Growth by Acquisition…doing the math

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As your company works out its growth strategy and assesses the options for inorganic growth through acquisition, the headline expectation of benefit may not be as assured as the simple math that you may see. Let’s take a simplistic view of an Acquisition or a Merger and try to answer the question chalked in the panel.

Talk of acquisition creates a special atmosphere in the buying company, sometimes both companies. Initially through the Executive Management team close to the deal, word spreads to Middle Managers and Employees.  It’s not always a good thing for Employees as you start to look towards synergies, but for now let’s take a pure and positive corporate view of this.

Whether you are going for Horizontal acquisition (Market Share) or Vertical acquisition (Value Chain), there is always due diligence, there are always lots of advisors, but the target Company should add something to your alchemy. What Executives are looking for in most cases is a simple Venn diagram for (a) the overlap, (b) the differentiated access to revenue and profit and (c) the cross selling opportunities of the non-overlapping areas.

So an expectation is set, established and the business case agreed. Sale! (Gavel banged, deal!). The expectation?…look towards the simple sum… ’1+1 = ?

The optimist may add up all the benefits and get to an answer of ‘2 + x‘. Value Add thinking. This is how we should be thinking, especially when trying to get out of a recession.

The pragmatist may say that it’s a simple investment, so ‘what have we bought?’ The answer is ‘2‘.  They have a model, we have a model, we are both continuing to looking after our own customers and the Value will be that we are a bigger player in the market and we may have more control of the value chain.

Then there is a pessimistic view. Your overlap causes confusion in your portfolios, customer dissent and you end up with a compete operating model with complexity. It will cost you revenue, profit, market share and your Talent will leave you. Therefore the answer in this case, simply stated is ‘2 – x‘.

In each case x can represent the integration benefit (+) or risk (-)

So what is the real difference between optimism and pessimism in the Acquisition world? Here are my thoughts on what can happen even though everyone is trying to maximize a result.

As the scouting is conducted, there are ‘Plays’ that are considered of the value of acquiring another company. The Plays get valued on a set of assumptions. The assumptions are tested again in the due diligence. The results give the Executive Team and Shareholders the confidence that this is the ‘strategic fit’ for the investment. We can ignore Acquisitions that are made for turnaround purposes at this stage, as they would not necessarily be looking at long-term growth, but pure investor value. However the principles that follows may still apply to these cases.

The purchase is made, the champagne is opened, the PR announcements are broadcast and the expectation is set by the CEO to the employees that this is a “critical investment for our future” and we will be in a “period of transition” to merge the companies activities.

If both Companies have done their homework, the first week after the purchase should see Post-Acquisition Integration teams, fuelled with your best Talent (not necessarily Senior, but empowered people who understand how both Companies work) starting a series of planned activities. They should be looking to work out how you bring capability together, what you keep apart and what programmes are required to drive the synergies. Each functional area should have a Play for what is the optimum solution to meet the investment and corporate strategic aims. Nepotism and Stovepipes should be highlighted and removed and a series of Integration Metrics agreed quickly of what ‘Good’ looks like. So on a route like this…1+1 = 2 + x is a possibility.

Let’s take a look now at what can also happen to get a reduced return.

We start with post-Acquisition Integration. You agree the merger principles, but leave the room without a plan and an end state. No plan means that you have limited ownership and you may not have executive sponsorship. The two companies continue to perform to the expectations of what they are today, with probably a little more load to Middle Management day jobs. At best you get to 1+1 = 2

The worst scenario is that you have a low intensity and low immediacy in your integration plans and the organisations start to compete. Employees and Managers get caught in the battle for delivering their own objectives and invariably, some of these Managers will fail. The lengthening process of Integration creates a noise for Managers and the finger of blame is used to defend shortfall. This is the CEO’s worst position. Unless you have an agreed play to rationalise the two organisations to a smaller but sustainable model, the payback to the Shareholder has been diluted.

What started as a Honeymoon Period could end in ‘Acrimony’. What you need is for the relationship to end in ‘Alchemy’.

So how do we keep the investment to the original strategic intent and how do we Make It Happen…Do the detail!  If you would like to know how Dugdale Consulting could help you with acquisition integration contact us.

In summary, the original ‘Sum’ was a multiple-choice question, but the real answer is in your choice for the plan you effect to determine the desired outcome.

If you find this article of value, please share it with your colleagues. Or need some advice, contact at enquiry@dugdaleconsulting.com

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The Curate’s Egg…managing Company performance

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Are you in control of your business?

With the proliferation of data from automated feeds into the Boardroom Report, Executives have an opportunity to manage their business and make decisions with the facts at hand. The challenge however is that the availability of measures creates a counter-problem by the pure volume of insight. The Dashboard approach which is used in many companies, takes a sample of metrics and measures and presents them as beautiful arrays of BRAG indicators, Graph’s, Spider-graphs and Tables, which compile to ‘The Month Review Pack’, probably delivered a day before the Executive Review or in a worse scenario, presented on the day.

The Executive then starts to reason. Financial one’s are to some degree the easiest. ‘Actuals, Forecast, Outlook and Trending’, multiplied by views of Revenue, Order Book, Sales, Profit, Cash-flow, Expense and EBITDA or PBIT. Getting complex but a bit like singing the national anthem, it subconsciously fits together as you are doing it.

Then the challenge comes. Business Units start to provide their views of the business in an array of styles; Sales, Marketing, Customer Services, HR, Finance, Operations… What started as the hope of a simple dashboard, delivers a Christmas Tree-like book, with Blue, Red, Amber and Green status lights, with Graph Lines for tinsel and Pie Charts for baubles. Very pretty, but when you add to the complexity that a RED ‘may not be bad’ as it is trending in the right direction and a GREEN ‘could be bad’ as it is on a small percentage of the business mix.

Having lots of data can be as damaging as having no data.

It is no wonder that unless you are having a really successful time in all your markets, the Review will either be a contentious one or partly overlooked.

So, what can you do about Measures and Metrics to make more sense and ensure that they can be reviewed? You need to work together as a Management Team and dedicate some quality time to agree Metrics that represent your focus with a clear definition that the operational source can confirm.

These needs to include:

  • Financial Performance
  • Market and Customer Performance
  • Critical Operating Metrics
  • Strategic Metrics
  • Change Measures

Don’t accept measures just because you can get them.

Think about what the company is trying to achieve. Use a good balance of Lag and Lead indicators. I think of them as ‘have we achieved objectives’ and ‘Are we going in the right direction?

I’ll cover other areas of Scorecards and Alignment in future posts.  I will also cover data quality and efficacy later too.

So, the challenge when viewing your next Executive Pack, ask yourself, “are we really managing our business with the information that we review?”

Business ideas…Short and Tweet

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Dugdale Consulting has a large number of readers around the globe who are regular visitors to the topical Posts on Strategy, Business Planning and Change Management. To supplement the Posts there are regular Tweets written for Executive management teams to guide them on becoming better, fitter and faster in the way they do business.

They are concise…to be Short as they are Tweet.

______________________________________________________________________________________________

@DugdaleConsult is designed to deliver Thought-leadership and Insight…

…and is targeted at Middle to Executive management teams across an organisation and for innovators and academic opinion formers.

There’s a nice archive of past Tweets to tap into and they are updated regularly. I see them as a ‘better business’ thought for the day.

Just press the Follow Button above or below to follow me and please share across your colleagues and management teams.

I am always interested in feedback, so if you have an angle that I am not covering, please reply to a Tweet.

If your Executives are looking for some specific Advice in areas where you have business challenge, just hit the Contact Tab at the top of the Page.

David Dugdale, Principal Consultant

‘Happiness’ …where New World Growth meets Old World Models

Boulton Watts Murdoch

Boulton Watts Murdoch

Everyday I am profoundly amazed by new technology and prophecies of a changing world through thinking differently. There is a rapid evolution of the use of intuitive interfaces to complex software as well as the real paradigm shift that is occurring in laboratories around the planet. Innovators are blurring the boundaries between data and the material world and making the probable, possible.

So, opportunities abound with lots of new thinking. This got me thinking too.

I am a veteran of a few global peaks and troughs in business ‘stuff’. I was around before Mobile Phones, but was one of the first to get to use them (well my first had a curly cord attached to the Car), I used Desktop PCs when they didn’t have a ‘Windows’ GUI and I can remember the boom of IPOs that the Internet Economy spawned. I can also remember such lows as the 70’s oil crisis, the Internet ‘Bust’ and as we all know the 2008 financial meltdown. So what am I thinking?

My thoughts are to the intelligence and energy that goes into market making on the back of things which are good for society, and therefore good for commerce, balanced with the failures that happen in business that were unexpected. ‘Unexpected’…really?

Most things in business happen in a shape that is determined by a model that has probably been taught in the classroom of High Schools, let alone the top Business Schools, for decades. In fact, if you go back to Charles Dickens and the well articulated economic wisdom of Mr Micawber in David Copperfield:

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”

Evaluating success and ‘happiness’ is not new thinking.

Although I anticipate that there will be cultures of abandoned responsibility when going for growth, we have to look for sustainable recovery by looking at ‘profitability’ to a ‘plan’. The Business Plan may show different rates of return, but with limited capital, we need to define the size of the profit prize and/or the additional company benefits that can be used as a platform for additional business development. Just getting revenue growth will not necessarily bring long-term value to the Company.

With the impending IPO for Twitter it has been good to see the dialogue in the Media, who have started to ask the sort of questions which were overlooked in the late 90’s boom of IPOs. “Where is it getting its revenue? And, Where will growth come from?”

For Twitter, you can see that the Social Media tool is a real hit with users and therefore you will get fervour in the financial markets. If it had been ‘Offered in the 90’s there would have been valuations by Analysts giving multipliers on revenues linked to numbers of subscribed users, without any real reasoning to the business model. Thankfully, there is now a bit more caution.

We all want and need winning formulas. We all need growth. And although we are now in a New World, the Old Business Models will be required to keep excitement in-check with reality.

As usual, if you would like to share this with other colleagues please feel free to distribute.

dugdaleconsulting.com

Competitive Differentiation…lost in definition

This post has been prompted by an article that I saw in the Harvard Business Review (excellent insight and part of my daily reading!) yesterday where the author was putting a ‘limited value’ perspective on Competitive Differentiation in the modern market. The positioning was that with today’s ultra-competitive markets that there is limited differentiation opportunity and therefore more things come into play to allow the consumer to make their choice i.e. Brand and social decision making.

I was compelled to respond with a contribution to HBR and I would like to share these thoughts with you as a way of us taking the idea of Competitive Differentiation forward in the future.

Early thought-leaders such as Michael Porter brought us an angle and insight on being competitive through being ‘Differentiated’. That spawned a basket full of activities from eager disciples seeking to practice what was quite clearly a profound piece of strategic thinking.

The article suggested that in a lot of Business Sector’s differentiation is no longer possible as all the players make and sell things similar to each other in look, feel and functionality. Which is predominantly true.

However, what we need to consider is that Differentiation is what discerns us as consumers or buyers to think about one product or service versus a rival. Opinions on ‘the best’, ‘the valued’ and ‘ranking’ shape conversation between us and will influence our social recommendations of one product/company against another.

So, if products are all the same what conversation could Opinion Formers possibly have?

Let’s use a current topical industry as an example, the Energy Suppliers. Gas is Gas and Electricity is Electricity. You can price and tariff, but Consumers are starting to understand that over a period of time the Suppliers price very similarly, often based on forces outside their control. However, what should not be taken for granted is the Differentiation of delivering the ‘Me Too’ services that make up each Company’s offering. These are the things that are promised in the slogans and banner headlines when pushing the product and the emotion by which influences Consumer thinking.

So, as a Supplier (and this applies to any industry) if you offer clear and accurate billing, focus on delivering this 100%. If you say that you have a Helpdesk that is available 24/7, then make sure it can deliver when the Customer needs you most, etc. All companies provide these base services, but the Differentiation comes from satisfactory completion of your own marketing claims in the eye of the Consumer.

But let’s look to the real mechanics. When your Marketing Department builds an offer, is it 100% backed-off into the Organisation that will make it happen? It may not be seen as differentiating to pick up a phone 100 times a day to a Customer Service Rep as it is just their day job, but to the Consumer it is the ‘1’ call they are making. This then leads on to a very important Business Planning aspect. Is the Organisation’s budgets balanced to deliver the promise and is there an investment to performance analysis made throughout the year?  Differentiation is an investment.

In summary,

  • Competitive Differentiation is still a key strategy for all Private, Public and Non Profit organisations.
  • It can be based on the most fundamental of deliverables from your Company.
  • To succeed, and to be differentiated, you will need to ensure that your Strategy and Plan supports the ‘Me Too’ things that you are expected to deliver.

If you think this is useful to other colleagues or business friends, please feel free to share.

Whatever it takes…grow the business!

Is this a phrase that you have ever heard from a Manager to express urgency?

For me this approach lines up with some of the other Business Strategy word-plays (let’s call them ‘BS Words’ for short) that are just thrown out as JDI directions to make results happen. In their correct place and in the context that the original creative author intended, they can add the drama needed to create an immediacy in the call to action. In the wrong context, they are a signal for failure. Let me explain using the Growth mandate in the headline as an example.

I am an advocate of the statement ‘Not all business is good business’. Unless you have a clear Strategy, a balanced Plan and have thought through the aspects of Change required to grow, expanding your business could have a catastrophic effect on the stability of your existing base. Taking the simple model of selling Existing Products or New Products to Existing Customers. The opportunity for predatory price competition without value creation disrupts the market. Your Competitors react and elements in all market propositions begin to fail. Customer Service becomes a costly overhead and your Cash Flow heads south. You probably don’t get what you need, neither do your Competitors but importantly nor do your Customers.

So, how should it be?

You do have to create urgency about the need for Change. In the case above it would be Profitable Growth, but whatever your transformation requires it should be based on a simple and repeatable ‘Story’, your Company’s Story, that explains the Big Picture. It should contain the reality of where you have come from, the challenges and issues you face, the critical aspects of the required Change and what strategic imperatives everyone needs to consider as they deliver, together, to make it happen. This is a leader-led and an employee-engaged way to satisfy your Plan and ultimately execute on your Business Strategy.

Of course there are a number of other pieces that come into the preparation such as Delivery and Control of your plan, but taking a little time to develop your Story and bringing your employees and senior managers with you will return more predictable and sustainable results.

Now, how would you tell your Story?

Marketing Planning for PEST control

External Plan Factors

The acronym ‘PEST’ is a good one. External things that can bite you!

For the unacquainted with PEST analysis (Political, Economic, Social and Technology factors), this is an external assessment of the macro environment in which your products will be placed and that your marketing programmes and business processes will nurture. PEST is a good checklist for planning, contingency planning and control design.

However, with the turnaround in our global business fortunes and the early green shoots of a recovery (like grass seed pushing through the earth, you can’t see the shoot but you know something is happening!) we need to make sure that we plan for what could happen and make sensible judgement on growth decisions to sustain predictable results.  With ‘Predictability’ comes ‘Confidence’, the magic ingredient that fuels further growth.

A word that I would like over-taught in every Business School is that of ‘sustainability’. For me, this is that the Company has thought through that a controlled, albeit accelerated, Growth is better than a ‘boom and bust’. We have a number of examples of riding the boom and ignoring PEST. The 90’s saw the Internet boom and the resultant explosion; the ‘Noughties’ brought us the over-fuelled Consumer markets and the banking crisis. Let’s not get into the blame game, we were all in it, we all benefited from the good times and we are all feeling the investment pain and backlash. Entrepreneurs come and go, but well planned companies survive and then prosper.

While Sustainability gets its rightful place in the core of every CSR plan, I also believe that business sustainability is equally important. Can my Business Plan survive if…x, y or z happens? Can I remain competitive if…? What is my Channel Mix for the good times and what is my Exit Strategy for the bad times? The acronym can also be extended to include Environmental and Legal factors, especially when considering international growth.

So, plan around the Consumer or the Business Customer ‘needs’ and understand their lives or their Markets/Value Chains. Consider the impact of External effects and be ready to either de-risk your plan or move away from the failing market opportunity. If you ignore them, the PEST will turn into a PLAGUE. No not another acronym, although I could probably come up with a negative impact to represent each letter if I tried.

On the upside, planning and de-risking as a continuum could mean that you are the last Competitor standing with a Cash Cow product.

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