@Wharton covering among other things the issues between innovation from within vs. acquiring innovation. The panel moderated by Michael Useem includes:

- C. Robert Henrikson, chairman and CEO of global insurer MetLife,
- Alex Gorsky, head of Pharma North America and CEO of Novartis North America,
- Seth Waugh, CEO of Deutsche Bank Americas
- Connie K. Duckworth, retired partner and managing director at Goldman Sachs,
- Wharton professor of health care systems Patricia Danzon
- New York City developer Jeffrey Katz, CEO of Sherwood Equities, a major investor in Times Square
- Wharton finance professor Peter Linneman, founding chairman of Wharton's real estate department

The panelists were also asked whether it is better to buy business innovation through mergers or acquisitions, or build it from the ground up.

According to Waugh, it's always preferable to create new businesses internally because a homegrown enterprise is likely to fit better in the existing corporate culture. New growth from within also helps keep the organization flat. However, he acknowledged that in order to stay ahead of the competition, there are times when it is best to do a highly targeted "rifle-shot" acquisition if an opportunity fits well into the parent company's overall portfolio.

Henrikson noted that his company has a long tradition of internal development as a mutual company. When the firm went public in 2000, MetLife opened the door to the possibility of more merger and acquisition activity but, Henrickson emphasized, it's talented managers -- not necessarily acquisitions -- that drive innovation.

For Katz, build or buy represent two very different business strategies in the real estate industry. Katz is in the build-from-within camp. In order to grow, he encourages contrarian thinking. If a developer waits to see what the crowd is doing, it's too late, he said. To balance that risk, however, he also takes a conservative approach to business operations. Meanwhile, he stressed the importance of agility to reshape development plans over the months and years it takes to bring them to completion.

Gorsky again noted his industry's sketchy record when it comes to massive acquisitions. "The area where it does make sense is in complementary technology with new technology partners." He pointed to Novartis's acquisition of Chiron Corp., a biotech firm with a specialty in vaccine development and production, as an example of an acquisition that fits well with Novartis's broader strengths