is your deal delivering? - btd consulting · inconvenient truths. most importantly, successful...

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Is your deal delivering? Identifying & accelerating an underperforming acquisition

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Allacquisitionsbeginwithwidespreadconfidencethatthedealwilldeliverbenefitsmorequicklyandreliablythananyotherrouteavailableatthetime.Yet,throughmarketboomsandrecessions,surveysconsistentlyshowsuccessratesremainingstubbornlylow,withonlyhalfofalldealsmeetingorexceedingmanagementexpectations12monthspost-close.Thetrendovermorethantwodecadesisnotencouraging.Whilemakingabigdifferencebetweensuccessandfailure,muchofthebestpracticeinacquisitionintegrationfocusesonthingsyouneedtogetrightattheoutset–amongothers,clarityofintegrationobjectivesandpost-dealoperatingmodels,detailedplanning,structuredexecution,attentiontopeopleandculturalissues,andassessmentofrisk.Itsuggeststhat,providedyousetoutontherightcourseandstarttheprocesswell,you’relikelytoarriveontime,onbudget,andwhereyouexpected,withminimalriskofproblemscroppingupduringthejourneyitself.Nowpleasecomeandjoinmeintherealworld:Rarelyisanacquisitionorintegrationacknowledgedtobefailing,orevenstruggling,untilatleastsixmonthsafterthecollectiveraptureofDay1.

Inmanycases,dealunderperformanceisonlygrudginglyacceptedyearslater,wellbeyondtheinfluenceofanintegrationteam.Infact,behindmanyorganisationalrestructuringandturnaroundprojectsweoftenfindanacquisition(orseveral)inwhichintegrationwasnotconducted,notconductedwell,ornotcompleted.

Sowhyaren’tunderperformingintegrationsspottedearlier?Moreimportantly,whatcanbedonetoaccelerateorrecoverthosethatdoneedhelp,atapointwhenthere’sstilltimetomeetdealexpectations?

Withtheexceptionofhigh-profilecasessuchasTimeWarnerAOL,veryfewmergersoracquisitionsfailoutright.Mostunderperformingacquisitionseventually‘workthemselvesout’intheeyesofthebusiness,butcanbesubjecttoseverely-extendedtimescales,reducedexpectations,andincreasedbusinessdistractionandcost.Onekeyreasonforthisliesinthefactthattheobservedsymptomsofastrugglingacquisitioncanmasksignificantly-differentrootcauses,Thiscanbeillustratedthroughsomecommonsituationsshownbelow:

Behind most organisational restructuring and turnaround projects we usually find an acquisition (or several) in which integration was not conducted, not conducted well, or not completed.

TYPICALOBSERVEDSYMPTOMSOFUNDERPERFORMINGACQUISITIONS

§ Declineinsales

§ Staff/managementdepartures

§ Product/servicequalitydrop

§ ‘Drift’ordelaysinexistingprojects/initiatives

§ Declineincustomersatisfaction

§ Increasedoperatingcosts

§ Reducedavailabilityofaccurate/timelymanagementinformation

§ Internalprocessesslowerormorecomplex

COMMONROOTCAUSESOFUNDERPERFORMINGINTEGRATION

§ Unclearoperatingroles&responsibilities

§ Poorly-definedprocesses,insufficienttraining

§ Unclearownershipforintegration

§ Insufficientresourcesforintegrationandoperations,integrationdeprioritised

§ Integrationprogrammeover-burdenedwithnon-criticalactivities

§ Improvedknowledgeofthetargetpost-closenotusedtoadjust/reprioritiseintegrationobjectives

§ Insufficientexecutivesponsorshipforintegration,lackof‘drive’vsotherpriorities

§ Changingexternalenvironment&prioritiesleadingtoinappropriateintegrationobjectives

§ Generalchangefatigue&demotivationamongstaffandmanagement


Severaloftherootcausesshownreflectanunder-appreciationoftheimpactthatanacquisitioncanhaveontheacquiringfirm,notjustthetarget.Notealsothatnowhereis‘culture’explicitlymentionedinthetableabove:Whileculturaldifferencescancertainlymakeorbreakanacquisition,cultureisinourexperienceoftenoverusedasagenericreasonfordifficultyorfailure.Inmostofthecaseswe’veobserved,culturalclashesareminorwhencomparedtomorefundamentalmismatchesinadvertentlydesignedintothepost-closeoperatingmodelforthecombinedbusinesses,eg:

§ Uncleardefinitionoftheroleandextentofthecorporatecentreinrelationtoa‘semi-autonomous’acquiredentity;

§ Neworganisationalstructuresestablishedwithoutclearly-acceptedredefinitionsofindividualrolesorresponsibilities;

§ Newperformanceexpectationsandobjectivesnotimplementedorexplicitlydiscussedwithacquiredgroups;metricsdrivingindividualperformancenotalignedtochangesinresponsibilityorstructures;

§ Changestostrategicprioritiesnotcommunicated,understoodorsupportedacrossthebusiness;

§ ITsystemsrolledoutacrosstheacquiredbusinessnotaccompaniedbychangestounderlyingprocessesandcapabilities(oftenseeninareassuchasorderprocessing,salesforecasting,andsupplychain).

§ Mis-alignmentofcorebusinessdata:“ourdefinitionofmonthlysalesisdifferenttoyours”;multipleversionsofthetruthproliferate.

Intheintegrationheatandmomentum,correctiveactionsoftenfocusonaddressingvisible,tangiblesymptomsratherthantheirrootcause:increasedcostcutting,acceleratedsystemsimplementation,morerigorousgovernanceandreporting,andexpandedcommunications.Whilesomeofthesemaystillhelp,theycanalsomissthemarkentirelyinimprovingintegrationperformance,andinsomecasesmakethesituationevenworse.

Integration–aworldofunintendedconsequences

Itisanunfortunatefactthatthehighvisibilityofintegrationprogrammesoftenpreventsrealisticreportingofintegrationperformance.Firmsstrivingforopennessandtransparencyoftenpublishregularintegrationstatusdashboardstoemployeesandsometimeseventothepublic.Oneunintendedconsequenceofthisishoweverthatthesedashboardscanbecomethelastplacetolookforaccurateinformation,asexpectationmanagementovertakesfactualrigour.Conversely,highly-politicisedorganisations,oronesinwhichrelationshipsareweakacrosstheleadershipteam,areofcoursenobetter,withbehaviourssuchaspursuitoflong-termhiddenagendas,finger-pointing,andinternalcompetitivepositioningcolouringthepresentationofintegrationchallenges;“let’sattackthepeople,nottheproblem”.Discovering–nottomentionbuildingconsensusaround–realprogrammeororganisationalrootcausescanbedifficultindeed.

Sohowcanyougenuinelyknowwhenanintegrationisperformingaswellasitcould?Andifnot,howdoyouteaseouttherealissuesfromtheconfusion?Ithelpstofocusonfourseparateperspectivesofintegrationsuccess:

1. Isyourintegrationprogrammedeliveringagainstclear,well-definedtargets?Thisisthemostobviousarea,andoftentheonlyonethatisregularlyassessedandreportedtoexecutiveteamsandboards.Integrationtargetsandmilestonesshouldofcoursebetrackedregularly;andanyconsistentslippageofmilestonesorreportingofmetrics‘stuckatred’areanobvioussignthatallisnotwell.Buttreattraffic-lightsummarieswithcaution:Evenwhenmilestonesandboundarylimits(eg’red’becomes‘amber’)arewell-definedandunderstood,adegreeofsubjectivityisstillinherentandcanbeinfluenced–ineitherdirection–bypoliticalagendas.Callmeacynic,butbeespeciallywaryofmilestonesandmetricsconsistentlysatisfied:Eventhebestintegrationprogrammesarenotsmoothsailingfromstarttofinish,and‘solidgreen’integrationstatusreportsusuallyreflectalackofrigour

In most of the cases we’ve observed, cultural clashes are minor when compared to more fundamental mismatches inadvertently designed into the post-close operating model for the combined businesses.


inassessingprogress,orworsestillpressurebeingapplied(formallyorindirectly/culturally)toavoidpublicisinginconvenienttruths.Mostimportantly,successfulintegrationdeliveryisnotthesamethingasstrongoperationalperformance,andinmanycasestheover-separationofthetwocanleadtocasesinwhich,asthesayinggoes,“theoperationwasasuccess,butthepatientdied”.Thisiswhyotherareasneedtobeconsideredwhenassessingtheperformanceofyourintegration...

2. Isintegrationcausingunduedisruptionto

operationalperformance?Therearetwoaspectstothisquestion:unintendedconsequencesoftheformalintegrationprogramme;andoff-recordactivitiesbeingconducted,usuallywiththebestintentions,byothersinthebusinessthatconflictwithintegrationordamagethebusiness.Moreoftenthannot,itistheaccumulationofsuchsmall‘processspanners’thateventuallygum-uptheentireorganisation–thiscanbearealblindspottointegrationteamsandexecutives.Examplesinclude:-Minoradjustmentstocreditcontrolpoliciescausingsignificantadditionalworkforsalesorfinanceteams;-Requestsfornewmanagementreportsordatawhichtheacquiredbusinessisnotreadyorabletoprovide;-Increasedcentralisationofpurchasingapprovalinjectingsignificantdelaysintothesupplychain;-Duplicateteamscommunicatingtocustomers(onanythingfromproductorpricingstrategytoordermanagementprocesses),leadingtoconfusionandillwill.Therearetwosimplewaystokeepawatchful,proactiveeyeonsuchissues:First,establishorconfirmthatsmallsetofcoremetricsthatcontinuallyassessthesmoothrunningoftheoperationalengine,egorder/invoiceprocessingthroughput,productorservicedeliverytimes,month-endfinancialreportingturnaround,andmonthlyoperatingcostsinspecificareas.

Secondly,askyouremployees!Amonthlyorquarterlyreviewwithkey,lower-levelprocessadministratorscanquicklyrevealhiddenproblems,suchgroupsalsobeingthebestsourceforquick-fixsolutionstoaddressthem.Thiskindofmeetingalsohastheaddedbenefitofincreasingengagementandteamworkacrossthecombinedgroup,whichleadsusto...

3. Arestaffandmanagementactivelyengagedinthejourney?Integrationprogrammeschallengethecommitmentofmiddleandseniormanagementacrossbothorganisationsunlikeanythingelse.Middlemanagersareusuallybeingaskedtosignuptothenewbusinessvision;continueperformingwellintheircurrentroles;establishinstantly-productiveworkingrelationshipswiththeircounterparts;anddeliverintegrationintheirfunctionalareas;allwhileignoringanyuncertaintyorbadnewsregardingtheirownpositionorcareerprospects.Thisisabigaskforanyone,onethatisisrarelymadeormanagedformally,beforeorduringintegration.Thisisoftenaccompaniedbyadisconnectbetweenmanagers’operationalobjectives(typicallysetpre-deal),andintegrationdelivery.Areyourmanagementincentivesproperlysettoensurebotharegiventherightbalanceofattention?Mostimportantly,checkthetemperatureofyourmanagementteamasoftenaspossibletoassess,andimprove,theirunderstandingandbuy-intointegrationstrategyandplans:Conductfrequentdirectdiscussions,discussongoingobjectives(integrationandoperational),andinviteparticipationatexecutiveworkshops(egtodiscusspost-closeoperatingmodeldesignorintegrationstrategy).

4. Arecustomersandotherexternalpartnersfeelinggoodaboutwhattheysee?Probablythemostimportantthingtogetright,bothfortheshortandlong-term,butagainsomethingthatisnotoftenbakedintointegration,eveninformally.Successfulintegrationsgivecustomersaclearunderstandingof:

Successful integration is not the same thing as strong operational performance, and in many cases the over- separation of the two can lead to cases in which “the operation was a success, but the patient died”.


-Yournew/updatedbusinessstrategy,andhowthisdealwillbenefitthem;-Howyourincreasedsizeordiversificationgivesthemopportunitiestorethinktheirsupplierstrategy–inyourfavour;-Thenewrangeofproductsandservicesprovidedbyyourbusiness,andhowthisimpactsthem;-Whatoperationalchanges,ifany,willbetakingplace,andhowtheywillbemanaged;-Whatchangestopersonalcontactswilloccur(egaccountmanagementorlogisticsteams),andwhen;-Whatadjustmentstheymayneedtoconduct(eginorderplacementorpayment)asintegrationproceeds;Customersurveysandregulardirectdiscussionsareasimplewaytoassessquestionssuchasthese,andwillencourageopennesssothatanythingblockingapositive(oratleastneutral)reactiontoyouracquisitionandintegrationprocesscanbedealtwith.

FacinguptoinconvenienttruthsInourexperience,mostsystemic,late-stageintegrationissuescomedowntoweaknessesinthefollowing:

§ Definitionormanagementunderstandingofintegrationstrategyorobjectives

§ Managementsupportofintegrationornewoperationalgoals

§ Clarityofroles,remit,orresponsibilitiesforintegration,orforthenewcombinedoperations

§ Bandwidthformanagersandtheirteamstorunthebusinessandconductintegration–integrationalwayscomessecond!

§ Awarenessorcontrolofallthemovingpartsofintegrationandhowtheyinterrelate,leadingtoworkstreamconflict,duplicationandintegration‘noiseoverload’

§ Top-downseniorleadershiptoowntheintegration‘mission’,activelysetpriorities,supporttheirmanagers,andbuild(andenforce)theinevitablecomponentsthatintegrationentails.

Nowforthebadnews:Theseweaknessesareallaboutmanagement,andtheirindividualorcollectiveabilitytoacceptthattheirownpastbehavioursoractionsarelikelytohavebeenpartoftheproblem.Italsohighlightsthefactthat,despiteeveryone’sbestintentions,manyoftheissuescanstemfrompracticesordecisionsmadewithintheacquiringfirmratherthananyrealorperceivedproblemsinthenewly-acquiredteam.

Putsimply,thesinglebiggestchallengeinacquisitionrecoveryorturnaroundisusuallyoneofsenioracquiringexecutivesnotbeingpreparedtoaccepttheneedforchangesintheirownfirm;andmakingthesechangesbeforepoorpracticeinfectsanewfamilymemberthatdoesn’tyethavethenecessarydefencemechanismstodealwiththem.Inanenvironmentinwhichmanagementisnotsufficientlyself-awareorpreparedtodothis,itismucheasiertofocusattentiononfailingITsystems,uncoordinatedprocesses,andpoorreporting.

Beforereadersprotest,consideranall-toocommonexample:thecaseofcomprehensive,robust,butcumbersomeinternalprocesses–andtheirsupportingITsystems–beingimposedonasmalleracquisition,oftenwithoutenoughconsiderationoftheirsuitabilitytotargetoperations,ortheabilityforthetargettotaketheseonwithoutincreasedtraining

The single biggest challenge in recovery or turnaround is usually one of senior acquiring executives not being prepared to accept the need for changes in their own firm; and making these changes before poor practice infects a new family member that doesn’t yet have the necessary defence mechanisms to deal with them.

EARLYWARNINGSIGNSOFUNDERPERFORMINGINTEGRATION

§ Integrationmilestonesdriftorslipunexpectedly

§ Slowdeteriorationofcoreoperatingmetrics

§ Proliferationofcontradictorymanagementdata,delaysindeliveryofregularorad-hocreports

§ Increasedtimerequiredforbasicprocesses,egfundingapproval,end-of-monthaccountpresentation,invoicing

§ Multipleunexpectedstafformanagementdepartures

§ Upwarddriftinmonthlyoperatingcosts

§ Increaseincustomercomplaintsand/orproductreturns

§ Reducedregularmanagementattendanceatintegrationreviewmeetings


andresources.(Intheworstofcases,allthistakesplaceattheverytimewhenresourcesarebeingreducedtomeetsynergytargets).Nowreflectonyourownexperience:Inhowmanycaseshavetheacquiringfirm’sprocessesbeeninvestigatedinsearchofasolution?Fixingtheresultingproblemsforthelong-termisasmuchaboutrecognisingandimprovingtheoriginalprocesses‘backhome’asitisaboutprovidingadditionalsupporttotheacquiredorganisation.

Addressingtherootcausesofunderperformancerequiressomehardconversations,andarealisticlookateveryone’scontributiontothesituation,uptoandincludingthatoftheCEO.Italsorequiresameetingofexecutiveminds(theverythingthatisoftennotinplaceinsuchsituations)aroundtheunderlyingissues.Takingthetimetodevelopasetofcrystal-clearobjectivesforrecovery,andensuringgenuineacceptanceofthem–andthecompromiseandpaintheyarelikelytoentail–isagoodfirststep.

Oncetheacceptanceforchangehasbeenestablished,dealingwiththeserootcausesrequiresthesamethingsseeninanyhigh-performingbusiness:strongleadership,cleargoals,andamutually-supportiveexecutiveteam;allofwhichleadstoanenvironmentinwhichactionsandimpactsareopenlyandrealisticallydiscussed,andinwhichconflictscanberesolvedquickly.Unlikethemyriadofinitiativesoftenlaunchedtoaddressindividualsymptomsofunderperformingintegration,thebestsolutionsoftenfocusonpeople,makinggooduseofmanagementdiscussionsandworkshops,supportedbyimproveddocumentationandcommunicationofrolesandpriorities.Thelatterisespeciallyimportantwhentheuseofexternalresourcesisrestrictedandeveryoneinthebusinessneedstopitchinandshareintheworkload.

Puttingeverythingtogether,asequenceofstepstoquicklyunderstandandaccelerateunderperformingacquisitionsmightlooklikethis:

Addressing these root causes often requires some hard conversations, and a realistic look at everyone’s contribution to the situation, up to and including that of the CEO.


Thisfocusonoperatingmodel-basedrootcauseanalysisandsolutiondesigndoesnotremovetheneedtoaddresssomeofthosekeysymptomsinparallel.Itdoeshoweverensurethattherightinitiativesarelaunched(reducingcostandmanagementdistraction),whileensuringthatanyimprovementsaresustainedinthelong-term.

Thesameistrueinintegrationasitisinmedicine:Treatingsymptomsalonemerelypostponesthepain,onlytoseethesameproblemsreturn–withinterest–sixortwelvemonthslater.Toensureyoureffortshavehitthemarkandstick,andtoidentifyanyremainingremedialactionrequired,makeapointofreviewingthespecificsymptomsandtheirrootcausesafewweeksormonthsfollowingtheirresolution.

ABOUTTHEAUTHOR

CarlosKeenerisaspecialistinM&AIntegration,andthefounderofBeyondtheDeal,abusinessthatprovidesintegrationstrategy,planningandexecutionsupporttoclientsworldwide.Inadditiontoleadingintegrationprogrammes,Carlosadvisesbusinessesoncorporateandacquisitionstrategy;enterpriseoperatingmodeldesign;integrationstrategy&planning;andturnaroundofpoorlyperformingacquisitions.

BeforeestablishingBeyondtheDeal,CarloswasaseniorconsultantatPricewaterhouse-Coopers,andaseniormanagerwithinAccenture’sCorporateStrategyandM&Apractice.BasedintheUK,Carlos’workhastakenhimacrossEurope,theUS,Africa,LatinAmerica,theMiddle-East,andtheFar-East.

[email protected]

BTDisanindependentspecialistfirmprovidingmergerandacquisitionintegrationsupporttobusinessesintheUKandaroundtheworld.

Things to consider for a quick turnaround of underperforming acquisitions

1. Review the impact of integration on the business – are your people, process and systems transplants killing the patient?

2. Be sure that your customers and suppliers understand and are on-board with future changes, both tactical and strategic – this won’t work without them!

3. Resist the temptation to focus on symptoms – is the root cause somewhere within your own business?

4. Rebuild clarity and focus on the end vision and integration objectives with the executive team.

5. Ensure those responsible for delivering integration (combining the businesses) have real incentives to do so.

6. Insist on zero tolerance with conflict and politics across the executive team.

7. Dig underneath failing processes and systems – which single individual has ultimate responsibility for this area, and why is it not a priority for them?

8. Review the suitability of core processes being transferred from host to target organisations, are they genuinely fit for purpose and value-adding?

9. Strip out integration noise and overload; ensure operational teams are focused on the minimum set of integration initiatives necessary to deliver deal benefits.

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is your deal delivering? - btd consulting · inconvenient truths. most importantly, successful...

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