Skill Insight for Mergers & Acquisition Success
Mergers & Acquisitions are an important part of many business strategies. Organic growth can be supplemented by buying companies and integrating operations. The benefits of M&A include:
a diversification/differentiation of offerings
economic scaling and capacity growth
expanded market share
access to operational expertise and capabilities
reduced of financial risk.
See article by Marvin Dumon, Investopedia, linked below.
Unfortunately, for shareholders, it has been well documented that most mergers and acquisitions fail to deliver anticipated results. In fact, Roger L. Martin writes in HBR, “M&A is a mugs game, in which typically 70-90% of acquisitions are abysmal failures.”
At Ibbaka, we believe that skill insights is the critical lever used to manage successful M&A scenarios.
Skill Insight #1 – What skills must the buyer bring?
Acquirers need to understand the expertise they will to contribute to make their acquisition more competitive. What is the valuable skill transfer that the acquirer should execute to materially improve performance? Both Roger Martin and Marvin Dumon argue that, as the acquirer, you need to know how run the company acquired. To do this, you need to bring specific value-added skills and expertise to the merged organization. It is that enhancement to the performance of the acquired business that will create the value. Roger Martin provides the historical example of Pepsi’s skill transfer to Frito-Lay. Pepsi had skills in running a direct store delivery (DSD) logistics system that was a significant competitive advantage in the snacks category. The category in which Frito-Lay also played. DSD managers from Pepsi headed Frito-Lay’s operations and achieved significant market share and growth. Marvin Dumon’s example of the Quaker Oats acquisition of Snapple resulted in losses. Here, the acquirers thought it could leverage supermarket and retailer relationships but they had failed to recognize that half of Snapple’s sales came from the smaller channels. Quaker Oats also failed to tune their marketing to appeal to Snapple buyers' branding sensitivities.
Skill Insight #2 – What skills is the buyer leveraging and what are they getting?
Identify the critical people you need to retain for their skills and relationships. For the combined entity to succeed, it is critical that the two organizations have or can develop connecting skills, the skills that help people to work together. Cultural clashes between the originating entities creates tension. Furthermore, uncertainty of personal circumstances resulting from the merger the acquisition fosters an environment where individuals look to protect existing roles. This perception by most people in a M&A situation inhibits individuals to fully help their companies to realize the changes they, as individuals, need to make to reach the synergistic rewards of the merger. Without a good set of connecting skills or a plan to develop them, a merger will likely fail due to organizational friction. People and the skills associated with them need to be integrated into the new business entity. The goal of the merger is to expand business opportunities, establish critical competitive advantage by sharpening differentiation and leveraging each of the originating companies' strengths. In a M&A scenario, you need to identify the skills are held by different people and understand the combinations that create new business possibilities.
Skill Insight #3 – What skills will create synergies?
Shared skills are necessary for scaling and new market penetration. To understand shared skills, it is important to drill down into the details and to compare how a skill is applied at each pre-merger and acquisition company. Shared skills, connecting skills and complementary skills should all be identified and managed as part of the merger execution.Identifying other critical skills depends on the strategic goal the merged entity. Having the skill profile of a company and its people is a critical part of corporate development both prior to and after the M&A.
Skill Insight is a service provided by Ibbaka that will help M&A stakeholders to:
Understand how the skills in an organization are being applied
Identify the key patterns of differentiating and core skills
See which people contribute the most to differentiation
Find skill gaps and critical risk areas
Understanding these four aspects materially reduces risk in favour of optimizing opportunity in M&A scenarios.
For further reading, take a look at resources cited:Marvin Dumon, Investopedia, Biggest Merger and Acquisition Disasters Roger L. Martin, HBR, M&A: The One Thing You Need to Get Right
