In our recent post on M&A integration strategies, we defined two approaches for a potential M&A integration: building a holding company versus fully integrating an acquisition. Now we will examine how an acquisition can be a catalyst to reimagine your organizational design and create enterprise value by connecting often disparate business functions. This process provides the opportunity for organizations to think about the newly acquired capabilities and how those capabilities add, complement or duplicate existing organizational capabilities. Ultimately, a redesign of the company's operating model can be a lever to unlock additional deal value by increasing product/service value and eliminating unnecessary operating costs.
First, Plan for Organizational Change
There is a delicate balance between maintaining the status quo
and tackling transformational initiatives to gain a competitive
edge. The burning question is how can organizations going through a
merger or acquisition extend organizational capabilities, realize
cost savings and ensure cultural change all while limiting
disruption to the business? Adding to the challenge is that there
isn't a more sensitive aspect of an integration than planning
for and executing an organizational model transformation. Even
leaders from the acquiring business are faced with the WIIFM,
"what's in it for me?"
This makes a thoughtful plan to operating model design even more
critical heading into a transaction. In the current fast-paced,
increasingly autonomous business environment, it is important to
keep in mind and apply Michael Arena's concept of
"adaptive spaces." Organizations must operate at an agile
pace in which, according to Arena, "creativity, innovation,
and novel ideas flow freely among teams, across departments, and
throughout the company." This is a shift from deploying a
hierarchical operating model that is focused on continuous
improvement and cost cutting.
- In thinking about the future operating model design, focus on the principles that drive performance:
- Developing thoughtful goals to align the organization,
- Empowering cross-functional teams,
- Standardizing processes and tools, and ultimately
- Improving execution through an increased sense of accountability.
Most of these are covered by components of a typical M&A deal — except for how to restructure your operating model and organizational chart. This is where we need to dive deeper.
When and How to Create Organizational Change
Every transaction should have a value-creation thesis, but
companies typically lack an established process to identify
synergies and track progress of realizing their targets. We
recommend building these steps into the traditional M&A
transaction process to enable a practical approach to developing
the future operating model design.
Letter of Intent:
Initial value-creation thesis captures high-level synergy
targets and integration strategy.
Due Diligence & Integration Planning: Set
aside time to not only focus on historical financial performance
and operating risks (due diligence), but also to talk with the
seller's management team to deepen your understanding of key
business leaders, roles and business capabilities.
Develop a "strawmodel" of the future-state operating
model. Move beyond who in the seller's organization fits into
your existing business to rethink these operating model components
entirely. This includes evaluating:
- Organizational design and reporting structure
- Committee structure and charters
- Board oversight and responsibilities
- Management accountability practices
- Performance management and incentives
- Operating principles
- Talent development programs
Day 1: In coordination with the integration
management office (IMO), schedule functional discovery meetings
with department leaders from the acquired business. Develop a
template to capture consistent information across the business in
areas such as process variants and integration considerations.
You'll also want to critically evaluate your talent (manager
vs. individual contributor, business critical role, duplicative
role, role candidate for automation and talent score).
0-100+ Days: Conduct functional discovery meetings
and consolidate the information in the IMO. Revisit the strawmodel
operating model and adjust based on new information.
For the organizational design and reporting structure, think
outside of the traditional hierarchy box:
- Build market facing teams, focused on growth, customer responsiveness, market knowledge and speed to market
- Structure operational functions into traditional hierarchy with clear measures of success on cost, efficiency and utilization
- Optimize support functions into a shared services model with a six sigma mindset to continuously drive quality improvement and cost reduction
Within 100 days post-close, you can have a new operating model
that leverages your greatest assets in their highest value
position, while simultaneously driving cost reduction. This is the
goal of any business leader, but they often struggle to implement
such change around business-as-usual events. That's why your
M&A transaction can be the perfect catalyst to get a new and
better operating model in place.
The culmination of a successful organizational redesign should
create a more agile, proactive workspace complemented with the use
of technology to yield better quantitative and qualitative results.
Recall that operating model design encompasses much more than
simply the structure; it is the process of aligning an
organization's structure with its mission.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.