Tag Archives: competitive advantage

3 to the 3rd Acquisition Integration Method: Manage the Transformation

Strategic buyers. Private equity. Venture capital. Banks. Foreign concerns. All manner of players participate in the current acquisition frenzy. Dealogic predicts that 2015 will see a record level of acquisitions – $4.6 trillion worldwide. 3 to the 3rd’s work in this space is focused on post-acquisition integration with a smattering of work in pre-transaction financial analysis, operational due diligence, and acquisition integration planning.

Acquisition integration methods abound. Many are focused on the what – the business operations and financial aspects of absorbing the acquired into the acquirer. Best practices highlight the importance of the human capital factor in the integration process, also known as change management. Unfortunately, change management often receives no more than lip service and often includes no more than communications.

In our experience, successful acquisition integrations weave change management throughout all activities and actions. Change management spans executive alignment, stakeholder alignment, communications, training, business case development, managing resistance, and coaching & counseling.

With this in mind, we use a 5-stage Acquisition Integration approach with an overarching theme of Transformation. These post-transaction 5 stages are depicted below.


3TT3 Acquisition Integration Slide


Stage 1: Mobilize: Engage all stakeholders in the acquired and the acquirer’s organizations from the front-line to the executive team; gain alignment with integration vision, strategies, and plans

Stage 2: Launch: Flawlessly execute first 90 day plans; retain key employees; retain customers; retain channel partners; develop product and technology roadmaps; re-think go-to-market actions

Stage 3: Transform: Integrate strategies, operating processes, systems, organizations, financial reporting; and G&A functions

Stage 4: Remediate: Monitor against acquisition integration critical success factors; proactively course correct and re-align integration; stabilize operations

Stage 5: Harmonize: Optimize the combined business; grow the top-line; drive out avoidable costs; realize the original deal thesis

In future 3 to the 3rd Knowledge Transfer pieces, we will further explore various aspects of acquisition integration.

For acquisitive firms, we hope the 3 to the 3rd method, with its emphasis on Transformation and its human factors, helps you as you plan and execute your acquisition integrations.

Effective Visions

For those senior executives seeking to develop a new vision for their firms, I offer these key attributes of an effective vision. The effective vision should:

  • Be differentiated. Is the vision substantially unique when compared to competitors and substitutes? Does the vision avoid the “motherhood and apple pie” trap?
  • Instigate change. Is the new vision aligned with a change strategy? Are we trying to “fix” something that could not be addressed with the prior vision?
  • Be inspirational. Does the vision attract people? People include clients, client prospects, employees, recruiting candidates, and people in the general community.
  • Be motivational. Does the vision cause people to enthusiastically jump out of bed each morning to help realize the vision?
  • Be enduring. Does the vision reach far into the future? How enduring is the vision? Will it catch a mega-trend in the firm’s chosen markets? The duration of an effective vision should be measured in decades, not single digit years.
  • Be out of reach. Is the vision impossible to attain? If it is, then the vision is something employees will always strive to achieve. The vision will last beyond the lives of each generation of the firm.
  • Be measurable. How do we know we are making progress? Is there something tangible that is not subject to interpretation?
  • Be aligned with a human resource strategy. Will the vision cause employees to behave the way we want? Will the vision attract and retain the people we want? Do we expect the vision to drive out the people we don’t want? Is it okay for people to opt out and leave the firm?
  • Be proudly shared. Is the vision one which can be whole-heartedly share inside and outside the firm? How will clients, recruiting prospects, competitors, and the population at large react to our vision? Does the vision align with the firm’s brand promise?
  • Be easy to articulate. Can people consistently communicate the vision without stumbling or fumbling?

Some examples of what I consider to be effective vision statements, which admittedly do change over long periods of time, include:

  • Coca-Cola: A Coca-Cola within reach of everyone in the world.
  • Apple Computer: A computer on every desktop.
  • Honda: Three Honda motors in every household.

For more about effective visions, please feel free to contact me at rowland.chen@gmail.com

Manufacturing: Worst Offenders

A colleague recently asked me what I would look for if I were to evaluate a manufacturing plant (unspecified industry). My immediate response was to initially look for what I call the “Worst Offenders”. Here they are along with the rationale for why to correct them:

  • No safety program: Do not blow up anybody or anything!
  • No connection with customers: Everyone, including manufacturing personnel, should know what value the firm delivers to customers.
  • Equipment out of calibration: Get what you expect out of your machinery and tools. This includes production, QC, test, and facilities equipment.
  • No preventive maintenance program: “If it ain’t broke, fix it anyway.”
  • No standard operating procedures: Eliminate the human and machine variations from the manufacturing process.
  • Non-integrated planning: Synchronize demand-supply, production schedules, machine usage, workforce schedules, maintenance, logistics, and other plans in order to minimize planned and unplanned downtime.
  • Lack of employee training and development: Get the most out of people.
  • Poor labor management relations: Avoid strikes, showdowns, slowdowns, and other impacts to output. And employee satisfaction is a key driver of quality and productivity.
  • No quarantine for discrepant material: Don’t mix the bad with the good.
  • Inefficient layout: Avoid suboptimal flow of material and wasted time.
  • Sloppy and slow changeovers: Prevent material contamination and achieve speed.
  • No performance measures and targets: Need to evaluate performance and know what “good” is.
  • Costs required for financial reporting do not reflect the true costs to manufacture: Need to know costs to understand product profitability for effective product portfolio management. Historical costs are also required for more accurate projections during product development.
  • No continuous improvement program: Always strive to do better for competitive advantage.

There are obviously more problems that can be present in a manufacturing operation. But these are what I consider the worst offenders and what I would use as an initial set of diagnostic tests for a manufacturing operation.

The Collaborative Improvement Environment

The responsibility of every employee, from the front-line to the executive suite, is business performance improvement. But barriers exist to realizing positive bottom-line impact, operational efficiency, organizational effectiveness, and a continual flow of improvements built on the knowledge of a firm’s employees.

According to a McKinsey & Company study, amazingly 70% to 75% of companies do not have an improvement process defined and implemented on a broad basis. Senior executives seeking performance improvement face formidable tasks such as:

  • Rallying and enabling all employees to seek improvements everyday
  • Defining and implementing a truly sustainable improvement process, sustainable for 10 years or more
  • Shifting an organization’s culture to one of collaboration and improvement
  • Leading the 4 generations which comprise the typical workforce within an enterprise, each with its own preferred style of communication and comfort with current technologies
  • Leveraging constant improvements to gain defensible competitive advantage for a firm.

Improvement Trends

Over the past several decades, stretching back to the mid-20th century, several trends exist in how businesses improve.

  • Many improvement methods have been attempted through the years with varying results
  • Each improvement method has a finite lifecycle of impact to an organization’s performance gains (see my previous blog on “Patterns of Improvement”
  • Sustainable, continuous improvement has been a promise that is seldom realized
  • True sustainability has been hampered by numerous root causes.

Root Causes of Decaying Impact

Root causes of impact decay I have observed over the years include:

  • Improvement is a special program within a firm and is not treated as part of employees’ day-to-day jobs
  • No structural incentives exist to motivate improvement behaviors
  • Outside experts, such as academics, gurus, and consultants, drive improvement programs creating the risk of high levels of organizational resistance
  • At most, only 1% to 2% of an organization’s workforce is asked by senior leadership to participate in improvement efforts, e.g. 300 to 600 people in a 30,000 person company
  • Distribution of deep improvement know-how and tools is limited to a central team or a select few specialized resources, e.g., Six Sigma Black Belts, the Quality Department, or the Office of Reengineering
  • Organizations run out of energy and endurance beyond a 3 to 5 year period
  • Special improvement programs lose focused, visible leadership from senior executives after 12 to 18 months or leadership of the firm changes and along with that comes a new executive agenda
  • New improvement methods hit the market every 4 to 6 years creating systemic discontinuities caused by implementation ramp-up times of 6 months to 2 years.

The Collaborative Improvement Opportunity

To manage through the long trough of the global recession and the protracted recovery, senior executives must improve how their business improves. Root causes of the decaying impact of improvement processes must be attacked through a focused effort to create a high performance collaboration environment.

I believe a window of opportunity exists for an enterprise to leap forward beyond its competitors by requiring and enabling employees to adopt improvement behaviors executed on a routine basis. Also, a window of opportunity exists for an enterprise’s senior leadership team to create a lasting improvement legacy for the organization.

What’s Next?

A thriving enterprise requires continual performance improvement in order to thrive. Truly sustainable improvement methods have been elusive over the past several decades. The impact of improvement programs decays as a result of a myriad of root causes, which must be addressed with a hybrid of traditional and modern techniques. Senior executives must role model improvement behaviors to drive a cultural shift in their organizations towards collaboration and the search for business improvement everyday and in every way.

Patterns of Improvement

Introduction

Here is a quick survey to gain an understanding of your experiences and points of view on the topic of improvement methodologies over the past few decades. There are nine questions. All readers will benefit from your knowledge if you post your answers and remarks as a comment to this blog. Thank you ahead of time for your contribution to the knowledge base.

Context

I have worked on dozens of business performance improvement efforts with the management of some of the world’s leading firms. During that work I helped implement several improvement methods including quality circles, total quality management, natural work teams, work elimination, business reengineering, business transformation, six sigma, lean, and lean six sigma. Needless to say, there was a wide range of results.

This brief survey draws out your own experiences and learning from improvement initiatives with the intent of developing ways to improve improvement methods themselves. And responding to the survey helps build the collective knowledge of like-minded people.

Please take the time to participate and help other improvement practitioners.

Patterns of Improvement

Below you will see four patterns (plus a blank) which depict profiles of the effectiveness of improvement methods plotted against what I call the “intervention lifecycle”. Each pattern reflects a firm’s experience with any improvement method. Note that a maximum efficacy is reached in each pattern of improvement with varying speeds. The difference among the patterns is what happens after the maximum is reached.

  • Pattern A represents a true continuous and sustainable improvement method.
  • Pattern B shows a big bang upfront followed by a rapid falling off of results.
  • Pattern C depicts a slow decline of efficacy after reaching the maximum.
  • Pattern D waxes and wanes in a sawtooth profile after reaching maximum efficacy.
  • Pattern E is any other pattern you have experienced.

Questions

  1. Which patterns most closely resemble your experiences at companies with which you have worked either within the companies or as a consultant?
  2. What were those companies?
  3. Is there another pattern you have experienced that is not depicted?
  4. Why did you select the particular patterns you picked?
  5. What caused those patterns to emerge?
  6. What worked well?
  7. What do you think might have been done to improve the improvement methods being implemented at the time?
  8. What, if anything, had been done to ensure true sustainability (as in pattern A)?
  9. Any other comments you would like to add?

Thank you again for your participation.

A Strategic Change Diagnostic: Critical Success Factors of Transformation

fall-berlin-wallSuccessful business transformations are few and far between. A business transformation is a major shift in a firm’s strategy and the subsequent execution of that strategy. Transformations necessarily involve an entire organization and can include extensive work in strategy formulation, mergers & acquisitions, core business process redesign, organizational change management, performance metrics development, and management information systems alignment.

Symptoms of corporations in need of transformation initiatives include:

  • Obsolete business models
  • Stalled growth
  • Eroding marketshare
  • Ineffective innovation engine
  • Uncompetitive cost of goods and costs to serve
  • Organization misaligned for profitable growth
  • Excessive, ineffective high cost processes
  • Unmanaged customer defections
  • Threats to industry structures and norms
  • Underperformance to financial stakeholder expectations
  • And others.

Success of a business transformation is measured by the degree of relief to the original symptoms and improvement in a firm’s business performance. That performance can be measured by top-line growth, market share gains, improved long-term customer relations, sustainable cost reductions, bottom-line increases, speed of transformation, minimized business disruption, and other tangible factors.

But what are those things that must be in place and happen well in order to achieve a successful business transformation? I see twelve critical success factors (CSFs). All CSFs are equally important so there is no priority associated with the order in which they are listed. These CSFS are:

  • Business urgency
  • Clear value add to shareholders
  • Unswerving focus on business case and value metrics
  • Shared vision of the transformed state including new cultural norms
  • Visible top executive leadership
  • Management alignment
  • Multifaceted, integrated approach
  • Disciplined governance and program management
  • External and internal stakeholder involvement
  • Sustained organizational momentum
  • Relentless embrace of change
  • Continuous learning and tolerance of minor missteps

The Diagnostic

Applying these critical success factors, a diagnostic can be used to assess which CSFs are in place and which ones need shoring up. A series of management interviews and organizational surveys can be used to gain the internal perspective. External perspectives can be obtained through interviews of customers, supply chain partners, channel partners, strategic allies, and service providers including outsourcers.  However, the risk of “opening the kimono” must be weighed against the benefits of capturing the outside viewpoint.

Slide1Responses can be summarized using “Harvey balls” for a quick visual report on where a firm is doing well and where the firm needs improvement in its transformation efforts. In the example above, one sees a business with a high degree of urgency for transformation yet clear gaps exist in other critical success factors such as management alignment and stakeholder involvement. This diagnostic provides leadership of a transforming firm guidance on execution and management of a significant undertaking.

Key Questions of the Diagnostic to Probe Each Critical Success Factor

Business Urgency

There must be a compelling reason to undertake a transformation. What are the competitive pressures? What are the pressures laid on by investors? What are the internal cost pressures? Is there a strong sense that major change should have happened “yesterday”? Is the sense of urgency ubiquitous throughout the organization or minimally, throughout the management ranks?

Clear Value Add to Shareholders

Will shareholders realize gains as a result of the transformation? What are the tangible targets? Which ones are quantifiable in both financial and non-financial terms? Do the board of directors and influential investors agree with the objectives of the transformation efforts?

Unswerving Focus on Business Case and Value Milestones

Has a comprehensive business case been developed? Does the business case incorporate competitive, customer, strategic, operational, financial, organizational, and intangible benefits? Is the business case sufficiently quantified with linkages to the top-line, costs, and bottom line impacts? What mechanisms have been implemented to ensure focus on the business benefits? Have transformation metrics been articulated so that the organization understands why transformation is necessary? Is there a process for benefits tracking, communications, and management?

Shared Vision of the Transformed Business

How will you know it when you see it? How will others know it when they see it? Has the vision been clearly articulated? Does the vision include both external and internal elements? How will the culture of the organization change if at all? What specifically will be different in competitive actions, business model, business processes, and how the firm is managed? Who does not share the vision?

Visible Top Executive Leadership

Do all members of the firm’s top executive leadership team publicly champion and support the transformation objectives and intent? How visible is the level of support? Do major decisions and actions of each executive reflect and support the transformation goals? Does the organization believe that executive support is genuine and goes deeper than simple lip service?

Management Alignment

Do all levels of management from senior executives to the front-line supervisors agree with the need for transformative change? Where are the sources of dissent? Why does the dissent exist? What remedial actions are necessary to ensure 100% alignment?

Multifaceted, Integrated Approach

Are there direct and explicit linkages between the new strategy of the firm, operational changes, new expected behaviors of individuals, new organization structures, and new supporting technologies? Are there any gaps in the transformation teams? Which initiatives have the most risk of diverging from the objectives of the transformation? Does the portfolio of transformation and change initiatives capture all the possible synergies across the initiatives?  Is there a holistic perspective? Is the timing of all milestones synchronized to maximize benefits? Do the initiatives incorporate both macro and micro orientations?

Disciplined Governance and Program Management

Who is running the transformation and ensuring integration of all the efforts? How strong is the executive sponsorship and how committed is management? Do actions reflect words and intent? Is there a transformation infrastructure that ensures rapid, fact-based decision-making? How empowered are transformation initiatives teams to make tactical decisions so they are not waiting for weeks on end for executive level sponsors to meet? Is there a program management function and structure in place to manage the tactical integration, coordination, prioritization, and synchronization of all transformation initiatives? Who looks across the portfolio of initiatives to ensure the optimal use of resources? Is there a clearly developed transformation roadmap that shows critical workstreams and milestones? Is there a mechanism for tactical communications? If there is a program management office, is it clearly understood what its role is (decision making versus administration)?

External and Internal Stakeholder Involvement

Externally, what has been the involvement of customers, supply chain partners, distribution partners, and strategic allies? Has their input been sought? Do these external stakeholders support the changes you are making during the transformation? What is the pay-off to them? Internally, are you undertaking the transformation with horizontal, cross-functional teams?  Vertically, are you involving people from the front-line as well as management? Are there people or pockets of people who potentially feel left out of developing new business models, processes, and direction? How are you ensuring high degrees of buy-in from those who will execute the transformation and be accountable for operating the business in its transformed state?

Sustained Organizational Momentum

Is the organization capable of sustaining change during the course of the transformation which will last anywhere from two to five years? What interventions, such as communications, are in place to capture and keep the hearts and minds of the general population? What are the barriers to sustaining the organization’s momentum and what are the specific actions required to remove or overcome the barriers?

Relentless Embrace of Change

Does your firm embrace change? How flexible are your teams and other working groups? Are individuals adaptable to change and capable of working differently? Are people open to trying new things with uncertainty? Do managers promote and support change? How much endurance does your organization have? Are there naysayers who are infecting the organization with resistance? If so, what is leadership prepared to do with them?

Continuous Learning and Tolerance of Minor Missteps

By its nature, businesses that transform are delving into terra incognita with many unknowns and risks. Does your organization’s environment reward discovery and learning? With every transformation decision and subsequent actions, does a process exist for review and correction? Are “mistakes” viewed as learning opportunities without going overboard to a zero-consequence environment? Is management tolerant of missteps and can managers supervise groups that include individual risk takers?

Closing Questions: How is Your Firm Performing in Its Transformation?

Is your firm undergoing transformation on a grand scale? If so, how would you assess the effort against the critical factors for successful transformation? Is there true business urgency to warrant the investment in time and money required for the necessary changes? Which CSFs are the strongest on which to build a foundation for change? Which CSFs have been neglected and now require remediation? Over time, is the situation getting better or getting worse?

An Improvement Story: When “RIF” Does Not Mean “Reduction in Force”

DuPont NylonOur small, twin-engine turbo-prop had flown over Lookout Mountain just prior to descending into the Tennessee River Valley. As we landed at Chattanooga Municipal Airport, it rained a summer rain which tries but fails to provide relief to the heat and humidity of the Deep South. I collected my luggage, descended the 20 steps onto the tarmac, and thought about this new assignment.

In the early 1990s, we were asked by Ed Woolard, then CEO of DuPont de Nemours, to undertake a massive improvement program aimed at transforming the 190-year old chemical giant into a progressive, modern enterprise as measured by (1) nimbleness in the competitive marketplace, (2) responsiveness to customer needs, (3) agility in manufacturing operations, (4) advancement of its people, (5) profitable, global growth, and (6) attractive financial returns to shareholders.

The business unit of this assignment was the DuPont Nylon division. A DuPont scientist had invented nylon in 1935. Initial products such as nylon-bristled toothbrushes and nylon stockings drove the first wave of growth for the business. The Second World War drove the next wave with high demand for nylon to be used in vehicle tires, flak jackets, and parachutes. The third wave of growth emerged post-WWII with the booming U.S. population and domestic economy.

This third wave of growth spurred DuPont executives to decide to build a chemical plant in Chattanooga and begin nylon manufacturing operations in July of 1948. Exactly 44 years later, our team stepped onto the 500-acre site to launch the transformation of the facility. The still air sweltered and the smell of burnt plastic stung our nostrils.

The reception was mixed. Some people truly welcomed outside help, others accepted us as it was the politically correct thing to do, and a fairly large contingent viewed us as doing “the devil’s work”. Those that truly welcomed outside help formed the nucleus of what was to become an ever-growing portion of the workforce focused on making improvements around the plant.

As we uncovered opportunities for improvement, we discovered there was an enormous amount of pent up demand among the employees for positively changing the business. The employees, however, needed ways to channel their energy to make change happen. They lacked the necessary tools to start initiatives and then, see their ideas through implementation. Our main thrust in the early stages of the transformation was to provide the tools and the training required to ultimately realize results.

At the time, improvement tools included team building, problem solving, statistical analyses, root-cause diagrams, work elimination, and many other traditional methods. But we were surprised to learn not all employees had one critical and fundamental tool. And that fundamental tool was the ability to read and write!

Approximately 10% of the 2,000 employees were functionally illiterate. Each person functioned in his job, understood his responsibilities, and knew how to operate his machine as this knowledge was passed to him on the job “by the last guy”. Even more startling was that nearly 30% of those who volunteered to participate early in the transformation program fell into the functionally illiterate group. This would not work for the transformation.

We quickly teamed with plant management to launch an adult literacy program to improve the reading and writing skills of those employees in need. This served not only as a critical step towards engaging employees in the transformation effort, but also as an opportunity to fill a gap in people’s life skills. The benefits included increasing management’s ability to engage a higher portion of the workforce in the transformation program, an enhanced stature for DuPont in the community, and the new readers were enabled to further grow and develop individually.

As a result of the transformation efforts, the Chattanooga facility realized significant improvements. Machine uptime increased total effective capacity as a result of improved preventive maintenance, accelerated product changeovers, and synchronized material moves. Fixed costs decreased from interventions targeted at eliminating unnecessary spending. Manufacturing material costs stepped down through reductions in scrap, rework, and other sources of waste. Cash flow from operations increased enough to mostly self-fund a $250 million plant renovation project completed in 1997.

RIF does not mean “reduction in force”. RIF means “reading is fundamental”.

Are you experiencing pent up demand and energy among your employees to make improvements to your business? Are you leading major change in your enterprise today as Ed Woolard was at DuPont in the 1990s?

Do your people have the fundamental and necessary improvement tools given the global nature and complexity of the today’s business environment? What modern improvement methods are you implementing which give your organization a sustainable competitive advantage? What are your competitors implementing?