Now that we are almost 2 weeks past the news of the move by Amplifon to acquire GN Hearing, I have a few thoughts. These thoughts are my own and do not represent the position of NAL, Hearing Australia, the Australian Government, or Mother Earth. And my main thought, explained below, is this: while vertical integration in hearing healthcare isn't new or necessarily transformative, there will be a short window of opportunity for true innovation that Amplifon’s leadership may or may not choose to take advantage of.
Almost everyone was surprised by the news last week, and what is causing people to go bonkers, of course, is that this would be the only time that a major hearing retail chain acquired a major hearing aid company rather than the other way around. When Demant announced they were acquiring German retail powerhouse KIND, there was a collective, “Okay, makes sense, good for them.” But a retail chain acquiring a hearing aid company: heads explode.
The fact is that we will have yet another vertically integrated hearing healthcare organization, which raises the obvious question: will the Amplifon acquisition of GN Hearing produce anything substantively different from vertical integrations that already exist in hearing healthcare, such as Phonak and Audiological Care under Sonova? Presumably, the benefits of the acquisition articulated in Amplifon’s press release have existed for years with Phonak and Audiological Care or Oticon and Audika. Retail benefit from insourcing and hearing aid R&D benefit from access to retail insights are nothing new. In an unambitious world, the acquisition will simply produce yet another vertically integrated business with all of the associated complications (e.g., hearing aid sales to non-vertically integrated hearing retail organisations). But there is an opportunity to achieve more.
There are obvious synergies available when one organization owns both a global hearing healthcare retail chain and a global hearing aid manufacturer, impressive opportunities for innovation in both devices and services that would be difficult to achieve without owning both. But Sonova has had all of those same opportunities for years and, to an outsider, has not seemed to have visibly acted on them in any transformative way. Its hearing aid and clinical service organizations have operated as strong but largely independent businesses under the same corporate roof, like KFC and Pizza Hut under Yum! Brands, sharing an owner without meaningfully influencing each other. But could they?
This is where innovation theory comes in. Large organizations are typically resistant to change, and the more successful they are, the more deeply entrenched that resistance becomes. Phonak and Audiological Care, for example, have had ample time to leverage their joint ownership to achieve something genuinely new but, from the perspective of an outsider like me, they mainly run the companies as business as usual, where 1+1=2 for Sonova rather than something greater. This is not surprising. It is the normal behaviour of mature organizations that optimize themselves for predictable performance. But there is a key that becomes available for a limited period that can temporarily unlock the door to innovation in even the most change-resistant organizations. That key appears when there is a major transition: a new CEO, a significant shift in market dynamics, or an M&A. And it is only available for a short time before the organization reverts to its usual behavior. Critically, that same key is now available simultaneously for two of the major hearing conglomerates.
For the soon to be formed Amplifon – GN Hearing, the acquisition will be a major inflection point that will provide a window of opportunity for significant new initiatives that would be difficult to accomplish in either organization under normal circumstances. But that time frame is limited. Once the companies get back to what they believe to be normal operations, they will likely revert to their usual resistance to change, making innovation from the synergies more difficult to implement.
At Sonova, the arrival of Eric Bernard as CEO represents another kind of inflection point. His restructuring presentation earlier this week explicitly highlighted a tightening of the link between hearing retail and hearing aid development, a virtuous circle of clinical insight informing hearing aid design which then enhances retail performance, and so on. This is the synergy that Sonova has always had available but not visibly accomplished. If they had, then that synergy opportunity wouldn’t only now be articulated as a strategic priority after years of joint ownership. The timing of Sonova’s strategic change creates an interesting parallel: Sonova’s new CEO is trying to unlock synergies from an existing structure, while Amplifon has the opportunity to unlock similar synergies through their acquisition.
There’s a lot of speculation on what will result from the Amplifon – GN Hearing deal, with doomsayers predicting lasting damage to the hearing health landscape, others worrying that Amplifon will meddle in the hearing aid business to its detriment, and others treating it as just another vertically integrated structure. For me, the acquisition creates an inflection point, which produces a short-term opportunity for innovation that would be difficult to implement at any other time. What we will find out over time is whether Amplifon’s leadership views the integration opportunity in the same way, noting that Amplifon’s press release focused mostly on financial benefits rather than leaning into transformational opportunities or an ambitious innovation plan.
So, this week we had Sonova tell us that they are going to finally leverage their years-long vertical integration to produce new innovation in hearing healthcare, while last week Amplifon told us of their intent to create a new vertical integration while not explicitly calling out the (short-lived) opportunity to leverage that integration to create hearing healthcare innovation in a completely new way. For me, the most interesting question is whether Amplifon – GN Hearing will end up like existing vertically integrated hearing health organizations or we will see true innovation coming from the unique opportunities that can only exist with jointly owned hearing aid and hearing retail companies.