How to gain a true competitive advantage from mergers and acquisitions?

I’ve had the great pleasure to work with several b-to-c and b-to-b companies, both listed and privately owned, in the past 20 years. In all of them, organic growth has at some point been accompanied by mergers and acquisitions. One question that always arises after the transaction is: How can we generate a true competitive advantage beyond the obvious revenue or cost synergies?

I have come to identify three critical factors that seem to grow the success rate of any acquisition:

  1. People from different levels and functions of the company are involved when evaluating the synergistic opportunities and the potential of the M&A in the first place; the board members, on the other hand, should bear in mind that acquiring a company is always an alternative cost and that they are welcome to question the initiative,
  2. there is a long-term integration plan in place once the M&A is rolled out; management should understand that two cultures can eat the strategy for breakfast even faster than one, and
  3. C-suite understands the importance of strategic brand management; they understand that it makes absolutely no sense to acquire new brands without having a proper understanding of how the market is evolving and what kind of a role each of the brands in the portfolio will play after the transaction.

Rule #1: Involve people early on

I recently had a chat with a leader who experienced profound frustration eight months after an acquisition: “It seems like our people have not understood or internalized the synergy goals that we have communicated. They still all play in their old sandboxes acting like nothing has happened.”

I wasn’t too surprised to find out that the decision regarding the acquisition had been merely a C-suite activity. I strongly believe that it is possible to speed up the upcoming change by committing people to the case already before the transaction takes place. It is obvious that in most cases it is impossible to explicitly indicate what is going on. However, it makes sense to involve people in generating market insights that are relevant when evaluating the potential of the M&A. People will later on connect the dots and feel more committed to the decision. They will also feel more willing to help leaders put the actual integration plan into action.

Rule #2: Allow people time to adapt

I’ve been involved in many M&A projects and I’ve often experienced a situation where the integration plan has been mixed up with the concept of “first hundred days”. It is absolutely true that management needs to gain the trust of the employees immediately after the transaction, but it is equally important for leaders to accept the fact that merging different company cultures is a more demanding activity than that of signing the contract.

The integration plan is often designed to support synergy efficiency expectations. It consists of projects that aim at creating cost savings. These are typically related to harmonizing IT, HR and sales systems and processes. Good initiatives, for sure, but not something that give people a reason to come to work every day.

The newly formed company needs a common value base. In order to create one, there has to be enough time and space to discuss the existing cultures and how they relate to each other. What are the strengths and weaknesses of each culture? What do we get when we combine the best qualities of the two?

It is absolutely necessary to challenge all employees to co-create their common future. This is possible only if management is concerned with cultural matters such as ambitions, roles, power, values, beliefs and traditions. Three years is a minimum unit of time when rolling out an integration plan that consists of both tangible and non-tangible dimensions. An integration is a very complex undertaking. Making it happen requires a lot of facilitation, listening and following up.

Rule #3: Make sense of why the M&A has taken place

Most people feel that their primary job is to secure the commercial success of the services and/or products that the company produces and markets. This is why it is, in my opinion, crucial for management to carefully consider the role of the brands when acquiring a company: What are the roles and synergies of different brands and from where is bottom line growth expected to come in the long run? In order to smoothen the transition, I would recommend top management to prepare the first draft of a brand portfolio strategy already before announcing the M&A. This allows middle management to instantly bring in their market know-how and help top management finalize the strategy in a rapid manner once the transaction is done. Presenting the brand portfolio strategy in an easy-to-capture way to all employees helps integration work as it helps everyone to make sense of why the M&A has taken place.

In summary

M&A integration involves both operational and cultural matters. Dealing with these two different dimensions requires different skill sets and approaches. Rule number one and two are more attitudinal and behavior-oriented whereas rule number three requires both an analytical by-the-numbers approach and an understanding of how emotionally attached people are to brands. Leading the change by mastering both dimensions will grow the success rate of the M&A dramatically.

 

About Ia

Ia has almost two decades of experience in business development and branding. In recent years, she has held top management positions in renowned consumer goods companies such as Kekkilä and Fiskars. Since 2016 she runs a business of her own and works as a board member in B2B and B2C companies. Ia values entrepreneurship high and is a member of board in the Family Business Network Finland. https://www.linkedin.com/in/ia-adlercreutz-455bb6/

 About Co-founders

Co-founders is specialized in systematic brand innovation. Successful companies have a strong brand, a healthy company culture and a solid relationship with the surrounding world. It is our mission to help our clients master these three domains. www.co-founders.com

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