I’m in the world of tech and software, which is often a world of rapid growth and industry disruption. In fact that is often the point. Growth and innovation are usually followed by acquisitions and mergers of talent, capacities, and of course the customer base.
Sometimes this is done well, but more often than not it’s done in a way that is bad for customers, bad for legacy holders, and bad for the overall industry in which it happens.
THE UNEXPECTED DRIVERS OF GROWTH
Healthy companies who are leading in today’s markets don’t just put financial decisions first. They put customer service there, alongside innovation, leadership, and ethics. They do this because people want to work for companies that are about more than just profit. They want to inspire their clients and customers, and to lead in innovation. The most disruptive companies have, of course, done this the best: from Tesla and Apple to Uber and Salesforce.
At well-studied Apple, innovation and expert design run the show and customer loyalty is king. Apple’s leadership repeatedly shows a willingness to step out onto a creative and design edge, and more often than not their customers follow. The fact they consistently rank #1 in loyalty and repeat business should be raising more corporate eyebrows than it is. When ethical problems were discovered in their overseas plants, Apple took responsibility and headed off a PR disaster that might have caused a lesser company to flounder.
Neiman Marcus’ $4.8 billion in revenue comes from a brand that is unapologetically exclusive. Even as they’ve transitioned to a publicly-held company, they have kept their focus on quality above all else, and their customers have rewarded them with continued loyalty and increasingly robust business.
Patagonia Inc. makes its commitment to the environment as high as its commitment to quality and profitability, which has enabled them to carve out a $600 million niche in a crowded market—while being vocally critical of consumerism. They have also left a wake of significant philanthropy and a reputation for treating their employees with genuine respect.
GE self-reported deceptive and discriminatory credit card practices to the Consumer Financial Protection Bureau (CFPB) in 2014. Despite their massive size and their global reach in dozens of major sectors (include more than few high risk ones), they have had remarkably few run-ins with regulators. Which would be surprising, except when we remember that one of their guiding principles is to make money, and make it ethically.
WHEN PROFIT COMES FIRST, CLIENTS COME LAST
Companies must make money, of course. But when financial decisions come first, clients come last.
And that’s just in the honeymoon period. Every year, companies spend more then $2 trillion on acquisitions (to put that in perspective, France’s GDP is $2.8 trillion). And yet when the numbers are crunched and the data is analyzed, mergers and acquisitions fail a staggering 70-90% of the time. So somewhere between 7 out of 10 and 9 out 10 mergers cost the buying company money.
In my industry, compliance, consolidation happens just like it does everywhere else. The problem with consolidation is, in part, it can ignore the existing ethical contract with current clients. In other words, a company might choose Vendor X because they’re fundamentally different from Vendor Y, only to wake up one morning and find that Vendor Y has acquired Vendor X. When this happens, there’s no denying that financial decisions came first. A few people win, but far more lose—and an industry can get a black eye in the process.
The reality exists that M&A activity often comes at the expense of the buying and acquired companies’ customers. Disruption occurs within both organizations as operations are reconciled, pulling focus from customers and their needs. Customers along for the ride may see less responsive service, benefit from fewer product enhancements and endure a changing of the guard as account managers are reorganized. Worse yet, they may be on borrowed time with their legacy product, as it’s both expensive and inefficient for a company to sell and maintain different platforms simultaneously. This is all to say nothing of the distinct possibility that a company whose growth strategy is through M&A will likely continue to grow by similar means; unfortunately, customers frustrated by a current or previous purchase can and should expect more of the same in the future.
We at Convercent are a tech company. It’s not that M&A are a bad thing, but they should always be considered in a larger context. We’re in the business of ethics, where doing the right thing is about more than just avoiding getting punished. Doing the right thing is how you recruit the brightest talent, develop deep relationships with your clients, and know that you’re on a path of sustainable growth that makes everyone win.
Our relationships matter—internally, with our employees, and externally, with our clients. We partner with clients for the life of our contract. The quality of what we deliver and how we deliver it matters. And we always make financial decisions that are in full alignment with our ethics, our mission, and our larger commitments.
THE PARADOX OF GOOD BUSINESS
When profitability is tied to a larger company mission it helps to ensure profitability and sustainability. You commit to the very things that cause a company’s success—innovation for Apple, quality for Neiman Marcus, sustainability at Patagonia, and ethics at GE. As company leaders, we would do well to remember that we need to focus on more than just profits. Because at the end of the day, the foundation of anything worth building isn’t money—it’s people.