Tag: Strategic Planning

7 Keys to Unlocking Value from a Merger or Acquisition

When a merger or acquisition is well planned and properly executed significant value can accrue to the combined organizations.

The fact is, however, the results from most business acquisitions and mergers are disappointing. Management covets the gains that consolidation and economies of scale are expected to bring, but the great majority of M&A’s do not live up to their promise. This has been demonstrated by dozens of studies covering hundreds of companies across all industries.

Photo By: Sarah Joy

Photo By: Sarah Joy

Some thought provoking comments follow:
“70 percent of mergers fail to achieve their anticipated value.” - Weekly Corporate Growth Report

“Most [mergers] fail to add shareholder value-indeed, post-merger, two-thirds of the newly formed companies perform well below the industry average.”Harvard Management Update

“One-third of the transactions provided marginal returns, while only 17% provided substantial returns to shareholders.” About these figures, one expert said: “That’s a staggering number. That means those organizations were better off before they merged than after they merged.”
Best’s Review/Property-Casualty Insurance Edition

Why do the majority of M&A’s fail to live up to expectations? Mergers and acquisitions fail for a variety of reasons. First, a deal can fail because it was simply not a good idea to begin with. Management may get caught up in the ego-boosting idea of an acquisition, and try to combine two organizations that are better off left alone.

Other times not enough research is done beforehand. Maybe speed is thought to be essential. Maybe internal managers and external agents are discouraged from pointing out potential pitfalls, and a deal goes through without any serious examination and challenge.

Confusing and/or conflicting directions from organizational leadership often leads to poor execution on the part of those directly responsible for implementation.

Frequently there is a failure to manage the “human” or “cultural” side of organizational integration. By definition, all organizations include people; people with skill sets, uncertainties, self-interests, and needs. A great number of organizational integration efforts proceed with too little effort to integrate the people aspects of the businesses. When this happens, the likelihood of failure becomes greater. Study results seem to bear this out:

“By some estimates, 85 percent of failed acquisitions are attributable to mismanagement of cultural issues.”Industrial Management

“In acquisitions that do fulfill their promise — that really make two and two equal five — leaders paid a great deal of attention to the integration process and, not surprisingly, involved people at all levels of the process.”Academy of Management Executive

Overall, the costs of an unsuccessful merging of two businesses are significant; including higher expenses, lower morale, increased employee turnover, poor productivity, customer complaints, loss of reputation, and a decrease in “owner” value. Considering the great amount of work necessary to put a deal together, and the heady sense of optimism formerly experienced among the dealmakers, the financial cost of losing anticipated merger savings may be minimal compared to the loss of respect for leadership and general organizational turmoil.

Identifying a target business, structuring the deal and obtaining the financing are all important and difficult aspects of any M&A transaction. Arguably however, the most difficult part of any such transaction is the effort to combine two or more separate organizations into one, efficient organization that can deliver the positive operating results originally envisioned for the combined business.

Photo By: William Neuheisel

Photo By: William Neuheisel

The effort to integrate different organizations and successfully manage through the transition period generally requires actions above and beyond those required for managing normal business activities. If you find yourself to be part of an organizational integration effort, please consider the seven key imperatives identified below:

1. Leadership must articulate a clearly defined vision for the future of the combined organizations
2. Potential difficulties related to the blending of different cultures must be recognized
3. Both transition and ongoing roles and responsibilities must be quickly and clearly defined
4. The skills and abilities of the people involved have to be accurately assessed in a short period of time
5. Formal project management activities must be established to ensure thoroughness, timeliness and accountability
6. Leadership must provide a vehicle for “steering” the integration process
7. Formal, open and integration specific communication channels must be created and maintained for use by everyone involved to facilitate quick and informed decision making

The effective integration of two or more organizations requires vision, careful planning and open communications. When organizational leadership takes steps to ensure an effective integration process at every level of the business the chance to realize promised results, and build value added competencies throughout the new organization, will be greatly improved.

HR Strategy H&H Comic

The Critical Role of Human Resources in Strategy By Janet Hayes and Darren Hayes

A common problem faced by many companies today is the lack of involvement of Human Resources in formulating new strategies for a company in the process of transforming itself. HR departments may not get much respect if they are viewed as “feelers” who function only as administrators, so they may not be asked to the table when the company’s executive team is developing a new strategic direction.

The fact is that everything in a business is done through people. In order to get your employee base properly acclimated to any new strategic changes, HR’s involvement is an absolute necessity. People at all levels in the organization need motivation and some degree of counsel in order to adjust properly and quickly to critical changes.
To achieve the best results, companies should consider the following when developing or updating strategies:

1. The company’s leader (CEO or President) should ensure that the head of Human Resources is engaged in the strategy development process. In particular, the executive strategy team should look to the HR head to provide input on how the new strategy affects culture, compensation, structure and competencies and how the strategy should be communicated to the organization. The executive team should be counseled to value HR’s “feeler” perspective since employees’ reaction to the strategic change must be considered when planning implementation.

2. The HR representative must demonstrate the ability to think strategically and ensure that he or she is properly informed about the business in order to be involved in executive strategy meetings. If the HR representative has the means and ability to contribute, then his or her presence will be welcomed.

Consider this issue in relation to the Orchestra Model©: if the Conductors (executive team) decide to have a change in the score (strategy) it is necessary for the HR representatives (concertmasters) to not only pass out the score to the musicians (employee base) but to also be able to explain how each part is played. Being able to adjust who plays what parts and with what instruments lies more on the end of the HR reps who would be more familiar with individual employees and their strengths and weaknesses. In short: harmony can only be achieved if everyone plays their parts AND plays them together, and HR is critical to ensure a great performance.

HR Strategy H&H Comic

9 Expertly Tested Ways to Fail at Strategic Planning

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There are at least nine different ways to make sure everybody’s favorite activity, Strategic Planning, fails. Those nine, sure-fire methods are:

 

1st: Keep whatever you are planning a secret. The competitive environment requires that we keep our strategic thinking under wraps. We don’t want anything important to get out. Besides, what would the rest of the organization do with the plan if they had it? They don’t really need to know the big picture.

 

2nd: Conduct strategy planning with managers only. Take a group of top management personnel off to a nice site for a couple of days. After all, they are paid to think. If you involve other people you may have to contend with input you cannot predict or control.

 

3rd: Be polite & don’t rock the boat. Since you were invited to the planning meeting you must be important (see above). Now just keep quiet (plain common sense). If you keep your thoughts to yourself, you will not be associated with a failure. Besides, you don’t want to upset anyone.

 

4th: Advocate doing everything. This approach is very effective. Everybody agrees there are a lot of things to do, and it makes sense that we’d be better off if they all got done. So, put as many “strategies” as you can think of on a list, prioritize them, agree to do everything and go home. Everybody feels great; nobody really finishes anything, and life goes on.

 

5th: Let the plan implement itself. Talk about a “no-brainer”. Everybody feels pretty good after the planning sessions, even if they are a bit tired. Nobody is going to object if we don’t fill in all the implementation details. Let the responsible people take care of implementation themselves, later on.

 

https://www.flickr.com/photos/kvh/

Photo by: Kyle Van Horn

6th: Don’t measure anything. Another “no-brainer”. Some companies spell out their strategies all the way down to milestones, deliverables, resources, etc. Avoid this at all costs. Use these arguments to avoid wasteful effort:

 

You can’t measure what we do.” or; “Our business is different”.

 

7th: Do not revise the plan for any reason during the year. A lot of effort goes into strategy planning. Don’t revise your thinking just because business isn’t working out like you originally thought. How many times do you want to go through this anyway?

 

8th: Start over next year from scratch. When next year comes around enjoy the off-site meetings and start all over. Forget about last year.

 

9th: Don’t take time to plan at all. This is probably the easiest approach. After all, who has time for planning? Everybody claims they are already working as hard as they can. Should they stop working just to talk?

 

Some or all of the “nine ways” displayed above may be funny, may relate to somebody else’s business, or may seem all too familiar at your business. What is certain is that the wrong approach, or no approach, to strategic planning is an excellent way to reinforce “business as usual”. If however, you prefer improvement to status quo, don’t let any of the above different ways “…to make sure strategic planning fails” gain acceptance in your business.

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