People Count More than Numbers in Merger and Acquisition Success

Contributed by Ed Johnson

There are lots of good reasons for one company to merge with or acquire another. Maybe it is to expand a product line or add new technology. Perhaps it is to add customers or establish a new market presence or channels of distribution. Possibly to lower costs and achieve economies of scale. Or perhaps just a simple “roll-up” of smaller units and/or competitors to rapidly grow the existing business.

Lessons Learned from the People Side of the Business

blog aprilBut despite all of the logical business reasons for doing the deal — not the least of which are expectations of accretive revenues and earnings — most mergers fail — a well-documented fact. Why?

There are many reasons, but research cites incompatible cultures as the leading cause for failure. The body rejected the transplanted organ. And when the deal-makers are so intently focused on the legal and financial issues that they underestimate or disregard the people and culture issues, it often comes back as the Achilles heel that undermines the intended effect. In international deals, the added complexity of different countries and cultures makes the people issues all the more difficult and increases likelihood of failure.

The Hard and Soft Issues

So, “What do I need to do?” you ask. There are “hard” people issues to evaluate and “soft” issues to evaluate. Of the “hard” issues, make a checklist of things you need to know. Examples include: What are the pay levels, by grade and by title? What are the benefits? Are there employment contracts? Severance agreements? Other government mandated notice and/or severance requirements? Pending or expected employment-related litigation? Union contracts? Seniority provisions?  Pension liabilities? If the acquiring organization is going to alter the pay and benefits, how will this be communicated to the affected employees in a way to ensure that they perceive they are being treated fairly with no “take-a- ways”? Once the deal is finalized, the engagement and acculturation of the acquired workforce needs to start very respectfully, but assertively, on Day One.

A Hard Lesson

While with Solectron (and later with Quest Software), our due diligence processes included detailed and careful review of the people side of a proposed acquisition. Even in the context of the people side of the deal, there are “hard” costs/issues (i.e., staffing levels, pay rates, benefits and pension costs, etc.) as well as “soft” people issues (i.e., will the acquired team – especially the leadership – quickly successfully transition over to the new culture). In Solectron’s case, the operating unit being acquired was typically a manufacturing site of a major OEM (i.e., IBM, HP, NCR, etc.) that was to be transformed from a cost center into a profit center, complete with its own highly incented reward structure – even in a very low margin business (gross margins were under 10%). Getting the people side of that transaction right was as critical to the success or failure of the unit as were manufacturing methods, supply chain optimization, and financial management.

Of the “soft” issues, the most important is whether the individual and collective leadership of the acquired organization can and will successfully transition to the new (acquiring) organization and its culture.  What management styles will work best with the acquiring organization? Interview the individual execs of the organization to be acquired to assess whether they can and will successfully transition into the new culture. Where you sense resistance, better to know up front and cleanly sever the employment relationship rather than bring the resistance into your camp.

In the costliest example of the latter, Solectron overpaid for the acquisition of Smart Modular Technologies in 1999. The founder CEO of the acquired organization (Ajay Shah), was paid handsomely for his equity share of the $2.2B acquisition and gained a seat on Solectron’s Board. He also convinced Solectron’s CEO at the time (Ko Nishimura) to stay on to lead the acquired entity. Smart remained virtually autonomous to Shah’s leadership, largely ignoring Solectron’s direction and processes, successfully rebuffing efforts to rein them in. A few short years later, Smart was divested in 2004 for $100M cash – or roughly 4.5% of the purchase price – to an investor group led by Shah. Even if you factor in the diminishment in value of tech stocks when the tech bubble burst, that was a big hit to Solectron’s balance sheet. Ouch!

To Contrast the Smart Modular deal with an example of a more successful acquisition, Solectron was much more effective with the integration of C-Mac Industries, a Canadian-based EMS provider comprised largely of former Nortel Networks manufacturing plants that was acquired in 2001 in a $2.7B stock deal. In this case, the lead executive, Rick Rollinson, a veteran of Nortel and later C-Mac with great leadership and people skills, made a rapid and smooth transition to the highly entrepreneurial culture of Solectron, and was a key contributor to the success of the acquisition and its integration into the Solectron culture. He continued to lead the operation until the acquisition of Solectron by Flextronics.

In my experience with many deals, large and small, domestic and international, the people issues were more likely to be instrumental in the success of the merger or a primary contributor to the failure. Having a well-planned and comprehensive approach to the due diligence AND to the subsequent business integration can substantially enhance the odds of success.

 

Ed Johnson is an HR Exec who “Gets it” — one who thinks from a CEO’s perspective. After completing an MBA, Ed has compiled more than 30 years of HR executive experience in mid-to-large, domestic and international high tech and manufacturing organizations. Ed can be reached at info@ceriusinterim.com

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Does Your Leadership Style
Build Trust?

Contributed by Steve Hale and Sam Young

It is not completely clear how the relationship between knowledge sharing and interpersonal trust should work without a worker losing their uniqueness and value to an organization. The challenge of creating a diverse workforce where sharing is open and petty bickering is minimized is still an area of continuing research in leadership, particular across multiple cultures.

trustIn essence, leadership is the ability of the individual to accomplish a vision or set objectives through the efforts and activities of followers. Fundamental to leadership in all but the most trivial forms is the creation of a trust relationship. Organizations spend vast amounts of time and money to develop or expand leadership traits for selected individuals. Developing trust is a valuable trait.

Today, identifying leaders in terms of authenticity, relationship building, and emotional intelligence is more than just another fanciful trend or the latest craze in creating leaders.

Answer the following questions to see how well you develop and enable trust within the organization.

Building Trust:

  1. Willing to accept blame for team failures. As the leader, you are responsible for the outcome, so do not shift blame to your followers.
  2. Each person or knowledge worker has unique value, find it.  As the leader, it is your job to identify the value or strengths in every team member.  Use that strength(s) for the benefit of the team.
  3. Always work to build up each member of the team and do not criticize in front of peers or superiors.  Always acknowledge each person’s effort and never take credit for something that the team accomplished.
  4. As the leader if you fail, admit it to your team. If you hide the failure so will the team members.
  5. Build a culture where there is allowance for failure, and encourage each team member to experiment with ideas they developed and bring the idea forward. If a leader values innovation, they must also be prepared for some failure. Failing to unleash the creative force of your followers will leave the team weak and shallow to your competition.
  6. When there is disagreement the leader should develop an environment where constructive debate is encouraged. False agreement is destructive in the long term. If you are in a position where your team rarely disagrees, it is likely they are afraid of discussing the “truth”, which is ultimately fatal to leadership.
  7. Always do what you say and by when you say you are going to do it. If the commitment turns out to be impossible to accomplish communicate to those affected. Be honest and committed to your commitments made to the team.

 

Steve Hale leads technology teams that perform network and security assessments for various companies. He has taught technology at the university level and has earned degrees in accounting, information systems, business and leadership. He can be contacted at info@ceriusinterim.com

Sam Young assists companies in IT strategic planning, technology turn-around solutions, and has functioned as an interim CIO. With over thirty years of IT experience, his expertise spans many different industries – health care, education, hospitality, manufacturing, and e-commerce. Sam can be reached at info@ceriusinterim.com

 

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Transitioning from Selling
to Marketing

Contributed by Robert M. Donnelly

Every business starts with a solution to a problem by an entrepreneur. Entrepreneurs by nature are great salesman as they are selling their solution with a passion.

The Evolution of Growing Firms

bloggHowever, there comes a time in the evolution of every company when they have to transition from selling to marketing. Selling is asking for the order, while marketing is creating a demand in the mind of the customer so that they seek you out.

Malcolm Gladwell, the well-known author, captured this transition in his tome’ – The Tipping Point. Gladwell describes this best with his definition of the Tipping Point being when a company begins to attract the “early majority”. This is that point when the “early innovators” have broadcast their excitement with the value proposition to the extent that this has attracted the next larger group of customers (the early majority) needed to propel the brand to the next level of growth.

Let’s use the iPhone as an example of this process. When introduced at $599.00 the first group of customers – the “Innovators”, bought the initial model based on the passionate sales pitch made by Steve Jobs. As a result of the innovators rave reviews when the next model was introduced at $399.00 the early adopters were the second segment of eager customers. Then based upon their experience (“I love it”) and sharing and broadcasting their satisfaction the iPhone reached the “tipping point”, and the rest is history.

The transition from selling to marketing for any entrepreneurial founder is difficult because they envision themselves as a super salesman which is what got the company to where it is. However, there are only so many hours in a day and at some point in the evolution of any company the strategy that the company was founded upon starts to falter. This is the time when the management team has to revisit the value proposition and begin to promote the brand and adopt more of a targeted marketing strategy.

Brands exist in the mind. The only way anything gets into the mind is by displacing what already exists. Marketing then is the battle for the customers mind. So a brand must own a position in the mind like the iPhone displaced the cellular phone and is now being displaced to some extent by Android and other smart phone technologies.

This battle for a position in the mind of customers requires any company to employ marketing strategies to begin to create an “emotional bond” with the brand in the customers mind. The most successful companies have established a brand equity with their customers and reinforce their value propositions to maintain that position. In so doing they grow the value of a customer.

Founders/CEO’s of growing firms must make the transition from selling to marketing if they are to sustain and grow the value of their brand.

Robert M. Donnelly is an author, educator and brand builder – both for businesses and individuals. His new book: Personal Brand Planning for life is available on Amazon. Contact Robert at info@ceriusinterim.com

 

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Is Your Company Buying for the Wrong Reasons?

Contributed by Jack Quarles

blogmarchLeo Tolstoy famously started his novel Anna Karenina by writing: “All happy families are alike, but every unhappy family is unhappy in its own way.”

Strong opener, huh? The sentence was later adopted to describe situations where success depended on multiple factors, all of which had to go right.

Let me twist that into another version: there are lots of BAD reasons to spend money and time at your company, but there’s only one good one.

Seven BAD Reasons to Buy

Let’s identify the most common BAD reasons to buy, and illustrate each with a sentence:

1. Inertia

“We had an executive retreat last year, so we should have one this year.”

2. Groupthink

“They have a social media consultant, I guess we need one too.”

3. Politics

“The EVP will be really unhappy if we challenge this research project.”

4. Guilt

“This vendor has given us a lot of free testing, we ought to buy something from them.”

5. Fear

“Let’s buy now before the price goes up, and while they have plenty of stock!”

6. History

“We have already spent $3M on this project, to stop now would be admitting failure.”

7. Cronyism

“Ed’s a good friend, so let’s renew his contract and keep him around.”

Any of these sentences may be worth discussing and may even play a role in the decision. But none should be the main REASON you buy.

Take another quick scan of the list. As you consider your past purchases, have any been driven by one of the unhappy seven? Which two or three are most likely to sway your team?

Could those bad reasons be influencing your upcoming decisions? If so, you can cut through with the one happy, valid reason to buy.

The One Good Reason to Buy

All happy company purchases are alike in this way: they move your organization closer to your goals.

That’s it.

There must be a clear purpose to the purchase. If you can’t make a direct connection between the purchase and the goal, then any price you pay is too much.

Does this strike you as too simple? If it does, then your organization may be exceptionally good at identifying and writing down the objectives and goals associated with major purchases. Most companies are not good at this, so they periodically have to ask themselves: “Now why again did we buy this?”

The Purpose of the Purchase

Here are a few examples following a simple formula:

Formula: The purpose of [the purchase] would be to [the purpose] so that [the benefit – in cost or revenue].

Example 1: The purpose of an executive retreat would be to confirm our strategy and make sure everyone is on the same page so that we don’t spend money pursuing the wrong initiatives. This gets us closer to our goal of reducing costs.

Example 2: The purpose of a social media consultant would be to direct our online efforts so that our content marketing reaches the widest audience. This gets us closer to our goal of bringing in new customers.

If you’re looking for drama, I recommend Anna Karenina or any of the bad buying reasons above.

For clarity and economy, take some extra time to document the purpose of the purchase.

 

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Shadow IT and Selling to the Enterprise

Contributed by Phil Morettini

morettiniIf you’ve ever worked in a large corporation or been in the enterprise software or hardware business for any length of time, you’re familiar with the frustrations expressed by AND about the IT department. The IT department is typically the scorn of many folks who rely on them for the systems and support which allow them to do their jobs.

Let’s face it, we’re totally dependent on technology these days. When was the last time you did anything of significance in your work life with pen and paper? If the systems (or electricity) go down in a major office building the occupants might as well (and often do) go home–not much is going to get done until things are restored to normal.

IT departments therefore usually control the keys to the kingdom–the ability to enable or prevent you from getting your work done can depend upon how well they do THEIR jobs. But in many cases from a user perspective IT departments have appeared to be slow-moving bureaucracies, with no real motivation to be particularly responsive to end users. In some situations this view may be unfair (although in some it is definitely true!).

If you look internally at the operations within an IT department you often see under-staffed but extremely committed folks who never catch up and are constantly putting out major fires. While some IT departments are very poorly managed and don’t understand that internal users are their customers, in other cases the departments are considered a cost center to be squeezed to increase profitability–making a sub-optimal outcome fait accompli.

What results can you expect from a part-time or interim IT executive? See case studies, clients videos and more here.

So the reasons for poor IT performance are many and varied. As a result of this perception, internal users have sometimes taken things into their own hands because they HAVE to get their work done somehow, someway.

This phenomenon of money spent on technology outside of the official IT budget has been labeled as “Shadow” or “Stealth” IT. I can tell you it has been going on since the dawn of IT time in the days of the technology dinosaurs (The glass house of IBM Mainframes). Even in the early days  there was always tension and an ongoing tug-of-war between corporate end users and the guys in the glass house. When I worked at an HP division back in the 80′s our marketing department created (and funded) our own “mini-IT” department of four people, just to allow us to get the data we needed in any kind of timely fashion. The was necessary because the Divisional IT department was a black hole for nearly any request. Not long after that the networking (LAN) market started at the department level by users as a way to wrest back some control over their technology destiny from the folks in the glass house.

Gartner in a recent study forecast that the Shadow IT portion of technology spending will account for 35% of total spending by 2015. Whether or not the exact number is right, this is indeed huge and can’t be ignored by vendors selling into major corporations.

Key trends and implications for enterprise software & hardware vendors:

BYOD

This is one of two defining trends in the evolving enterprise IT marketplace. Mobility is no longer a luxury in corporate life, but a necessity. Since consumer mobile devices swamped those originally favored by IT, it’s become commonplace in many corporations to be able to work using the mobile device of your choice. This has put the IT department in the uncomfortable position of reacting and adapting to users desires, rather than dictating device and application usage driven by their own goals. This has opened up the enterprise market to a wider variety of hardware and software vendors than would have been under the old order. While traditional enterprise marketing and sales methods to end user management and IT are still applicable, it’s also possible now to reach this market through a much more “mass market” or “bottoms up” approach: Get enough individual end users to love your product and the corporate types will have to work with you. This is essentially how both the iPhone and Android devices started out and eventually came to dominate the corporate Smartphone market.

Cloud Services

Along with BYOD this is the other major defining trend of the modern Shadow IT movement. Defined broadly this can include SaaS applications, file sharing, storage, social media, etc. The common thread is that they are hosted, web-based and easy enough to use so that corporate end users can deploy them without IT intervention if they choose. Similar to BYOD this enables many more vendors to penetrate the corporate world than when there was a short list of traditional on-premise vendors approved by IT. In many corporations there is a constant struggle by IT to rein this in, as it does create some real concerns within companies (see below). But at least for now, many smaller technology vendors with shorter track records have a greater shot–IF they have truly innovative, easy-to-use applications and services valued by corporate end users.

Market & Sell Direct to Users

Appealing directly to end users has always been important to many enterprise vendors. In many, if not most cases enterprise deals have always been some form of a co-sell to end-users & IT. But the direction internally within major corporations is that more and more of the technology budget is in the hands of business users rather that the IT professionals. The recent trends discussed here have IT departments “on the run” with a corresponding positive outcome of greater IT responsiveness to user desires. So even for money not officially controlled by end users, it’s more important than ever to identify the actual users within the account and strive at all costs to gain their buy-in. The days of IT departments dictating enterprise-wide applications with minimal input from major users are waning.

Applications that give IT back some control

IT Departments are understandably concerned and bitter about the loss of budgetary and overall control.  Some of this attitude is sour grapes, but not all. Anytime applications and data become more distributed, concerns about inconsistent business logic, security and compliance increase–and appropriately so. So ironically while many application developers may be able to now sell directly to end users with minimal or no IT interference, there is a correspondingly increased need to secure and manage this distributed technology. As a result, vendors of products which enable IT to do this key part of THEIR jobs have a big opportunity and should find themselves in ever greater demand.

So there’s a few things I think about the Shadow IT phenomenon and enterprise vendors. Agree, disagree–any other thoughts? Fill us in with a comment below

Phil Morettini is an accomplished senior executive with over 25 years experience in high tech businesses. He  specializes in maximizing traction for High Tech firms in both high growth and challenging operating environments. He can be reached at info@ceriusinterim.com

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