Unlike those facing extinction in the animal kingdom, organisations can acquire fresh blood to help them evolve and survive today’s rapidly changing economic environment, says Simone Krell
A successful predator, the cheetah has evolved into the fastest land animal on earth. However, its population suffered a devastating blow several thousand years ago that reduced its population to the point that all living cheetahs are very closely related. This low genetic diversity (inbreeding) has led to the emergence of abnormalities, and decreases its ability to adapt to environmental changes1.
The plight of cheetahs symbolises the problems that many predators face throughout the world, including those in the business world. If you look at those organisations that are struggling the most, they share a common problem with cheetahs – the inability to change. These organisations fail to adapt to changing demands, adopt new technologies, or make acquisitions to support the organic growth of the business. But to survive in today’s markets organisations need to be able to adapt and change more than ever. Whilst some will be able to find what they need to survive from within, others may depend on finding a partner who is similar, yet sufficiently different, to fill a gap or need. For some an acquisition, or even being acquired, will be the best route to thrive in a changing market.
Opportunity to acquire
The fight for survival is affecting most businesses, and leaves struggling companies often with no choice but to sell. Acquisitions are certainly a hot topic. Every time you open a newspaper you're sure to find articles and discussions on deals, and companies saved through finding a buyer.
For those with cash, the credit crunch brings great opportunities. Buyers have several options at their disposal: buy an ailing competitor for their people and/or clients; buy a supplier or distributor to secure materials or markets, or, buy a struggling start up to gain control of a novel service or technology. Any one of these choices can give the buyer an advantage over its competitors, and improve the financial performance of its own organisation.
But is it really that easy? Accepted wisdom says that more than half of mergers and acquisitions fail, and research by the Hays Group suggests a much higher failure rate of 90%2. The biggest mistake many buyers make when acquiring another firm is forgetting important steps of the process while rushing to secure a promising deal.
Unfortunately, most organisations will focus only on the financial aspects when preparing for an acquisition. As a result, due diligence is likely to be focused around legal factors, accounts and contracts. In ER Consultants’ experience two major factors are often underestimated – the people and the culture. A lot of the value of an organisation is within its people; their knowledge and experience makes the difference. Everyone who has been part of an organisation that has been bought-out knows how unsettling it is when the company you are working for, love and are committed to is sold to someone else. Easy to imagine how anxiety about job loss, relocation, new management structures and general uncertainty can distract people from doing a good job, or make them think about leaving. Another crucial factor, which is hard to grasp, is the cultural fit. If you try to merge parts of two organisations that operate differently, follow different values and beliefs, you are likely to face major obstacles.
ER Consultants approach
Our approach takes a holistic view on acquisitions, and integrates the organisational, emotional and cultural requirements from preparation right through to post-integration phase. The following diagram highlights the key milestones of the process.
As the diagram above demonstrates, an organisation ideally should have an acquisition strategy (1) before seeking potential candidates for acquisition. Although opportunities to acquire may arise unexpectedly, with pressure to act swiftly, it is nonetheless vital for a buyer to conscientiously check their strategy, objectives, and market, to test the rational behind the plan of buying a specific organisation.
The ideal approach will be followed by a phase of targeting and exploring (2) the acquisition market and assessing your available options. Once a target has been identified that fits the superficial criteria of the acquisition plan, it is time for a thorough approach and due diligence process (3) to get to the heart of things. This is the stage where things start to go wrong. If the intention is to keep the top team, or parts of the top team, of the acquired organisation on board, it is crucial to check whether they are fit for their new roles. A process of management due diligence provides an assessment of the capabilities and potential of the top team, giving the buyer an opportunity to make informed decisions on appointments to the new organisation.
Once the due diligence process has been completed, it is time to negotiate and agree the deal (4). If the acquisition proceeds (5) then it’s time to deal with the people side of the acquisition. It is worth being well prepared before the word of the acquisition is out – always better to proactively communicate to preserve trust, rather than justify decisions that have been judged by people with incomplete information.
Our experience and research show the importance of the integration phase (6) – this is the point at which success or failure is determined. Again it is crucial to consider the people of both organisations, who will undergo the stress, resistance, and uncertainty, which come with most major changes. A powerful way to tackle this is to get people involved. Our research and experience has proven that participation in change can reduce the ‘loss of control’ feeling and create acceptance of the changes.
Things don’t stop here. As well as consolidating the integration and optimising operations through improvements (7) there is a great opportunity to change more than the shape and size of the organisation. ER Consultants can help with steps 1, 3, 5, 6 and 7.
Gaining advantage
With any acquisition, the assumption is that the acquired company is the one that must change to fit along side the purchaser. What a purchasing organisation should do, is run an internal culture audit along with the acquistion. This will check for cultural fit between the two organisations, and create the opportunity for culture change to occur as part of the integration of the purchased organisation. This culture change will be easier to achieve as things will be in motion already and changes are expected and addressed. Organisations have a distinct advantage over cheetahs, and that is the ability to bring in ‘new blood’ through acquisition. This prevents an organisation from stagnating and losing the ability to adapt and survive in a rapidly changing environment.
References:
1: Genetic Basis for Species Vulnerability in the Cheetah, S. J. O’Brien; M. El Roelke; L. Marker; A. Newman; C. A. Winkler; D. Meltzer; L. Colly; J. F. Evermann; M. Bush; D. E. Wildt. Science, New Series, Vol. 227, No.4693 (Mar. 22 1985), 1428-1434.
2: Mergers & Acquisitions: Dangerous Liaisons – the integration game', Deborah Allday from the Hay Group in the United Kingdom, June 12, 2007
CASE STUDY: Testing Capability
ER Consultants recently supported a client through the acquisition of a wholesaler. They took the opportunity to acquire a troubled organisation to broaden their market share into a related market with different products. During the process of negotiations our client decided to address the people side, alongside the classical due diligence process. We ran a culture audit in both organisations, for both management and ‘shop floor’, using interviews, focus groups and a tailored survey. This provided an invaluable insight into the cultural perceptions of both companies, their strengths, and areas that could be improved.
This helped our client gain an understanding of where the synergies between both organisations were, and the potential barriers when merging the two businesses. Our client also took the opportunity to learn from the best practice of each organisation and is planning to use this insight to change both organisations for the better. The whole culture audit provided our client with a good understanding of how the acquired organisation works, what matters to its people, and helped to inform what model of integration would make sense moving forward.
ER Consultants also carried out management due diligence of the top team from the acquired business to assess their capabilities. We used a mix of developmental and assessment exercises to provide our client with a deep understanding of the capabilities of the other team. This supported the acquisition decision, and indicated the ability of the acquired team to run the business in the style of the new owner.
It also allowed us to give our client an understanding of the different personalities and leadership styles of the acquired team, which helped them understand how they can best work together moving forward. As a result, the deal went ahead, and the people insights gained are helping the executives to build on each other’s strengths and maximise the economical success of the new organisation. ER Consultants is now supporting the post-acquisition phase and our client is moving forwards having already broadened its market share.
For more information contact: simone.krell@erconsultants.co.uk
