Strategy – Practical Lessons Regarding Mergers and Integration

Background

inavit iQ has been using the Business Value Model (BVM) as one of the frameworks for engaging with client systems, for many years. The BVM utilises the following logic:

• The realisation of specific business benefits (such as operating profit, top-line revenue and market share);
• is dependent on the creation of customer delight (loyal and satisfied customers) which is a direct result of the delivery of value-adding products/services;
• by high performing people;
• who work in a fit-for-purpose work environment (organisation capacity with respect to business process, organisation structure, human capital, information flow and technology);
• who are led and managed by capable, competent and credible leaders;
• towards a common goal and strategy; and
• that addresses the dynamics of the competitive landscape in an innovative manner that allows the business to compete in its external environment.

The Idea in Brief

Post-merger integration is a complex process. Having a clear and structured approach ensures that the inherent “messiness” of such endeavours will support the achievement of the strategic intent.

Although implied by the BVM, the latest version of the model explicitly includes two aspects, namely:

• Corporate Brand and Reputation; as well as
• Organisation Identity.

The reasons for highlighting these two aspects of the organisation are probably obvious to most if not all, and include:

• The significant global focus placed on the degree to which business, government and other institutions succeed in building, maintaining and enhancing their public image; and
• The attention is given to the changing dynamic of the workforce of the future.

These two factors, which are clearly interlinked, encourage (forces) all organisations to be mindful of not only what they do, but also HOW and for what PURPOSE. What may perhaps be less obvious, is that leadership at all levels of the organisation will also have to build different mindsets, headsets and skillsets to play their role within this changing external and internal context.

• Strategic Monitoring (and adjustment), which informs not only progress, but also where we need to adjust the desired end state and / or journey.

Strategy in context

As the focus of this article is primarily on the Strategy component of the BVM, it is appropriate to also very briefly share our perspective on strategy as a process. As is shown in the diagram, our approach is that Strategy is a dynamic and iterative journey:

• Beginning with Strategic Thinking, requiring a significant degree of insight into the external competitive landscape as well as internal context and capacity;
• Which informs the Strategic Planning process, essentially aimed at defining the desired end-state (the Business Benefits to be realised) and the journey to get us there;
• Strategic Alignment (often the least mindfully considered the aspect of Strategy) aimed at engaging the minds and hearts of all key stakeholders;
• Strategic Execution (often the key weakness of Strategy, particularly if it is treated as an event rather than a process;

An Approach to Mergers and Acquisitions

The current business landscape characterised by economic pressure and internationalisation, challenges many organisations to develop and maintain a sustainable competitive advantage. Within this context, executive teams often explore a merger or an acquisition to gain this advantage. In the case of mergers and acquisitions, the strategic thinking is usually informed by issues such as market penetration, forwards or backwards integration, product offering expansion and so forth.

Statistics show that 73% of Mergers and Acquisitions (M&A’s) fail due to ineffective integration and poor due diligence. Traditionally the central focus in an M&A is the financial key indicators. Very little time is spent on the non-financial risks and integration actions, which have been proven to be the key success factors of an M&A. People, culture and change navigation has been noted as the top reasons for integration failure. However, these aspects often receive limited attention during due diligence and integration processes.

The challenge clearly is to circumvent the risks associated with M&A’s and to leverage the benefits they should provide in terms of sustainable competitive advantage. For the purposes of strategic planning, alignment, execution and monitoring, we typically adopt the following framework with client organisations to ensure that the post-merger integration journey supports the actual strategic intent.

The project being reviewed and documented essentially applied two frameworks, namely:

• A generic process flow for merger and acquisition (M&A) journeys developed by Prof. Theo Veldsman and later refined by Dr Anton Verwey; and
• The inavit iQ Business Value Model.

Given that the primary focus of this particular case was on Phase 3: Physical Integration, the following are some of the key activities:

• Set up support structures / processes;
• Constitute a consultative forum of key stakeholders;
•  Design, appoint and mandate senior management teams (i.e. immediate reports to top management team) (=Integration teams)
• Take detailed stock of status quo:
•  focused, in depth audits of organisations as functional entities,
•  strategies, philosophies, policies,
• customers, markets, products / services,
• systems, resources, culture, people,
• best practices, key agreements, legal obligations;
• Generate and prioritise critical 90-120 days integration issues relative to strategic leverage and critical success factors;

• Identify issues to direct and guide roll out of integration process;
• Reshape and resize the organisation:
  – Build detailed organisational (delivery logic) design,
  – Assess and match employees,
  – Make appointments,
  – Deal with mismatches;
• Create new organisational design with newly appointed staff, using natural work teams as point of intervention, e.g.
  – role clarification,
  – get to know one another,
  – mandate and mode of working of team,
  – focused /accelerated training to address key / competency gaps;
• Harmonise key organisational processes such as:
  – authorisation levels, meeting structures/processes,
  – decision-making / control processes,
  – conflict resolution processes,
  – communication processes,
  – management information flows;

• Integrate critical policies systems, procedures, practices, agreements;
• Affirm identity, profile and basic strategic direction of the new organisation;
• Mobilise / realign resources around this direction; and
• Commence building new culture and climate.Although the impression may be that a post-merger integration journey is a linear process, the reality is that it is an iterative and somewhat “messy” journey. It would seem that, despite every effort to obtain as many facts during the due diligence phase as possible, it is inevitable that “technical” and “social” issues will arise. The value of a very structured approach to a merger and acquisition journey is therefore not that a “recipe” can be followed, but that there is great clarity from the start on what the key issues and their interdependencies are. This allows for a flexible and agile approach, always focused on key issues related to the desired end state.

In addition to client feedback, our own review of the project suggests that the following are key learnings for what may be applied in post-merger integration projects.

• The approach needs to align to the philosophy of integration, i.e. integrate versus merge versus acquire.
• An initial, clearly defined approach and methodology is really helpful to not only define deliverables, but also the steps within the process.
• The detailed planning done initially allowed for adjustments where necessary, knowing immediately what the impact of such adjustments could be.
• The importance of understanding the strength and level of complexity that can be generated by the leadership community that has to lead the integration internally. This is a guiding factor to a number of the approaches that we have adopted so as to align our processes to the level of capability of the leadership community.

• Having people on the team with the requisite level of capability and subject matter expertise created the ability to engage the client system at the appropriate level.
• The openness and willingness to collaborate, also with third parties, is mission critical but also assumes that such parties have a complimentary profile.
• Having a Project Manager that has the attention to detail and discipline to manage the entire team is mission critical.
• Creating a visible roadmap that was used as basis for all reporting with key stakeholders to contextualise the journey, build a coherent narrative and showcase progress.
• Setting up regular routines and rhythms with key stakeholders e.g. status meetings every second week, communication planning meetings weekly to create a project “drum beat” that managed expectations and created project visibility.
• Being practical and realistic in terms of balancing business as usual and integration priorities.