Is a merger or acquisition on the horizon for your organization? If it is, you have company. Earlier this year, PwC reported that, in Canada alone, M & A activity in 2010 was at a 5 year high with 3,001 deals worth $155 billion being made (click here to read more). It is projected that M & A activity in Canada, for example, will be even higher in 2011. The PwC report states that because organic growth prospects within North America will remain limited in 2011, many well capitalized corporations and funds may find that M & A is their best, and only, tool for growth over the next while.
Companies regularly enter into mergers and acquisitions to create significant increases in enterprise value, however, this value can only be realized when M & A’s are managed right. Unfortunately, the statistics suggest that organizations with recently transacted deals achieve integration success only 30% of the time (click here to read more). This means that 60 - 70% of M & A’s don’t demonstrate their expected value. This is largely due to the fact that the post-M & A company isn’t adequately integrated and aligned, preventing it from producing results at, or above, anticipated levels.
The primary driver of sub-optimized M & A results is, quite simply, declaring success too early in the process (i.e. when the deal is closed) and then assuming that the expected performance results will be achieved automatically. Taking this approach avoids the reality that successful M & A’s require clearly understood and actionable post-M & A strategic and integration plans (including plans for operations integration and optimization, people/culture integration, and customer care), as well as an approach for performance measurement, learning, and plan adjustment.
While organizations can look very similar at a high level (i.e. they play in the same sector, serve the same or complimentary markets and customers, and produce the same/similar products and services), the customer value proposition, processes, technology platforms, and organizational culture that produce the business results in each company can be very different. Lack of attention to these critical details can translate into staff turnover, loss of institutional and customer knowledge, sub-optimized operational performance and cost structures, and customer acquisition and retention challenges. Sooner than later, all of these problems will show themselves in the company’s top and bottom line financial performance results.
Based on my own personal experience with M & A’s (with both an acquiring company and an acquired company), I have come to see that the key to realizing the value of any M & A activity is to follow these very important steps:
(1) Define the business strategy for the post M & A organization and translate it into actionable, operational terms so that ALL employees and stakeholders can quickly understand the objectives of the “new” company
What is the customer value proposition of the post-M & A organization? How is the “new” organization going to work in an integrated way to produce results? How will people in the “new” organization work/what are the organizational values? What skills and capabilities do people need and what role will the organization play in developing its people?
These questions and more must be answered and clearly spelled out for the post-M & A organization. It is important to do this in an acquisition scenario and absolutely critical in the case of a merger where a hybrid entity is the result.
The best tool for translating the post-M & A business strategy into understandable and actionable terms is a strategy map. This one page picture makes the “new” organization’s core/operating values, customer value proposition, and theory of how the organization will work together in an integrated way to produce desired business results clear to all employees – regardless of which organization they came from. When the strategy map for the new organization is created with a clear vision for the new organization, strong leadership guidance, and with participation by employees from both organizations, the result can be the beginning of a cultural shift that translates into the achievement of projected M & A value sooner than expected.
(2) Create a cascaded integration strategy and plan that is aligned with the post-M & A business strategy and is guided by a time-bound integration vision
Completing a successful integration process will be critical to achieving the post-M & A business strategy – a good approach to ensuring success is to create an aligned integration strategy that defines specific integration objectives and delivers desired results as defined by a time-limited integration vision. By using the business strategy as a guide, a cascaded integration strategy, including objectives related to, for example, key cost realization, customer retention, process optimization, people management, and cultural integration can be defined and diagramed using a strategy map. Producing an aligned integration strategy map gives the organization specific integration objectives to achieve that will contribute to the overall success of the business – not work against it. This is a critical factor in realizing the projected value of a M & A.
Once an integration vision and strategy map have been created, a gap analysis exercise can help define the projects required to successfully execute integration objectives and achieve the integration vision. Typical projects include operational process integration and re-engineering, technology platform integration, targeted customer retention initiatives, customer and employee communications, employee skills and capabilities development, and organizational change management initiatives – all designed to close strategically identified organizational gaps.
(3) Measure Progress, Impact, and Success, Learn, and Make Required Adjustments Along the Way
In the post-M & A world, it is critical to measure the execution of both the business strategy and the integration strategy. In my experience, the best tool to do that is the balanced scorecard. With its capabilities as a management tool (and process), a communication vehicle (communicating what’s important and how the organization performing), and a catalyst for learning and improvement, the balanced scorecard allows an organization to make sure that it is taking all the right steps to integrate the organization and ensure that their integration work is translating into the desired business results and value achievement.
While some organizations only measure their financial results post M & A, many will leverage the BSC to keep their eye on the performance of the drivers of both the financial results and their business strategy. Adding an integration balanced scorecard provides organizations with the intelligence they need about the impact of their integration efforts on the business strategy and gives them a set of root cause measures they can explore when the business strategy’s strategic objectives are underperforming.
At the end of the day, successful M & A’s happen when business leaders and organizations: (1) take the time to clearly define and communicate where the new company is going and how business units, functions, and employees must work together in an integrated way to produce results and create value; (2) define the roadmap/action plan to get there; and (3) measure and manage for success in “real time” using an aligned set of strategically relevant indicators.
Leverage proven tools such as the strategy map and the balanced scorecard to ensure true M & A success and to capture the projected value from your M & A activities.
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