Business Strategy Consulting

Planning a Successful Merger

Traditionally business growth developed organically over the longer term as a company improved its operations and market penetration from year to year. A merger can seem an attractive strategy for leapfrogging into new markets instantly and for a fraction of the trouble involved with growing organically but, in fact, more than 50 percent of all mergers are considered a failure.

Studies of successful mergers suggest a number of areas in which things must go right.

Strategic Fit

The impetus for a merger should emerge naturally from the overall business strategy so that there is a clear vision of how the entities in combination will be better able to increase revenues and gain market share than either could on its own.

A merger without a sound strategic rationale is akin to impulse buying and just as likely to result in the acquisition of something that isn’t really needed or can’t deliver increased competitive advantage.

Establishing strategic compatibility requires a thorough due diligence to establish the internal strengths and weaknesses of the target company as well as the opportunities it will allow. Anything that could present problems further down the line, such as dealing with relocations and layoffs, compensation changes, hardware and software compatibility or the consequences of an unresolved lawsuit, should be considered.

Rapid Integration

There is general agreement that the earlier the integration program gets underway the better the end results. Planning the integration should begin as early as the merger comes up for consideration and integration issues should be considered in the due diligence process.

Before closure, all major integration decisions should have been made at least in principle. For instance, what the new organization structure will be, which product lines will continue and which be terminated, which/whose business processes and IT systems will be adopted as company standard.

Integration decisions are best made, when possible, by joint teams who can bring full information on the capabilities of their respective company’s systems and process to the table. Rather than spending time in an attempt to design the perfect business process or system, it has proved equally effective to choose the best aspects of each organization as the standard for the merged company. Company A may have the best IT system; company B the better customer service protocol. Adopting the best each company has to offer speeds integration and retains the practices that have delivered superior performance in the past.

Maintain Focus On Doing Business

Where integration issues haven’t been adequately addressed before the merger and there are delays in setting up systems, it’s possible for the new entity to lose its focus on doing business. Employees are diverted from their core roles of driving sales and maintaining customer service to tasks around integrating business processes, IT systems, and product lines. The business loses contact with its customers and impetus in its marketing and sales activities.

Customer defection follows and the merger starts to bleed.

The difference between success and failure can turn on the ability to remain focused on doing business throughout the merger process. Pre-merger planning and post-merger allocation of integration tasks must work to ensure that customer-facing employees retain the time necessary to continue their customer acquisition and sales work.

Communicate Continuously

Communication, early and often, to customers, employees, partners, and other stakeholders is integral to managing a merger. Part of the strategic positioning of the new entity should involve developing messages around why the merger is taking place, what it is expected to achieve for the company and what’s in it for customers and employees.

Address Human & Cultural Issues

Mergers mean uncertainty for employees. Layoffs and redeployment or re-grading are a frequent adjunct of the process. And uncertainty translates into decreased productivity. It’s estimated that the majority of mergers fall short of their objectives because management has become bogged down with finance and technology issues and failed to spend sufficient time integrating corporate cultures and management styles. Senior managers involved in mergers regularly identify talent retention as one of their biggest challenges.

Cultural fit should not be underestimated. One of the most costly merger failures was the 1994 acquisition of WordPerfect by Novell. After just two years and numerous troubles, central to which was a colossal culture clash (the two firms disagreed on everything from decision making to customer service) Novell sold WordPerfect for about $1 billion less than it paid

Business Strategy Consulting

“F” Word Business Management

As a parent of young children, I have never been a fan of Gordon Ramsey’s straight-talking TV shows. However, I have watched with a professional interest as I find the way he approaches solving a restaurants problems are so characteristic of the basic business management principals I use when working with clients.

Well it seems I am not alone as I have recently read an article in “In The Black” magazine that looks for the “gems that are often lost among the expletives and insults”.

If you have ever watched “Kitchen Nightmares”, think about some of the basic questions Gordon asks. He looks for honest feedback about the owners’ vision and why they do things like they do (often because they are copying someone else). He invariably looks at how they can simplify what they do, use more local produce and then meet their goals. Those that can put up with the abuse and take on board what he offers, and maintain the introduced changes usually go onto success in their restaurant.

With thanks to “in the Black”, let’s look at what business can learn from foul-mouthed Gordon:

  • Who’s the Boss? Someone needs to be in charge. Multiple bosses keep staff chasing their tails instead of focussing on clearly articulated tasks.
  • Keep it simple – If there’s too much choice, the company doesn’t know what the company wants (think about restaurant menus)
  • Have Passion & Pride – It’s the best way to retain customers and staff
  • Know your market – If you’re copying the competition, you’re behind before you start
  • Say what you mean – Clear communication lets everyone know where they stand
  • Listen properly to your customers – The best feedback is negative because you learn the most from it
  • Work as a team – Every member of the team has something useful to contribute: ask, listen and learn.

So you will be surprised where you can learn about how to better run your business – we just need to keep our *%#*ing eyes and ears open.

Business Strategy Consulting

6 Key Points when Selling a Business

In a recent article by RSM Bird Cameron six key pints were highlighted when considering exiting a business. The key learnings from the article are:

  • 76% of business owners surveyed have no plan to exit their business. This is significant when you consider the value that is generally tied up in a business.
  • It takes 3-5 years to prepare a business for sale. Doing this preparation later may cause a delay in exit plans.
  • 69% of business owners have never had a valuation of the business.
  • 55% of owners were not aware of capital gains tax implications in regards to the sale.
The six key points to consider before selling:
  • Prepare for the sale at least five years prior to selling.
  • Strengthen ties with key customers and draw up contracts where possible.
  • Train staff to run the business without the owner being present.
  • Speak to staff about selling the business.
  • Prepare documents for sale of business as early as possible.
  • Do not sell if the timing is wrong, be patient and be prepared to wait until the right buyer is found.
The full article can be accessed here.
Business Strategy Consulting

Can China save Australian manufacturing?

  • Increased costs of raw materials.
  • Wages increasing in China.
  • Shortages of labour in some industries.
  • Growing middles class in China.
  • Increasing domestic demand in China.
  • Increasing costs of energy.
These trends have resulted in the price and service offered by Chinese factories to the export markets is
less attractive, in short prices in real terms is increasing and service such as lead times is increasing and reliability of delivery is decreasing.
Anecdotal evidence, supplied by an importer of high quality linen clothes to Australia, stated the following:
“as the price of linen increases the competitive pricing edge offered by China decreases. Simply meaning,
the percentage of labour saving is becoming so small against the raw material cost coupled with the risks of
delays and quality issues – the total price offered (including a risk factor for poor service) is not longer competitive on some lines”“on some lines it is cheaper to have garments manufactured in Australia – the risks are lower and the service is superior”

“Italy is now responding with samples in two days where as China is taking weeks – this is a complete turnaround for ten to fifteen years ago”.

Why have we in Australia not “felt” the impact of rising costs from China? The most obvious reason ids the strength of the Australian dollar – which is a “fragile” currency and as we have seen in the past, can lose value a lot quicker than it gains value. So look out if the value drops to 85 cents.
Also, manufacturers and importers can quickly switch from one country to another to fulfil their orders – the result of a global market.So what do our Australian manufacturers need to do? Focus on marketing the “the true value of Australian manufacturing – price, quality , lead times, inventory costs and service” – it would appear the tide is turning – in Australia’s favour.

Business Strategy Consulting

Bridging Business Silos

My colleague David Burgess recently wrote on Optimal Organisation and made the comment – The argument that organisational structures can form “silos” which leads to dysfunctional outcomes simply highlights that the procedures are not developed to link the organisational structures to provide the desired outcome.

Now didn’t that strike a chord with me. I had a client who wanted help defining his business strategy and putting this into a business plan that could guide his management team. I started by chatting with his managers and quickly realised that none of them had the same understanding of the businesses direction, or their role in it as the CEO. This surprised the CEO as he had lunch with members of his management team every day, generally meeting each of them in this way over a fortnight.
Of most concern was the fact that some of the management team believed one of them was a “protected species” – roles had been created for him to move him out of areas where he had not succeeded. Worse, this particular manager would redefine his role to suit what he was comfortable with, rather than what was required by the business.
Now we can all see that this was something that should have been addressed by the CEO, but it wasn’t.

This took the planning project off on a tangent as it was obvious we needed to define the critical functions and related roles within the organisation so we would have a management team able to implement the plan. A functional organisation structure was needed.

Functional Organisation is arguably the most effective form of organisation, because it is designed around functions, rather than people. Each function has its own responsibilities, separate and distinct from any other. The functions don’t overlap, and the scope never changes to fit an individual. Individuals are chosen to fill functions based on their ability, knowledge, training and experience.

Once we established a functional management structure team spirit improved because each department became a team with all personnel within the department reporting to a single person who has complete responsibility for the performance, training, guidance and direction of the department, and who also has the authority to make the department fully effective in accomplishing its goals. While each department must communicate, cooperate and coordinate with all other functions in the company to achieve the company’s overall goals, each individual now reports to only one person, and all directives, orders, requests etc., will be funneled through that person.

Like so many things in business it sounds so simple, but you may be surprised how often it is not the case.

Business Strategy Consulting

Business Plans Need NOT Be Complicated

I recently met with a business owner who wanted to discuss developing a strategic plan for his manufacturing business.

This business owner knew he needed a plan to get to where he wanted to go with his business, but from previous experience he was worried that the plan would be “a thing of beauty, but of little use to his business. When I asked what he meant by this, he turned to what appeared to be a pile of manuals stacked under a table behind his desk. From this pile he extracted a 50mm, 4 ring binder. This was truly a “thing of beauty” – professionally printed front cover with “business name Strategic Business Plan”, section dividers that had been individually printed and a wealth of background research presented in graphical form. What I had trouble finding was the actions that were needed to be taken by the business management. And the date? 2004.

The business owner expressed his concern that having invested in this plan, he found it difficult to communicate it to his key staff and hence could not get them to buy into it.

So, what did he think he needed? “A simple plan that I can share with my staff and get us moving in the same direction.” At last, he saw what a business plan was all about. Read more

Sales Consulting

Negotiation by numbers (and a very smart farmer)

A good friend of mine, Jeremy Pollard is a great negotiation trainer. I found this on his Facebook page and had to share it

A farmer died leaving his 17 horses to his three sons. When his sons opened up the Will it read:

My eldest son should get 1/2 (half) of total horses;
My middle son should be given 1/3rd (one-third)
of the total horses;
My youngest son should be given 1/9th
(one-ninth) of the total horses.

As it’s impossible to divide 17 into half or 17 by 3 or 17 by 9, the three sons started to fight with each other.

So, they decided to go to a farmer friend who they considered quite smart, to see if he could work it out for them.

The farmer friend read the Will patiently, after giving due thought, he brought one of his own horses over and added it to the 17.
That increased the total to 18 horses.

Now, he divided the horses according to their fathers Will.

Half of 18 = 9. So he gave the eldest son 9 horses.
1/3rd of 18 = 6. So he gave the middle son 6
1/9th of 18 = 2. So he gave the youngest son 2 horses.

Now add up how many horses they have:
Eldest son……..9
Middle son…….6
Youngest son…2
TOTAL ….…….17

This leaves one horse over, so the farmer friend takes his horse back to his farm.

Problem Solved!

The attitude of negotiation and problem solving is to find the 18th horse i.e. the common ground.
Once a person is able to find the 18th horse the issue is resolved.
It is difficult at times.
However, to reach a solution, the first step is to believe that there is a solution.
If we think that there is no solution, we won’t be able to reach any!

Business Strategy Consulting

Manufacturing Strategy – Gaining a Competitive Advantage

The lack of understanding by many senior managers towards manufacturing often means that when difficulties do occur, the favoured course of action is to eliminate the problem by sub-contracting the manufacturing tasks either locally or offshore. This unfortunately does not address the root cause of the problem and may even lead to the inability to compete in future markets as critical manufacturing processes and infrastructure is dismantled.

As opposed to being reactive, manufacturing executives should become more proactive and companies need to develop their manufacturing strategy as an integral part of their overall corporate strategy. Manufacturing should choose its processes and design its infrastructure (controls, systems, procedures), in a way that helps products win orders in the market place. A critical element of this process is to determine the value that customers desire (Voice of the Customer), and then for the manufacturer to match the processes and infrastructure to these ‘order winning’ criteria. Finally, the processes and infrastructure should be adaptable to changing market demands.

Although R&D, finance and HR will naturally impact on manufacturing, the link between the marketing and manufacturing strategies is perhaps the most important. Developing a coherent manufacturing strategy should include the following steps that emanate from the corporate objectives:

1. Corporate Objectives

Senior management should set the long-term company objectives including growth, profit, return on investment, target markets, environmental sustainability etc. This will then lead to the formulation of the financial, HR, R&D, marketing and manufacturing strategies.
2. Marketing Strategy
Strategic marketing initiatives include product range, pricing strategy, promotion, market positioning and mix, volumes, leader vs follower strategy, etc
3. Voice of the Customer
This vital step seeks to determine the value actually desired by customers so that the company can ‘win orders’ in the marketplace. Customers value a range of factors including price, quality, brand image, service, design flexibility and customisation, product range, delivery lead time, environmental factors, lot sizes etc.
4. Manufacturing Strategy
Having completed the above 3 steps, a manufacturing strategy can now be formulated that supports the company’s products in the marketplace and assists it to win orders against the competition. This encompasses two aspects:
a. Process Choice. Manufacturing processes to support the strategic objectives can now be chosen after having evaluated available technology, finance, plant capacity, factory layout, the role of inventory, anticipated volumes, sub-contracting etc.
b. Infrastructure Design to support production, including production planning and control systems, quality management systems, support functions, organisational structure and compensation agreements.
Gaining a competitive advantage in today’s global market requires manufacturing to become actively involved in the corporate strategic debate by being able to influence decisions for the overall good of the business.
Business Strategy Consulting

Due Diligence Explained

In its simplest form due diligence is a comprehensive process that investigates a business to assure the intending purchaser that all facts and financial figures are as stated by the vendor and that there are no unpleasant and unwanted surprises that have been concealed.
This process of due diligence is usually conducted by the purchaser’s accountant, business advisors and legal advisors, who may also call in specialists for matters relating to stock or capital equipment, among other possible areas under examination.
The sale of a retailer, for example, might require an expert in that particular line of goods to gain an accurate valuation of the stock in the business. The purchaser of a manufacturing business would want to be sure that the equipment is in good condition and has been suitably maintained.
Due diligence is a part of every business sale or purchase, regardless of the size of the enterprise. The more complex the business is, the longer the due diligence is likely to take, but today’s purchasers shouldn’t even contemplate buying a business until due diligence has been completed.
Is it a good business to buy?
Due diligence is conducted to answer a number of questions, including whether the timing is appropriate for the purchaser to buy and why the vendor is selling the business. Some businesses have peaked and are starting to slide which might make them affordable but also means they aren’t capable of improvement and represent bad investments for purchasers.Due diligence examines the market for the products sold by the business and determines their positions in the life cycle of each product. It looks at the marketplace to find signs of saturation, or to locate opportunities the new owner can exploit.
The finances of the business
Every business for sale comes with claims of turnover, expenses and profitability, but how can the purchaser know that these are accurate representations? Due diligence inspects the books of the business including tax records for at least the previous three years to validate or challenge claims by the vendor.
Due diligence will also look for details of how capital equipment was acquired to ensure that the ownership status is as claimed and no outstanding loans or charges over the equipment exist.
Who buys from the business?
Many businesses are highly dependent on a small number of large customers. The departure of just one of these can be a serious problem, and the purchaser needs to be certain that existing customers will stay after the sale of the business. Due diligence will examine all existing contracts and sales agreements, and if necessary introduce new agreements to carry customers over to the new owner. It will also verify claimed purchase levels of key customers and evaluate their growth potential if required.
The condition of the premises
The acquisition of most businesses involves taking over premises, usually ones that have been leased by the former owner. The due diligence process looks at the condition of the premises so that the purchaser isn’t stuck with expensive repairs, and investigates the terms of the lease to ensure it’s sufficiently long and the rental amount is appropriate. Another critical factor that relates to the premises is its location. Is it in an area that’s affected by high crime rates or high volumes of heavy transport? Does it permit parking for employees who drive to work, and can customers access the premises easily if they want to?
Compliance with all applicable legislation
Every business requires a number of permits and licenses to operate; issuing authorities can range from local governments to the State and Federal Government. Lack of proper licensing can lead to the closure of the firm or at least to expensive legal action and possible fines. Due diligence will identify all those permits required by the business being offered for sale and ascertain whether the company is in full compliance. It will also examine proposed or pending legislation to ensure that no changes to the regulatory environment will affect the business.
The people
People are essential to most businesses. Due diligence examines the staffing of the enterprise and whether the people now in the business will remain there under the new owner. It also considers any need for redundancies of existing staff and the estimated cost to the business. The process of due diligence can be extended to the preparation of contracts and workplace agreements for staff to keep them with the business after the transfer of ownership.
One of the most important areas of due diligence is to look at the importance of the previous owner to the operation of the business. Is that person essential to the firm’s success? Will the new owner’s skills be sufficient to continue trading as before? Some businesses are so technology dependent that when the former owner departs they will be unable to survive.
Intellectual property
A businesses’ IP can include patents, trademarks, copyrighted materials and even customer lists and sales records. In most transfers of ownership the new owner acquires the rights to this IP and it remains with the business. Due diligence will establish the validity of all intellectual property that is included in the sale and ensure that it is transferred along with the other assets being bought by the purchaser.
The period of transition
Due diligence will establish whether the outgoing owner will remain with the business for a period of time to assist the new owner, and determine a length of time in which the previous owner is ‘locked out’ of competition with their former firm. It can also set a period of time for the incoming owner to run the business on a ‘trial’ basis while all the financials can be checked out and the outgoing owner introduces customers to the new owner. Due diligence is an essential yet flexible process that every purchaser needs to understand and incorporate into the acquisition of a business. It can take place after an offer has been made and accepted, or it can be used to help the purchaser determine the most appropriate price to pay for the business.
Business Strategy Consulting

Time to Build the Optimal Organisation?

New Strategies will drive your Organisation

Two myths are associated with Organisational Structures. The first is that organisational structures enable work to be carried out and achieved in an organisation. The second is that barriers are formed in organisations by the organisational structures.

Why are these commonly held beliefs wrong?

Firstly, work in organisations is achieved through the business processes and procedures not the organisational structure. These are both formal procedures and informal procedures.

Formal procedures are typically documented and are a part of an induction or training program or built into the logic of a computer program. The handling of customer complaints, order entry, warehouse stocktaking are usually formal procedures in many organisations. They have step by step activities, authorisations and approvals.

Informal procedures are essential for organisations to function as they cater for the non-standard demands that fall upon the organisation. These can be associated with a customer’s special requirement, new product development but are typically associated with solving problems and issues with the organisations. Informal procedures rely upon networks which are not defined between divisions and departments; they rely upon personal relationships that have been developed over time and through necessity to achieve the organisations goals.

Secondly, barriers in organisations are more likely to be the result of poor design of formal processes and procedures in organisations. Examples of this could simply be the production department not having the correct authorisations to view customer complaints in the CRM system. The argument that organisational structures can form “silos” which leads to dysfunctional outcomes simply highlights that the procedures are not developed to link the organisational structures to provide the desired outcome. Other barriers in the organisation can be driven from weak strategies, poor application of technology, confusing policies, poor skills or incentive schemes which reward the wrong performance.

So what is the purpose of the organisational structure?

An organisation’s structure enables people to be grouped into entities which have a shared missions and common management as well as providing a reporting structure. These can be grouped by function, geography, market, process line or product line. The emergence of global organisations has lead to a trend in product based organisational structure as country boundaries are no longer as important as they were thirty years and more ago. In addition, organisations are increasing their focus upon their customers’ needs and as a result are forming division which will serve the different customer needs. Banks are structuring their organisation on retail, small business and corporate customer segments.

So what are the drivers of the Optimal Organisation?

The Leaders of organisations have the primary responsibility to interpret the external environment, such as government policy, economic trends, community expectations, shareholders expectations and markets/customers and formulate strategies that will drive their organisation forward. The Optimum Organisation design starts at this strategic level. The Optimal Organisation is the “vehicle” through which the strategy is delivered to the organisation and to the shareholders by way of dividends and growth.

As mentioned at the outset, the business processes and procedures of an organisation will deliver the outcomes of the organisation. Therefore the Optimal Organisation must meld strategy and organisational processes in such a way as to maximise the efficient delivery of the strategy. In order to achieve this efficiency, the Optimal Organisation should be designed upon the following elements:

  • Clarity in those business processes which are critical to the success of the strategy
  • The human capabilities and skills required
  • Information and Knowledge management
  • Goals and measures which will drive the step by step progress towards achieving the strategy
  • The necessary culture required by the organisation to succeed.

The Optimal Organisation is totally focussed and driven by the strategic direction of the business. Alignment at all levels of the organisations as to the strategic goals is essential to ensure that dysfunctional distractions do not emerge over time, resulting in resources being focussed on non-strategic issues.

The Optimal Organisation must be a key consideration in the annual review of strategic direction. Most organisation neglect the organisational structure during strategic reviews. The result being, they have an “evergreen” strategy but the organisation is in capable of responding the meet the new business challenges. This outcome result in expectations not being met, internal frustration and over time highly dissatisfied customer, shareholders and employees.

Finally, there is no prescriptive optimal organisation, no “flavour of the month organisational fad” but rather a design that effectively and efficiently ensures that a direct and tangible links are achieved between strategy, business processes and the people within the organisation.