Those close to me know how much I like to work with intuition as much as hard data. I can say that as a mathematician without too much irony! However, any good strategist knows that, to achieve their goals, they do sometimes need to look at what the data is trying to tell them. The recent collapse of Carillion has had many of us asking questions – why did it take so long to spot? Surely, the warning signs were there (way before any profit warning). One thing that has jumped out for me amongst the plethora of post mortems in the press is around the acquisitions history of the company.
Mergers and acquisitions has always been a fascinating piece of corporate strategy for me with as many failures as successes in banking, retail, utilities and technology sectors, to name just a few. The general assumption is that “one plus one” will deliver increased market share, sales and profit (deliberately listed in that order!). However, a synergistic relationship, whether one-to-one or company-to-company, means understanding each other’s modus operandi – how we complement each other and how we can blend in the most productive way. Why do so many acquisitions fail to deliver or, at worst, send the acquirer drifting into deeper waters they are ill-prepared to navigate?
One reason is lack of a clear goal. Are we buying company X because it will take out competition and improve our market share? Or are we buying a niche product/service and another set of skills and experience to broaden our reach? Either reason is valid but needs to be unambiguous to avoid it becoming a shopping spree for the overly ambitious. The second, perhaps more complex reason for failure is inability to merge two different ways of running the businesses and consequently two very different balance sheets. The policies and processes from development and production through to commercial management may be very different (often for good reason). This can cause a mismatch in, for example, lead times and credit terms with both customers and suppliers which will trickle into a firm’s balance sheets and cash flow statements soon enough. It sounds as though Carillion may have come up against this. Equally, the structure of the two organisations and how people are developed, managed and used may vary greatly. For some industries (e.g, utilities), this difference in organisational structures may not be an issue given similarity in processes and constant demand. However, for others (e.g. software house structures are very different to big tech firms), this may cause fault lines which, if unaddressed early, will drive staff sentiment and retention and ultimately customer perception. I know this from my own experience of being “acquired” in my past corporate life. Finally, let’s not forget culture, a term used and talked about but often given nothing more than lip service. The ways people work (flexible working hours, homeworking, job sharing, hierarchical vs entrepreneurial management and innovation styles) do matter. They motivate people or make them walk out the door.
If CEOs and Boards can take one thing from this January’s sad news, it is first to check they have a good early warning system through the right mix of performance indicators on their own corporate scorecard and how this can be used post-merger/acquisition. Secondly, they must be comfortable that combining two operating models (however different the scale) can be done smoothly and robustly, with recognised impact on staff, customers and suppliers and realistic costs and timelines for the transition phase. Yes, others are paid to undertake the due diligence that should cover this. However, it remains the role of the senior executives to dive into the detail, asking the right questions to ensure merger and acquisition risks are understood and mitigated and benefits are achievable. A former boss of mine in consulting and the best leader I have met once gave me a tip on leadership that has remained with me fifteen years on. A good leader should always maintain the conceptual, umbrella view but, when needed, be capable of plunging into the depths to see what is actually going on. It was sage advice. Sometimes, detail matters; it cannot just be delegated when the stakes are that high. Let’s hope other company execs are recognising just that in the weeks and months ahead.