Article #1:  How to Improve the Odds of a Successful Post-Merger Integration

Executive Summary:

      

As the global economy continues to strengthen, there is a signficant increase in the number of mergers and acquisitions.  Some have been huge and highly visible, such as IBMs $34B acquisition of Red Hat and global deal sizes in the $100 to $300 Million range.

   

Did you know that between 70% to 90% of these mergers fail to live up to their expectations?  These are disappointing odds.  Why is this failure rate so high?  Why do companies pursue mergers and acquisitions if the risk of failure is so great?  Is there anything that can be done to improve these odds?

  

Most of the focus is placed on the strategic and financial side of M & A deals while not enough attention is on ensuruing operational synergy through effective operational efforts post deal closure.  As a result:

        

  • Executives overpay for acquistions -- there is a strong tendency to overestimate the expected business improvements when pricing the deal
  • Integrations are poorly executed -- Acqusitiions are integrated in the wrong way and integrations are poorly executed.  The integration efforts are undervalued and understaffed.  The tasks are commonly taken on by the acquirer's line managers who are already fully busy with their "day jobs" and who are unable and not incentivized to fairly appraise the capabilities and people of the acquired entity.

       

The Integration project is often already behind schedule when the deal closes when everyone is asking about the go-forward impact on strategy, operations and their jobs.  Without a clear, definitive answer, the best people often respond by starting to plan their departure.  To ensure success, Post-Merger integration requires a business to apply new resources to the integration effort or dedicate existing resources by prioritizing the integration above certain business activities.   Yet, the integration needs to be done while continuing to pay attention to the normal operation of the business.  Companies often start the integration effort with high hopes and lots of excitement and then watch the integration sputter as day-to-day business demands take over, with little incentive to change processes for the better.

            

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   Article #2:  We Need to Revive Operational Cost Management as a Critical Management Skill

   

Executive Summary:

   

So many companies today are achieving strong revenue growth, but without becoming profitable or generating cash flows to self-fund their operations.  Seeing this happen, I reflect on the valuable lessons I learned at the start of my career at General Instrument -- a major electronics manufacturer well known as simply GI.  Firms today could learn much from past operational excellence.

   

GI focused on Operational Cost Management to drive down costs relentlessly.  Unlike today's tech firms which too often seem to treat costs as if they can be brought under control at some future date, we exercised tremendous discipline over our cost at every stage of product development and commercialization.  For a Fortune 500 corporation, this was no easy task, yet we achieved this universally across our organization as an integral element of corporate culture.

   

Smart operational cost management at GI included five building blocks that should be revived and emphasized as a critical management skill today, for tech and non-tech firms alike.  These are:

   

  1. Maintain control systems
  2. Focus on margins
  3. Understand and reduce direct costs
  4. Eliminate waste throughout the enterprise
  5. Limit overhead build 

   

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For information on System Change's management services for assessment, transitional leadership and management consulting to execute a successful Post-Merger Integration and / or Operational Cost Managmement within your business, please contact us at jcarlson@systemchange.com or pfloyd@systemchange.com.