I work with larger private and public companies that have often acquired businesses, technologies, and talent through mergers or (more frequently) acquisitions. One specific challenge and opportunity that can release value at scale is the cross-pollination of unique value inside the acquired firm to its parent.
There are two large systems in play in any integration: the development of products and solutions, along with the go-to-market systems of sales and distribution. Usually, the acquisition has a higher alignment in one of those systems and is weaker in the other. When the leaders of each business and function originally get to work, decisions are quickly made as to what to completely integrate and what should stand alone. Those standalone decisions are made because there is a salient new capability that both firms recognize as uniquely valuable to keep intact.
In the heat of the moment, the emphasis is placed on getting to the “synergy” (removing redundant capability) and driving the deals promised by the business case by quickly “installing” product or sales capabilities. This leaves additional opportunity in the secondary paybacks of using the systems, processes, and talent from the acquisition in the parent companies.
Later, these issues surface in discussions of succession planning, when individual talent is put on the “draft board” and considered for a cross-business promotional opportunity. The issue with this talent-led approach is that the culture of the parent group, that the new leader is thrust into, commonly resists their efforts to release the value by clinging to the status quo.
The biggest challenge is that leaders in the acquired firm are not equipped to be teachers or management consultants – they are hard-driving operational team members. Placing them in a larger division of the parent organization might seem to be a good step, but commonly, the hard-charging directive leader inadvertently sets up a deep resistance in the division.
Without a defined process, not only is the potential value lost, but frequently the executive is as well. While many times these situations can look bleak, my experience is that with careful work, that strong conflictive energy can lead to very large returns.
Like many business challenges, the “heat” actually points us to areas with great value.
The Opportunity
As an example of projects that have moved the needle, one firm I was working with had made an acquisition – primarily for product and technology – some years earlier. Their intention was to leave the new entity largely “intact,” while integrating HR, Finance, and Legal into the parent firm. When I met them, the tension pivoted around the product planning processes of the firms. To keep the story short, one entity was product-driven and the other was market-driven, and the parent wanted to scale the market-centric expertise. By examining these tensions in the light of day, we were able to strengthen the generation of portfolios in the acquiring firms’ most profitable niche, where upsides are measured in 9 figures.
The work to unlock this value included a series of diagnostic interviews of stakeholders to capture a solid understanding of the business case. Once the business case was agreed upon, we built two teams: a governance group and a working group to design the path and capture the savings. We carefully curated, equiped, and chartered these to make sure these are “bought-in” teams and not just affinity groups.
This approach is collaborative but does not shy away from strong, productive discussions. There is a reason that this work is hard to drive without external support, and as we developed an understanding of the potential value, we worked through strongly-held views that need to find the real value.
The Big Four
Let’s take a look at four typical areas that arise in working through these ‘latent’ integration issues.
#1: Size & Leadership Style Mismatch
Leaders used to the speed at which small firms can move get frustrated with the complexity in large firms.
What’s the challenge? Processes built in smaller firms need to be leveled when applied to the parent’s larger context. Frequently the acquirer assumes that all the existing leaders will simply join the parent firm’s performance management system, only to find major friction. It is quite common to find leaders from parent firms and acquired firms strongly polarized and in “standoffs” with one another.
#2: Supply Chain & Distribution Intimacy
Different firms have very different levels of value derived from supply chain and distribution entities. A very common mismatch is in the intimacy of distributors and support teams, and the amount of client insight information that is shared with the product team.
What’s the challenge? In short, communications and information flow. Smaller firms are used to a much more open path to market information, usually using market specialists in client-facing roles. Large parents tend to “tuck” offerings into their generalist portfolios, setting up major friction.
#3: Quality & Process Expectations
The acquired process or technology usually has been represented as being “hands-off.” I’ve worked with several firms who found the definition of “hands-off” quite different from the reality post-acquisition.
What’s the challenge? There is usually a lot of knowledge baked into fresh offerings that will challenge the parent firm’s existing QA systems and processes. When stress-tested at the scale of the parent firm, significant issues appear.
#4: Critical Thinking & Pattern Recognition
There are deep rules of thumb and embedded insight in any entity, regardless of the size. Leaders have developed a deep internal shorthand for how the world works and how much interaction is needed.
What’s the challenge? I find that “parent” firms frequently overestimate their ability to make directional decisions in the new business because they have shortchanged the work to gain intrinsic experience. This leads to the parent firm overprescribing and under listening. There is a rapid pattern recognition by the acquired team, and they see their new parent firm leaders as inflexible and out of touch.
When it Doesn’t Behave Logically
I have seen firms think they are giving a newly onboarded VP from the acquired firm a great job, only to have her leave just after the earn-out is complete. I’ve seen acquired firms in shouting matches of the need to “feed the gorilla” of large company systems and processes.
Preparing to Make a Shift
These tensions hide substantial value. First, there is substantial value in releasing the “know-how” and scale in the parent firm. Secondly, each one of these projects builds leadership skills in collaboration, communication, and execution that they take back to their functional roles. Finally, it has opened the pathway to much richer pre-integration discussions, allowing quicker time to value capture and reducing M&A risk.
Support
Firms that are prepared to persist and add value will power out of this COVID downturn and be hard to catch. Building a powerful capacity to execute the post-M&A process and learning rollout is a timeless activity that scales.
If you’d like help with building your adaptive strategy, please reach out to me at 847-651-1014 or use this link to set up a 20-minute call.
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