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Management Side
Week of 23 November 2015: Innovation can be bought

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In fact, most of the time, that is exactly what large companies do. Earlier in this series I talked about the inertia of large companies and the inability for them to innovate. So, they do the next best thing--they buy it.

Sometimes it looks like they are buying a competitor to acquire the competitor's market share. Often times, though, this is really recognizing the competitor had a better way of penetrating the market and the acquirer is hoping to transfer that expertise to their own business. Sometimes it works, sometimes it fails.

In other cases, the acquisition is an outright purchase of innovation. The electronic/IT/internet world is full of examples like this. Even the giants, such as Apple, Microsoft and Google, who essentially started out as garage operations themselves (perhaps not Google), grew to a size that internal innovation was no longer cost effective. Better to let someone else take the risks and pluck the winners from the world, even at a premium price.

These types of practices also happen in pharmaceuticals and aerospace. Startups often occur and acquisitions are frequent.

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Why does this not happen in pulp and paper with such frequency? The answer is simple, I think. We are not being nearly as innovative as other industries.

If you look at the acquisitions in our industry, they are for core business reasons. When companies merge, it really is to purchase market share, reduce overhead burdens, and so forth. Mergers and divestitures take place for tax reasons (think of all the forests that have been stripped out of operating companies).

So why don't we have the garage style startups? Is our industry really that dull and boring and has everything really already been invented in our industry?

I don't think so.

I'll propose our problem is of a different kind. We are invisible to the younger generations, they don't see us, pay any attention to us, or think there is anything glamorous about the industry. They use paper every day, just like they use their phones and other electronic gadgets, but the old saying I use applies: "Paper is so ubiquitous that it is invisible." And, on top of that, the environmental activists have made us out to be the bad guys.

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What happened? It's been an interesting month ... Check out the latest edition of Strategic & Financial Arguments.

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It is to our detriment that we do not have garages full of young people trying to create a better paper. Why? It means our future as an industry is risky. For it means everything we do is subject to being eclipsed by another industry that figures out a way to do it better, cheaper and with more customer satisfaction. I'll even add tissue products to this category.

In fact, tissue products were one of the first grades to be affected by a technology from another industry. Up until the late 1960's, facial tissue was a large and growing market, especially in cold and flu season. Along came antihistamines--they had a noticeable effect on this market. This dent in the market is the reason KC and P & G came up with cubical "designer" boxes of tissue--trying to grow a market that had been snuffed out.

What is your take on innovation in our industry? Please take our quiz and let us know right here.

For safety this week, sometimes we need to stay with the tried and true when it comes to keeping our employees safe. Check out all innovations before you decide that the old must be discarded.

Be safe and we will talk next week.

You can own your Nip Impressions Library by ordering "Raising EBITDA ... the lessons of Nip Impressions."


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