A number of companies in the technology industry are using acquisitions to expand their operations. This strategy has proved quite successful for the likes of Oracle, Adobe Systems and IBM (Pressman, 2009).
After searching through the online Library I have come across two such companies which have significantly strengthened their businesses via acquisitions. These two companies are IBM and Telkonet.
IBM used to be a hardware vendor. But now it has used acquisitions to expand itself into software and IT. Recently IBM acquired Cognos (produces performance management software), Rational (solutions for programmers) and SPSS (leading producer of statistical analysis software).
IBM paid $1.2 billion dollars for the SPSS deal (Pressman, 2009).
In marketing terms, this strategy is known as horizontal integration. The benefits of these acquisitions are evident from the fact that IBM has been able to enter into high growth areas and into businesses that allow for higher profit margins (cited in Pressman, 2009).
So the core benefit to IBM is that of the breadth of its operations. Firstly it is a good risk management technique to diversify and secondly the newly added companies provide fuel to the company for growth in its core operations as well.
Telkonet on the other hand is inclined towards both horizontal and vertical integration. The distinguishing feature of Telkonet as a telecom company is its non-traditional business model. The company is serving a broad customer base through a number of subsidiaries, some of which it acquired recently. To name a few, Telkonet acquired EthoStream (provides internet access to the hospitality industry) and Smart Systems International (provides in-room energy management solutions to the hospitality industry. (Myers, 2007)
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Telkonet’s acquisition strategy is simple. It is interested in acquiring firms in the related areas. For example if we look at its recent acquisitions, it dawns upon us that Telkonet is strengthening its presence in the hospitality industry. Both EthoStream (ES) and Smart Systems International (SSI) serve the hospitality industry.
Furthermore Telkonet has been innovating and developing its technologies. It has the ability to easily integrate its core technologies with that of its subsidiaries. Telkonet iWire system is already helping subsidiaries like ES and SSI achieve greater efficiency in their operations.
After analyzing Telkonet’s acquisition strategy, we can easily say that it is a strategy of integration and combining forces with it’s acquired subsidiaries to achieve a situation where the “whole is greater then the sum of individual components”. Through such acquisitions, it is not only strengthening its presence in its core markets but also increasing the breadth of its operations and the efficiency of its systems.
Comparing IBM and Telkonet, we can see that the benefits gained by both of them are almost similar in nature although they both follow different acquisition strategies.
Finally, although the companies I chose for my analysis were successful in their acquisition strategies, this is not always the case. Many times companies waste their resources and efforts in acquiring a company which was a past success but might have no scope for future (Pressman, 2009).
This is especially the case with firms in the dynamic IT industry where technologies can become obsolete in a very short amount of time, even days perhaps. So we must be cautious in evaluating firm’s acquisitions efforts. The results of a particular acquisition and its overall effect on a business should always be analyzed with a long-term perspective.
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References
Meyers, J. (2007).
The Power of Invention. Telephony, 248(9), 38-42. Retrieved from Academic Search Premier database.
Pressman, A. (2009).
Oracle Has Customers Over a Barrel. BusinessWeek, (4147), 70. Retrieved from Academic Search Premier database.
