Several factors have been revealed as key to successfully integrating an acquired business, according to a new report by Accenture, the management consultancy.
These 'catalysts' allow executives to ensure that synergies are captured and customers are retained while completing new business integration with speed and efficiency. Although mergers have become synonymous with big business in recent years, the current economic downturn has made it more difficult for senior executives to successfully integrate acquired businesses. Many are focused on running their existing businesses and have little opportunity to integrate new companies to the best of their capabilities. As such, the business case for the merger may be damaged.
Speed often affects the success of an integration, with a slow process often leading to a lack of synergies being captured, resulting in less impressive revenue stream increases. However, too much haste can disillusion customers and employees leading to a failure to meet projections and a drop in revenues.
So how can the right balance be achieved? From its research, Accenture has identified factors that it calls 'catalysts' to merger integrations.Although the research is largely focused on major deals, it also holds valuable lessons for dealmakers in the small to medium-sized M&A market.
Accenture's catalysts should come into play during the deal-making process and for a period of 12 to 24 months following the announcement of the deal, when most merger integration activity occurs. Different catalysts are key to different phases of the deal-making and integration process, with some catalysts affecting accountability and decision making during the deal closure process. While others are important, during integration delivery phase, and affect the allocation of resources to activities of high value.
Phase 1: Catalysts for use in the deal closure period
Catalyst number 1 - Fast decision making together with effective governance
The management consultancy says that the effectiveness with which activities are led, coordinated, prioritised and implemented is extremely important.
Establishing a central project management team can be a hugely useful addition to an integration programme, and is particularly worth considering in the case of cross-border deals.
To maintain accountability for achieving synergies from an integration, one person should be appointed to each set of synergies and should, ideally, be responsible for successfully achieving these.
In addition to all management being on board, all messages, designs and implementation plans for the integration need to be effectively communicated to stakeholders. Internal communications staff and, in the case of a larger business, an external PR company may need to be appointed.
As well as all stakeholders being fully informed as to the integration plan, their views also need to be conveyed and looked after by integration boards or committees to protect the balance of decision-making.
Catalyst 2 - A well-defined target operating model
Before the integration process starts, it's important to have a clearly-defined idea of what the new company will look like. This is key to successful integration.
Ensuring good solicitors are on hand to help with decision-making and implementation of the target model, in terms of the firm's legal structure, can also prove invaluable at this stage.
One of the most effective ways of developing an operating model is to hold workshops taking contributions from different divisional heads. These workshops should be carried out by a small central team who can hold responsibility for ensuring a speedy and comprehensive solution.
Operating model decisions need to be made regarding enterprise functions, target markets and customers, distribution, IT and operations locations and product manufacturing.
Catalyst 3 - Creation of the "keep list" and migration approach
It is imperative that a 'keep list,' detailing the aspects of the new firm that will help generate cost synergies, is established quickly.
Duplication of brands, products and IT systems can prove damaging when trying to integrate a newly acquired business while maximising revenue upturn. Therefore, streamlining and the introduction of efficient systems is key here.
The following steps can help managers to devise a working 'keep list'.
Consider growth, customer experience and profitability to put together a target range of brands and products for the new, combined business.
Decide whether the approach to migration will be based around market, customers or product.
If there are gaps between the services or products being offered by the merged firms, decide whether these need to be closed.
The creation of the keep list can be made a much easier process through the appointment of a 'task force' of advisors with various specialisms such as IT, products and business.
Phase 2: Catalysts for use during the core integration period
Catalyst 4 - Targeting and implementing achievable quick wins
This catalyst is all about achieving performance improvements in the first few months of business after deal. Although many business owners hope implementing brand new management, processes and systems will help generate 'wins', this is not always the case. In fact, making such major changes can delay the integration process.
Instead the following business areas should be considered in terms of their potential to produce quick synergies.
Property - Consolidating offices can quickly deliver cost savings
Procurement - Target suppliers for discounts, using the size of the new entity to negotiate discounts
Pricing - Revise pricing to attract new customers and hang on to existing ones. Free trials for new products can prove lucrative in the long run
Sales - Promote cross-selling opportunities
Planning quick performance improvements in some of the above areas, companies often achieve higher cost synergies than projected. This frees up cash to spend on closing gaps in other business areas like IT.
Catalyst 5 - Alignment of skills with integration activities
The integration of the new company is only likely to succeed if the right people are assigned to the right activities, equipped with realistic goals and targets. It is a mistake to assume that fundamental changes can be undertaken solely by operations and IT project managers.
Managers are wise not to assume that because someone is an expert in integration in one country, that they will be able to transfer their skills abroad or to a cross-border merger. Indeed, finding skilled staff in the external market to fill gaps can benefit the integration process.
Catalyst 6 - Effective management of country and regional differences
Particularly valuable to the integration process is the continual investment in the management and understanding of cultural, language, social and regional differences.
Central business variables that differ between cultures include how performance is rewarded, how risk is perceived and general management style. These differences need to be identified and managed early on in the integration process in order to avoid small issues snowballing among the newly joined workforce.
Workshops and 'away-days' are an effective way to manage cultural, language and regional differences among the workforce. Such workshops can help to establish a cohesive team and a set of actionable plans.
Taking on a number of bi-cultural integration experts can greatly aid the process of joining one workforce with another when integrating firms from different regions or countries.
Catalyst 7 - Engaging and training of employees to deal with newly acquired customers
According to Accenture, customers often report that the service they receive from companies during a merger transition is poor and that staff can lack training and product knowledge,
In order to prevent this from happening, staff need to be prepared for dealing with the customers of the newly acquired business. Another challenge is winning over the hearts and minds of the new staff, in order to instill a sense of loyalty and enthusiasm among them.
Accenture says it has never heard reports from employees that they receive too much communication. Therefore, the consultancy recommends that all lines of communication, between the people leading the integration and the new staff, should be kept very much open from the early stages.
Honesty is indeed the best policy when communicating integration information with the staff of an acquired firm. This helps to build trust, which is a vital element in preventing staff from becoming disillusioned or frustrated with their new employer.
A lack of consistency in the messages being transferred to customers can also creep in at this stage. To prevent this, integration leaders need to ensure that staff are aware of the targeted messages they need to convey to customers, both existing and new, to help create cohesion.
In conclusion, when integrating small and medium sized companies, as with larger integrations, speed and the retention of customers is of the essence.
Most relevant to the integration of SMEs is Catalyst 4. Achieving quick wins should be the focus of any small integration plan and success at this stage should establish a great foundation on which to base the future of the new, larger company.
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