December 2012: The Other Butterfly Effect

Victor says acquisitions can be great successes or dismal failures, and firms must be vigilant and keep their focus on what matters.

When I was young, like all kids, significant periods of my life were marked by the current craze on which I was fixated. There were snakes, spiders and scorpions—both land and water—kites and paper airplanes, collecting pollen from tree-tops, and, in the wet season, tormenting the giant carnivorous African bullfrogs that would appear seemingly from nowhere after the first rains of summer, which would bare their teeth and hiss spectacularly when prodded with a stick.

One summer was devoted to my budding interest in lepidopterology. That was until I came to the realization that butterflies looked far more beautiful flitting from flower to flower than they did frozen against my polystyrene mounts, pinned indelicately through the wings and abdomen. I still remember the frustration of attempting to catch them without damaging their fragile wings, a task easier said than done for a cumbersome seven-year-old. That’s why, when I first encountered the term “butterfly effect,” I assumed—naively—that it was used to convey the transient nature and fragility of all things beautiful.

Now I know that the term, coined by Edward Lorenz and used extensively in chaos theory, describes how small, seemingly insignificant changes at a certain point in a deterministic non-linear system can, under certain circumstances, lead to large differences at a later point. Back to my childhood understanding of the butterfly effect: As this is the December issue, it includes the write-ups from the Buy-Side Technology Awards, which begin on page 31. They outline a number of significant acquisitions that have taken place over the last year, the two most noteworthy of which are those of Cadis and Algorithmics, now Market EDM and IBM Risk Analytics, respectively.

Acquisitions are a natural consequence of any maturing industry and are generally conceived for the good of all involved. However, they are not without their challenges, chief among which is the threat they can pose to the acquired entities. All that which sustained and nourished firms like Algorithmics and Cadis—their nimbleness, competitiveness, customer focus, resourcefulness, and market-leading intellectual capital—is at risk of being inadvertently diluted by their larger parent companies. Naturally, Markit and IBM will be aware of this—they have, after all, been playing the acquisition game for quite some time—but this industry is awash with examples of ham-fisted acquisitions that for one reason or another have led to the decline of outstanding, yet potentially fragile, technology firms.