8/14/2019 The Surprisingly Successful Marriages of Multinationals and Social Brands

1/2

RESEARCH & IDEAS

The Surprisingly SuccessfulMarriages of Multinationals andSocial BrandsQ&A with: James E. Austin and Herman B. Leonard

Published: December 15, 2008

Author: Sarah Jane Gilbert

What happens when small iconic brands

associated with social valuesthink Ben &

Jerry'sare acquired by large concernsthink

Unilever? Can the marriage of a virtuousmouse and a wealthy elephant work to the

benefit of both? Professors James E. Austin

andHerman B. "Dutch" Leonard discuss their

recent research. Key concepts include:

Such mergers pose unusually difficult

challenges because the merging entities are

often strikingly different in philosophy and

operating styles as well as in scale.

For the small company, an acquisition by a

larger firm can allow much more rapid

scale-up.

For "elephants" a carefully considered and

executed acquisition provides access to new

ideas and radically different business

approaches.

Large companies recognize that preserving

the social icon's distinctive culture and

business approach is essential to preserving

its key success factors.

These fusions provide additional evidence

that social enterprise is becoming an

integral and embedded part of the

marketplace and enriching avenues for

businesses to generate simultaneously

commercial and social value.

What happens when giant multinationalcorporations acquire relatively small companies

that enjoy iconic status as socially progressive

brands?

According to recent research out of Harvard

Business School, such marriages can be good

for business and good for society.

With an eye to providing guidance to

managers and stimulating reflection among

scholars, a new working paper by HBS

professors James E. Austin and Herman B.

"Dutch" Leonard looks at how and why such

acquisitions occur and how to manage the newcombinations most effectively.

"Can the Virtuous Mouse and the Wealthy

Elephant Live Happily Ever After?" focuses on

acquisitions of three social icons: Tom's of

Maine acquired by Colgate, Stonyfield Farm

Yogurt purchased by Danone, and Ben &

Jerry's bought by Unilever. (Similar deals

include L'Oreal's deal for The Body Shop,Cadbury Schweppes' acquisition of Green and

Black's, and Coca Cola purchasing a significant

interest in HonestTea.)

As the authors write, "Making a virtuous

mouse and rich elephant merger work is a

delicate, but potentially high-value undertaking

in terms of generating both greater economic

and social value."

Austin and Leonard agreed to join forces in

an e-mail Q&A with HBS Working Knowledge

to explain more.

Sarah Jane Gilbert: Your work examines

the concept of a company being either a

"mouse" or an "elephant." What are the

characteristics of the two?

James Austin and Dutch Leonard:

Actually, the key descriptor is not simply a

difference in size but rather in kind. We are not

referring to every small company, but only to

those that have become social icons because an

integral part of their distinctiveness and success

is rooted in the social valueand valuesthat

they bring to the marketplace hence our

nomenclature refers to "virtuous mice." And

there are a lot of large companies attracted to

these successful social icons, but not all"wealthy elephants" are capable of entering into

a successful marriage with this special breed.

Q: Why is acquisition such an attractive

strategy for the "mice"?

A: A carefully executed

acquisitionthrough a well-designed

agreementcan have many advantages over

other ways of going to scale.

Compared to organic, self-funded growth, it

can allow much more rapid scale-upfor

example, through the ability to reach new

markets faster through the existing distributionnetwork of the acquirer, or through the ability to

invest quickly in significantly expanded

facilities. Compared to an IPO, it allows the

careful delineation of accountability and

performance. An IPO puts pressure on the

social icon to perform in standard, measured

terms familiar to a stock market analyst.

Through an agreement, a social icon can definewith its acquirer terms of accountability for its

performance that may be much better suited to

what it is trying to accomplish. For example, it

may set performance goals for the medium term

that emphasize expanding sales, with

profitability to follow with a lagrather than

having to produce high profitability along with

rapid expansion from the start.

And, finally, a key virtue of acquisition

from the perspective of the mice is that it may,

if structured correctly, provide access to

managerial systems and capabilities that are

needed for going to and operating at scale that

would take the social icon years to build.

So structured correctly, an acquisition

strategy can effectively marry the brand

strength and "social technology" know-how of

the icon with the access to capital and

managerial capabilities of the acquirer. The two

organizations can be quite

complementaryindeed, when these

arrangements are going to work out well, they

have to be complementaryand that is why the

search for a partner should be deliberate and

careful.

Q: What is attractive about thesearrangements from the perspective of the

"elephants"?

A: Most successful large companies excel at

business planning, allocation of capital, and

execution. Many are also good at product

innovation in the small, continuous

improvement of their existing products, and

some are good at larger-scale innovation like

developing quite new products. But few are

good at exploring significantly new ideas and

radically different business approaches.

Empirically, it is hard for these more novel

ideas to compete inside large businesses in business planning and investment allocation

processes against better defined, more

traditional innovations.

So, while it is not impossible, it is less likely

COPYRIGHT 2007 PRESIDENT AND FELLOWS OF HARVARD COLLEGE 1

http://features/research.htmlhttp://features/research.htmlhttp://quincy.hbs.edu/cgi-bin/validator/check/referer?ss=1

8/14/2019 The Surprisingly Successful Marriages of Multinationals and Social Brands

2/2

that large and successful companies will be the

setting for the development of the kinds of

novel combinations of business and social ideas

that constitute the special social technology that

our small firms are inventing. This implies that,

if large companies want to get the benefits of

these new products and the potential growth of

these markets, acquisition may be the most

effective route and, indeed, it may be the only

effective route.

Q: How can elephants protect the

mouse's social value and brand integrity?

A: The more effective large companies have

recognized that preserving the social icon's

distinctive culture and business approach is

essential to preserving its key success factors.

Consequently, they retain a large degree of

organizational independence so as to prevent

"contamination" of the social technology.

This stands in contrast to the common

approach in acquisitions to integrate and

rationalize the assets into the new owner'ssystems, structure, and culture. Some of the

specific mechanisms used in successful

mouse-elephant agreements include governance

structures and processes that give the "mice"

review and even veto power over actions by the

"elephants" that might jeopardize those

elements that are deemed essential to the social

values underlying the brand's integrity.

Retaining the social entrepreneur in the joint

venture is highly desirable. It is important for

the large company to recognize that they do not

fully understand or have mastery over the social

technology and therefore need to respect thesocial icon's distinctive knowledge and

competencies. In fact, it is most productive to

view the acquisition as an opportunity for

learning this new approach and identifying how

it can enrich the rest of the company's

operations.

Q: What are some obstacles that

companies considering these kinds of

acquisition strategies need to be mindful of?

A: Avoid assuming that these acquisitions

are the same as others. Failing to understand

and appreciate the social value dimension of the

mice's missions or failing to respect their

distinctive operating culture can create

incompatibility and conflict that will probably

cancel the courting or sour the marriage. Don't

look first for cost rationalizations, but rather

concentrate on the top line growth

opportunities. The former often disrupt the very

culture that is essential to the mice's success.

Q: So, in the end, do mice and elephants

live happily ever after?

A: The marriages we have looked at are stillin their early stages, so we will need to continue

observing how they unfold. Nonetheless, the

emerging evidence suggests that both the

virtuous mice and the wealthy elephants are

well on their way to attaining their respective

goals.

Scaling is occurring, thereby enabling the

social entrepreneurs to achieve greater impact.

Market penetration and positive financial results

are being achieved, thereby meeting the large

companies' aspirations. There have been bumps,

but it does appear that the partners are capable

of learning and adjusting, and are well on theirway to capturing the potential synergies.

From a broader perspective, these fusions

provide additional evidence that social

enterprise is becoming an integral and

embedded part of the marketplace and enriching

the avenues for businesses to generate

simultaneously commercial and social value.

Q: Do you think these kinds of deals will

become more frequent?

A: Definitely. For one thing, the number of

social entrepreneurs developing new for-profit

organizations with a social component is

growing and is likely to continue to grow. Once

their concept is worked out and proven, these

organizations will naturally want to seek scale,

both to capture the potential economic gains but

also to maximize their social value. Their

owners and initial investors will, just as

naturally, want to find some appropriate exit

point (or, at least, liquidity event). And, for a

variety of reasons, being acquired (through a

well-designed acquisition agreement!) may be

the preferred form of both scale and exit or

liquidity.Large companies will continue to seek out

ways to enter into the emerging market

segments that place a premium on the social

dimensions that accompany the inherent

attractiveness of the innovative products. The

social entrepreneurs have mobilized a social

technology that is very difficult for the big

companies to replicate, so acquisition is an

efficient route into these new segments and

business approaches.

About the authorSarah Jane Gilbert is a Web product

manager at Harvard Business School.

HARVARD BUSINESS SCHOOL | WORKING KNOWLEDGE | HBSWK.HBS.EDU

COPYRIGHT 2007 PRESIDENT AND FELLOWS OF HARVARD COLLEGE 2