Saturday, December 15, 2007

Business to Business - Acquisitions the Four Deadly Traps

Acquisitions are meant to bring out the strengths of companies in similar fields or to build value in the supply chain. So, why do they so often fail to achieve this goal? Often time these failures occur due to business culture, overly conflicting attitudes, solution management and failure to take advantage of core competencies. All of these are intertwined in some way or another but they are the principle failures and death traps for companies that have acquired their competitor, supplier or distributor.

The core attitude of almost every acquiring company is "We have been doing specific tasks or following specific business strategies forever.  We acquired your company and you are going to have to make the changes we want". The logic here is rarely beneficial for the newly joined companies. What occurs here is that the acquiring company's business culture overpowers the acquired company's culture and key resources are lost. The attitudes that lead to cooperation are not being developed.

Business must evolve when acquisitions are made. The appropriate adaptations must be made by both companies in order for the new relationship to work. Often times employees hear speeches about these very topics but no one takes ownership to make sure the proper adaptations are made. Have the CEO make the speech and immediately follow the speech with ten noticeable changes.  The first changes should provide some relief to employees.  Look for things that employees dislike about the current conditions.  If these are tasks ask if they even need to be performed and provide direction to new more fulfilling and value added activities.  Software systems are a great place to to challenge next, they probably needed updated and can further improve efficiency. Then managers need to drive the transformation to the team. By constantly encouraging new ideas and cooperation. This brings out the best in both companies. Especially, considering that a lot of employees are worried about their job security and often rightfully so. This successfully prevents the bully effect and takes peoples minds of the uncertainty of the new environment.

The next demotivator occurring during acquisitions are conflicting attitudes. This is most noticeable when one company acquires a former competitor. For some reason people try to switch to an antiquated method of performing their job duties and resist change with every fiber in their body. For instance, one lady I worked with during an acquisition started stuffing payroll and A/P checks into envelops by hand.  The other automated the process with a machine that printed out laser checks and stuffed it directly into an envelop. The hand stuffing took a day and a half. The automated process took about thirty minutes.  I am not sure about the thought process but people take to change in odd unpredictable ways.  Depending on the employees level of skill they decide whether or not the position can be eliminated. In the case of the checks it is obvious the attitude can be eliminated by terminating the obstinate employee but it is better to prevent this type of behavior through team building.

What if the problem is with employees who are preparing the reporting package? These employees have high level skill sets.  For instance, an acquisition company had a reporting package that clearly could not handle the inter-company consolidations but still forced the use of an inadequate reporting package.  The holding company was looking to up its game by buying a large company but they relied on a reporting package meant for the smaller businesses typical of their portfolio. The manual processes of the reporting package were unmanageable and this caused high turnover. It is sad that the reporting package could have been automated with existing system the acquired company used. Due to the turnover process key employees had been lost and fires began sprouting up everywhere.  This in turn made it hard to keep new talent being brought in.  When upper-management of the acquiring company tried to force a solution they created problems with the largest company in their portfolio. They took the attitude that their needs were more important than addressing the stress of their biggest reporting company.  It took a while for them to realize the scope of their request was unmanageable given their current reporting package.  Note that this also caused accounting systems to fail and for the reported information to be less and less reliable.  All of these issues could have been avoided by addressing and listening to the concerns of the highly skilled knowledgeable employees.

The key to recognizing areas where conflict is not necessary is to simply step back and ask are both sides presenting a view that makes sense. Too often, managers get caught up with resolving menial tasks and the don't pay attention to the substance behind issues causing conflict.

The third problem is solution management. Prioritizing problems is a must. Sometimes quick solutions must be implemented, but this tactic should be the exception not the rule. If companies don't address the core problems first the problem will arise repeatedly.   Problems should be addressed at the source. All to often some managers notice a mistake corrects the mistake and moves on without questioning what caused the mistake.  Worse managers may implement a process to catch mistakes.   Focus on fixing the front end and then smoothing out the errors on the back-end. Far too often newly merged companies create a muddled mess by addressing the error and not the process.  Even if something has to fall by the wayside address the process not the issue. To put it simply don't sweep the floor before cleaning off the counters.  You will just have to sweep the floor again.

Finally, analyze the core competencies of each business and take a look at how the core competencies of one business can be integrated with the other. Focus on bright spots that can be spread throughout the business model. If the core competencies of each company are successfully integrated a strong unified front appears in the market. If in-fighting occurs the weakness will spread like a virus and a cure will be hard sought.

For acquisitions to be successful implement an attitude receptive of change, resolve counterproductive conflict, address problems from the core and take full advantage of core competencies. Avoid the four death traps that doom acquisitions and the business relationship will thrive.

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