• John Chambers, PhD

After M&A, the Hard Part


Is the acquisition you’ve just closed leading to clarity and opportunity? Surely it is on paper; otherwise you wouldn’t have stamped the valuation artifacts with board approving signature. But underlying many mergers are fits and starts that diminish your customer confidence. Are the post-merger workflows leading upwards or downwards? Does everyone know where they are going? Under the attempted integration of newly acquired business processes, is your operation as ambiguous as Escher’s famous Ascending Descending artwork – unclear in the endpoint and elusive in resolution?

A merger is just that; it is distinct from an acquisition run as an independent subsidiary. A merger is an integrated, adapted and cohesive supplement to the holistic operating model. Reflect on the difference. A mismanaged merger is a company that layers duplicative bureaucracy throughout its ecosystem, with stairs leading nowhere.

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Due Diligence: Assets, Processes, or Both?

The pre-merger valuation initiative was possibly spearheaded by corporate Strategy or Finance or Advancement, and often carried by Information Technology due to sheer size of integration points. But the post-merger program – the actual integration stream – is rife with one-offs. The plans to fully immerse departmental capabilities into a neatly consolidated (or even federated) model stall. The ambiguous processes, the ambiguous service offerings, the ambiguous touchpoints between departments and the “new entity” are detrimental to your firm -- not just as a stumble in operational excellence but, rather, they frustrate your customers!

We often think that the due diligence is purely asset valuation, organizational competency, cash flow, and the multitude of information technology components. But when the dust settles, when handshakes unclasp, and when the buyouts are complete, your company is different. And it isn’t all rosy when it’s time to implement. Your corporation is not just a bigger outfit with broader reaching brand expectations, expanded market shares, and a customer population that swells beyond yesterday’s. What you have is a more complex environment, which can afford no clumsiness. We live in the hyper-speed of change. Competition is biting at the ankles. Even the injury of a seemingly mundane corporate process can topple a giant. Are you empathetic for customers in the post-merger vision?

Consider your own personal experiences in dealing with your bank, or a home service, or subscription or product that needs fixing. After you’ve suffered the frustrating attempts to deal with your issue online, through a chat, or an email that’s not answered, you finally use the archaic telephone. You break through the 1-800 number for assistance. About 38 minutes later, you speak to the front line customer support. If you’re fortunate enough to speak to someone that has access to your account and history, while still trying to solve your issue, you may hear this: “I’m sorry, sir, things are a little confused since we’ve merged….”

The less exceptional executive will tolerate that scenario as a growing pain of expansion, excusing it with, “We’re still working the kinks out.” In some sectors and companies those kinks are problems for months.

It’s not excusable. In our innovation economy it’s dangerous to your corporation’s future. You are losing ground to competitors whose customer service is optimized.

Operating Model; That was then; this is now

When you merge with another company, your work is validating the operating model, the means to serve your clients, the sanctity of their sensitive data and the immediacy in accessing their information -- especially under problem solving. Does yesterday’s customer process fit with today’s new addition?

Your organizational architecture should be adaptable, with expanded offerings stepping into your support model, with seamless handoffs and harmoniously blended technology.

And it’s not just about customer calls and deskside support. Your operating model pre and post-merger should be clearly articulated -- rationale, structured, and balanced. The words of your management staff should demonstrate this without floundering. Otherwise, your company appears poorly engineered. Your operating model, post M&A, requires rationality and frictionless workflow.

In B2B processes this becomes monumentally critical. Your partnerships are borne of selling a vision of seamless, fast and trusted exchange. Your potential business customers expect that your operating model and value chain are logical and sensible.

Valuation of a corporate entity and its associated attractiveness must rely on more than historical data, an upwardly pointed cash flow, or benchmarked research showing promising industry growth. The “average” investor/partner views a potential acquisition as the promise of higher sales and enhanced reputation. An “astute and perceptive” investor/partner challenges the organization: understand how the post-acquisition entity shall operate. This is not simply in terms of external customer engagement, but also the internal processes between departments in the overall value chain.

Your internal, supporting business processes in HR, Sourcing, Facilities, Legal, and -- the company within a company -- Information Technology demand optimized execution. These processes tend to become confused when a new entity (with its own support processes) joins the firm. Confusion means slowed responsiveness to your customer.

Integration: Walk the Talk

After decades of industry literature and high priced advice from the most expensive business consultants in industry, many companies still trip over their post-merger feet, bruising their bottom line due to cross-departmental friction and customer confusion. Is the post-M&A engine clunky and heavy footed? Have increasing cultural gaps mushroomed? It is not as though experienced executives didn’t foresee struggles. They usually expect a well-managed integration. But post-merger integrations often are de-prioritized due to “other critical endeavors.” Nevertheless, remember that the merger integration is an extremely critical endeavor. Firms don’t have the luxury to allow clumsy post-merger processes.

Due diligence efforts have too long been about jigsaw puzzle adaptation -- force-fitting technology stacks and cost centers together, which grows like ivy on the fence. As an example, ERP systems can accommodate other resource planning or financial systems; it’s not a big deal to ETL data into your analytics engine and, for the time being, accommodate multiple resource planning systems at the presentation layer. But as you might be thinking now, multiple systems are an albatross on your infrastructure support model, as well as your strategic business planning. Get off the disparate platforms and consolidate. Of course this isn’t news; and yet it’s still a lurking phenomenon, not addressed in a timely manner.

I can’t tell you the frustration I’ve witnessed by departments who see acquired business units as impenetrable walls, a confused myriad of processes, or an infinite stairway walk, dragging support personnel past eachother while the clock ticks. Those supporting departments have customers that are both internal and external. If you are expecting those customers to be patient then you’ve disregarded the way of the world. Those who pay your firm for services expect clarity in entry and exit. The same goes for your internal customers. How does your overall operation appear to external viewers, including those entities that may want to partner with you?

Volskmarch Finish

The rising tide that lifts management and employee boats are happy customers, not just fatter footprints. So after the merger, address cultural misalignment.

Consider regional differences.

Identify technology stacks that should be normalized and simplified – reducing licensing costs, renegotiating subscriptions, funding carefully.

Integrate business processes and databases and clouds, and don’t tolerate poorly assimilated entities as “acceptable for now.”

Move fast.

Don't be patient with integration projects that scuffle on the sidewalk, like a little kid who was forced to walk through a realtor's open house.

You’ve invested time and resources in merging with another firm. This was the fulfillment of a complex valuation exercise with promises of a more diversified future.

Your brand expectations are bigger.

Your market share has grown.

Your customer population and value potentially swell beyond yesterday’s.

Therefore, remove friction and immerse the opportunity in your operating model and business processes.

A merger is not a new neighbor purchasing a house next door. The merger is a new family member, a marriage, that is enhancing the legacy estate. The merger means the family grew, not the neighborhood. Without clarity in processes and immersion of resources, an acquired entity is like stairs leading nowhere. Integration and expansion can promise sunny days ahead. Procrastination will bring the gloom.

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