Secrets to Successful Mergers and Acquisitions
Mergers and acquisitions are strategic methods to grow business, migrate into other channels of business, and are frequently intended to protect profitability while reducing operating costs. Quite often the approach assumes that revenue will be sustained or enhanced while operational support is simultaneously consolidated and reduced to minimize costs. The intent to protect and boost profit by maintaining revenue and slashing consolidated operational costs is a great theory, but what does it really take to put this into practice?
Mergers and acquisitions are often planned as strategic market expansion during periods of stable economic conditions, and frequently the result of rushed response to slash operational and support costs during the challenging economic periods. Regardless of the catalysts, there are some basic principles to govern the relative success of such a venture.
On a large scale, mergers and acquisitions occur when whole organizations combine, collide, or are absorbed. On a smaller scale, departments and groups of individuals within organizations are also being merged, acquired, and absorbed. Big or small, the basic rules for transition remain the same.
It is not as simple as combining processes between organizations, even if you believe that your processes will be the same simply because both organizations exist in similar markets. Processes are developed over time and adjusted based on the experience and creativity of the people managing them. Sometimes changes are not fully documented, and sometimes changes are introduced as exceptions to accommodate the requirements of individual clients. Dig deeper into processes that are similar and look for the nuances of differences that exist as exceptions within each organization. The methodology for managing the exceptions in each organization will have greater contribution to your success than the plans to manage the similarities.
Systems and technology often dictate processes and performance in each organization. It does not begin that way, but that is also an evolution within each organization. In the beginning, technology is introduced to automate manual processes, improving efficiency and accuracy. Eventually, individuals become increasingly reliant on business rules that are contained with the technology. As legacy systems evolve with the cumulative business rules, knowledge, and decisive methodologies of the organization, the technology often becomes more complex and dynamic. Merging systems is often a frightful task that causes the pocket-protectors of CIO's and CTO's to rattle as they tremble in trepidation. It is far better to migrate to a single platform, but then, which platform will best serve the consolidated business? When technology is done properly it enhances operational expertise. Identify and address the exceptions and the nuances within each system. The methods for managing the exceptions will have greater contribution to overall success than merely managing the similarities.
The most important factor to success is the people. People are the operations, manage and circumvent technology, and assure performance. In each organization there are varying degrees of experience, skills, and diverse talents. A faulty assumption is to believe that merging organizations will automatically create duplicity of headcount and immediately create an opportunity to slash the number of support staff in half. Think before running into the building with a hatchet. Measure the workload and efficiency of the individuals in each area, because the amount of work in some areas will remain exactly the same regardless if you are two separate entities or one. Quite often the automated processes can be consolidated, but the manual processes still required the same number of hands to perform them. Some of those manual processes may require a specific skill that has only been acquired by a limited number of personnel and would cease to exist in the event of their improperly planned demise. Obviously, headcount reduction is a primary reason for mergers and acquisitions, so make sure that you keep the right heads. Furthermore, make sure that you communicate effectively when the headcount reduction is complete or you will have the remaining employees worrying their heads about the next round of layoffs. Make sure that you keep the headcount that you need, the right heads, and that they are able to concentrate on the new organization without fear of future layoffs.
Financial processes are very important to the solvency of the merged organization and to your clients. It is an embarrassing reality that some organizations implement insufficiently tested substantial changes to financial systems which result in an inability to invoice clients for an extended period of time. Can you imagine doing work for six or eight months without the ability to generate an invoice or process compensation? Many people would think it impossible that an organization could stay financially afloat without the ability to properly manage finances. Unfortunately, this happens far too often in varying degrees. Some companies are unable to generate or substantiate accurate billing. Methods for applying credits, managing debt, managing cash flow, collecting past due amounts, and managing reconciliations vary significantly between organizations. Sometimes the methods for managing finance varies between divisions or departments within a single organization. When disparate systems and processes are merged there is typically a gap in processes and methodology that must be bridged. During the period of building that bridge, there are often isolated invoices and incidents that continue to age. If a benefit of a merger or acquisition is the anticipated ability to protect profitability, then make sure that adequate time and attention is devoted to the ability to managing billing and the books. Don't allow your good intentions to become the casualty of perpendicular accounting practices. Rather, create an accounting practice that runs parallel to both organizations during the entire planning and implementation of the merger, and allow at least six months of parallel processes to assure that the nuances of disparate practices have been addressed.
Oh yeah, did someone mention the customers? It is human nature for the process of mergers and acquisitions to turn the focus of both organizations inward. After all, both organizations are studying the similarities between the organizations and the exceptions. The internal comparison and contrast of organizations is a compelling distraction from the real intent of your business, and that is providing goods or services in such high regard that customers are compelled to give you money for them. If you stopped doing your business today and handed your products or services to your impending partner to take care of your customers, what do you think would be the result?
Within each organization there are relationships that are established with key clients and channels. Professionals within your organization have specific industry experience, client relationships, or knowledge that has been augmented over time. Some of these wonderful professionals will inevitably become the collateral losses of the consolidated organization. How will the combined organization fill that void of knowledge or relationship?
There are cultural nuances within each organization and characteristics of certain individuals that draw clients to do business with your organization. As with operations and systems, there will be similarities and there will be exceptions between the cultures, experiences, and people. For example, there are cultural beliefs that draw individuals to particular faiths and religions. As with faith and religion, it is often more the differences in beliefs and culture that create a chasm between people than the basic similarities between the religions. The strength of convictions from the cultural beliefs is more powerful than the processes of practices or the systems. Some of your clients have a strength of conviction for your brand, your service, or your company culture as expressed by your people. How will a change in your organization impact your most loyal customers? Don't worry about this customers who base purchase decisions exclusively on price, for those are not your loyal advocates. Worry about the customers who stuck with you through thick and thin because those customers had faith in you, your product, or your people. Those customers kept you in business, and those customers are the future of your business.
Think carefully about how the operations, systems, and billing from the new consolidated company will impact your loyal customers. Think about the impact of the merger on your brand equity. Will the brand remain the same, consolidated, or will it be lost? It takes years to build up a good name, and only seconds to lose it. Protect your name, your brand, and the relationships with your loyal customers.
An interesting byproduct of mergers and acquisitions are the assets. During the planning, most organizations focus on consolidating manpower, consolidating the financial records and bookkeeping, and consolidating facilities. All too often there is excitement to eliminate headcount and consolidate working space into a combined facility. The consolidated facility may need to house inventory, a portion of the consolidated manpower, and all too often, an abundance of office equipment. When two companies become one, and some manpower is eliminated in the process, what happens with the extra desks, cubicles, and plethora of office supplies? Reams of paper, binders, pens, staplers, and miscellaneous sundry items are accumulated in miniature vaults for general consumption. The stockpiles seem endless, at least until the day that they run out and there are no administrative assistants remaining after the merger to order new supplies. Panic ensues as awareness grows that nobody has the experience to order replenishing supplies. Frantic employees scavenge the decaying desks between discarded chairs that gather dust in cavernous cubicles, searching for the remnants of pens that have not gone dry. Does this sound funny or familiar? Plan ahead.
Every department should have a transition plan. There should be a plan for every transaction and every major client. There should be a plan for marketing, communications, and sales. Every person in the organization is impacted by a merger, so why not have a plan that encompasses every person in the organization? It sounds like a daunting task, but it need not be a difficult one.
Look back at all of the historical transactions for the last two years, internal and external transactions. What are the activities that support those transactions? What people in the organization supported those transactions? If you have documented systems and procedures, then you know what needs to be done, and that is half the battle. Typically the same transactions are repeated, can be categorized, and support some manner of routines. Identify the routines and the business rules that drive derivation, and you have completed much of your transition plan. Some of your transition plan will be the objective to keep certain routines and results untouched and unaltered. Some of your transition plan will be to duplicate the process or the results of the transactions. In any case, you have identified your starting point, so you can concentrate on what needs to stay the same, as well as what needs to change.
What was the strategy for each organization before the merger? Don't give up your ideas just because organizations collide. Merge ideas and strategies for the future, as well as the business of today.
How do you think that the competition will respond? Quite often the process of merging companies creates multiple unexpected voids. The voids are often a result of the exceptions that were not properly supported during the transition. Such voids may be planned and purposeful, because some areas of business may be intentionally jettisoned. On the other hand, some very lucrative and desirable business will be the casualty of the merger, and that is an inevitable circumstance. Some of your clients not care for the merger party or may have a conflict of interest with them, and that could impact one of your long lasting relationships. Whatever the circumstances that cause the lost customers, you will need a plan to replace them with additional clients.
It is not reasonable to expect that your lost customers will be compensated with the addition of customers from the merging organization. As each organization loses a few loyal clients in the process, the math works out to be something along the lines of two plus two equals three. The combined efforts of both organizations will be needed to fill the void and expand the customer base, so two plus two equals five. Your competitors will be looking for opportunities to steal business away from you while your attention is focused internally on your consolidation, so be prepared to leverage the combined strengths with your merged partner to overcome these competitive challenges and win new business that you did not have previously.
Mergers and acquisitions typically do not double revenue or cut operating costs in half. However, proper planning can introduce new ideas, talents, and customers into a very a very profitable mix. It is a business evolution, not a quick fix.
Words of Wisdom
"Romance is dead. It was acquired in a hostile takeover by Hallmark and
Disney, homogenized, and sold off piece by piece."
- Matt Groening
"There's no business like show business, but there are several
businesses like accounting."
- David Letterman
"When two men in business always agree, one of them is
- William Wrigley Jr
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About the Author:
John Mehrmann is author of The Trusted Advocate: Accelerate Success with Authenticity and Integrity, the fundamental guide to achieve extraordinary sales and sustain loyal customers. John Mehrmann is a freelance writer and President of Executive Blueprints Inc., an organization devoted to improving business practices and developing human capital. www.ExecutiveBlueprints.com provides resource materials for trainers, sample Case Studies, and educational articles. http://www.InstituteforAdvancedLeadership.com provides self-paced tutorials for personal development and tools for trainers. Presentation materials, reference guides and exercises are available for continuous development.
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