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adventure-beautiful-blue-sky-666737Most Transformation initiatives fail to achieve their anticipated objectives.

Change Management is all about engaging and rallying people — at all levels in the organization — to make the transition and sustain that change. It is critical to ensure that the entire workforce is eager and ready to embrace the required new behaviors. More often than not, the technical side of a change initiative is well planned, but it’s the implementation part that fails — particularly, changing the mindsets and behaviors of the entire workforce to enable change to stick.

Managing change is not an occasional affair; it is an iterative process that works on motivating human behavior to accept and adjust to a desired state of mind. The process is naturally evolving as it adapts in accordance with the feedback from the people.

Change Management demands a thorough yet organized approach to enable the “people side” of change to work — essential for accommodating and sustaining Business Transformations. This entails assisting people incorporate new mindsets, processes, policies, practices, and behaviors.

A methodical approach to make the entire workforce accept and support change constitutes 8 critical levers:

  1. Defining the Change
  2. Creating a Shared Need
  3. Developing a Shared Vision
  4. Leading the Change
  5. Engaging and Mobilizing Stakeholders
  6. Creating Accountability
  7. Aligning Systems and Structures
  8. Sustaining the Change

Now, let’s discuss the first 4 levers in detail.

1. Defining the Change

The first step entails outlining the rationale, scope, and results of the change initiative for the enterprise, key departments, and roles. There is a need to define critical elements, including the requirements from the initiative, the execution planning, and the adjustments needed to encourage people to work better.

The project sponsors need to clearly outline the essence of the proposed Transformation initiative, to realistically embed Change Management into the design of the program, and develop effective Change Management plans. An initial baseline of the expected effect of the program on people should be performed. The baseline also helps analyze the impact of the change program — in terms of skills inventory, head-count indications, adjustments in accountabilities and relationships, shifts in incentives and pay structures, and future learning needs.

2. Creating a Shared Need

Once the change and its impact has been delineated, the next thing to do is to create a shared understanding of the rationale for Transformation across the organization. To create a shared need for the Transformation endeavor, the change sponsor needs to build awareness of the necessity for change amongst the senior team, key stakeholders, and the entire organization; demonstrate to the people the benefits of change; and set up a feedback mechanism across the organization. The alignment afforded by developing a shared need for change helps build a strong footing for Transformation.

3. Developing a Shared Vision

An essential element of implementing transformation entails delineating a clear vision that outlines critical actions and the anticipated outcomes. It helps in encouraging and involving the workforce in the Transformation initiative, giving them a sense of purpose by becoming a part of something bigger. The vision of the organization after Transformation should be coherent with the company values and mission.

4. Leading the Change

This lever entails developing change leadership and implementation skills needed to drive and enable sustainable change. Engagement and commitment of senior leaders is essential for leading change. They are responsible for planning their and the entire workforce’s actions, demonstrating or role modeling the new mindsets and actions, designating program sponsors — e.g., business unit leaders who are enthusiastic about the Transformation initiative and also act as change agents — motivating others to support transformation, and setting up a road map for the change leaders to steer the organization to achieve the anticipated performance milestones.

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In today’s business environment, learning and knowledge have become key success factors internationally and intangible resources are of vital knowledge management strategyimportance. The struggle between competing firms has moved from tangible resources to intangible resources where knowledge and the ability to use knowledge have crucial roles.

Organizations are becoming more global, multilingual, and multicultural with people being required to work smarter and faster. People have become more connected with them being expected to be “on” all the time and the response time measured in minutes instead of weeks.

Indeed, today’s work environment has become more complex with businesses being threatened by the vulnerability, uncertainty, and crisis that could have been prevented if Knowledge was better managed. Better KM can help companies anticipate uncertainties and design strategies to lessen their impact.

While managers would like to take a strategic approach to avoid an impending crisis, often they find themselves fire-fighting. With a Knowledge Management Strategy, corporate executives can better manage the complex, chaotic, and non-predictable environment, in which companies must achieve performance.

Putting Strategy on Knowledge Management

Knowledge is important to efficiency and productivity. Hence it is critical that organizations manage their Knowledge effectively and strategically. Having a strategy for Knowledge Management will provide companies a plan to better manage information and knowledge for the benefit of the organization.

Effectively, a good KM Strategy can gain senior management commitment to KM initiatives and attract resources for implementation. In the end, it can provide the basis against which the organization can measure its progress.

Taking the 3 Knowledge Management Strategies to Fore

Companies are now feeling the pressure of the need to be more competitive. Taking on a Knowledge Management Strategy can lead competing firms to take the high road to success.

KM Strategy 1: Reckless Negligence
Reckless Negligence is doing little or nothing to improve capabilities in information, data, and KM. This is one strategy that has ceased to be viable in today’s business environment.

KM Strategy 2: Knowledge Competence
The goal of Knowledge Competence is to be an efficient and effective company with sufficient emphasis on responsible management of Knowledge. To date, at least 50% of the companies in the world are in this category.

KM Strategy 3: Knowledge as a Competitive Advantage
The goal of Knowledge as a Competitive Advantage is to up the ante in the spirit of continuous improvement. Undertaking the third strategy involves making KM a critical capability of the organization.  At least 20% of the companies in this world are in this category. This is often adopted by Knowledge-Intensive Industries.

Essentially, our company must create a robust Knowledge environment. However, this can only be achieved when 8 KM critical success factors are put in place.

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Information Technology works best when it is tied tightly to our company’s overall business goals.  On the other hand, business unit executivesEnterprise Architecture have remained doubtful about IT’s ability to support them in creating value. Despite the best intentions of managers of both sides, companies continue to struggle to integrate IT systems and to determine whether IT actually improves performance.

This problematic tension between the IT departments and business units has inflicted on many companies for years.

One approach to closing this gap is the discipline called Enterprise Architecture (EA).

What is Enterprise Architecture (EA)?

Enterprise Architecture (EA) is a logical framework that establishes the links between business strategy and organizational structures, processes, databases, and technologies.  The goal of EA is twofold. The first goal is to add value through its support of business goals. Second is to enable companies to measure the value added.

If a company wants to capture better customer information in order to energize an effort to sell additional higher margin products and services to existing customers, the company can use an EA system to align its customer relationship management, information retrieval, and sales planning software. EA applications can also be set up for staff training, account management, and frequent assessments of the campaign’s efficacy.

Enterprise Architecture (EA) has been known to add value through its support of business goals, improve operational efficiency, and agility.  There are identified changes visible upon the application of Enterprise Architecture on organizations.

The architecture of an enterprise is described with a view to improving the manageability, effectiveness, efficiency, or agility of the business, and ensuring that money spent on IT is justified.

The 4 Key Elements to Gaining Enterprise Architecture Maturity

Application of Enterprise Architecture (EA) requires certain levels of maturity. This is necessary for EA to be able to deliver greater impact on bottom lines. The amount of value our company gets depends on the level of maturity of the EA efforts.

There are 4 key elements to Enterprise Architecture Maturity that must be addressed.

  1. Strategic Alignment. The first key element ensures that the design of EA functions is included in both technology and the strategic planning process.
  2. Leadership and Talent Development. The second key element relies on the training and development of Enterprise Architects who understand the business and can further strengthen the organization’s EA capability.
  3. Performance Management. Performance Management accurately measures the results of EA efforts that show an impact on the business.
  4. Organizational Design. Organizational Design is the foundational element of Enterprise Architecture. It involves the frameworks, the tools, and the methodologies necessary in developing a functional capability.

Enterprise Architecture is not an easy task. But, is it worth it?

Based on a survey conducted by Booz & Company (now PwC), executives of 60 financial services companies and government agencies were asked to evaluate EA’s effect on performance.

Organizations that had implemented Enterprise Architecture (EA) reported that the approach had impact and value. It has decreased their cost, reduced complexity, reduced risk, and increased agility.

In this world where operational efficiency, risk mitigation, and agility have become essentially important to achieving competitive advantage and business sustainability, companies have no other recourse but take the road to achieve Enterprise Architecture (EA) maturity and readiness.

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“Knowledge has power because it controls access to opportunity and advancement.” – Peter DruckerKnowledge Management primer

The 21st century is undoubtedly a century of knowledge. The everyday usage of available advanced information and business technologies, and internet in business activities just show how rampant corporations are engaged in information exchange and Knowledge Management.

In the light of globalization, companies are now exposed to an unpredictable and complex competitive environment. Pressures are put on companies to adapt quickly to survive in the competitive market. The vital strategic resource is Knowledge. Companies have started to realize the major value of an intellectual resource. The central role of Knowledge Management in making a quality decision has never been emphasized as much as today.

Intellectual resources and Knowledge are now contributing to revenue generation and increasing reputation. It has contributed to creating barriers to entry of potential competitors, increase customer loyalty, and create innovation. In today’s world, the success of the organization now depends largely on continual investment in learning and acquiring new Knowledge that creates new business and improves current performance.

Understanding Knowledge Management

Knowledge Management (KM) is a multidisciplinary approach to achieving organizational objectives
It is an integrated approach to gathering, analyzing, storing, and sharing knowledge and information within an organization. It ensures that the right information is delivered to the appropriate place or person at the right time to enable informed decision making.

An enterprise-wide ability must be created to transition data and information into critical knowledge. This is to ensure service stability, maintainability, and performance leading to organization wisdom.

Knowledge Management evolves around 3 primary spheres that are closely integrated with each other.

  1. Technology. Technology provides a secure central space where employees, customers, partners, and suppliers exchange information, share knowledge and guide each other and the organization to better decisions.
  2. KM Processes. KM Processes include standard processes for knowledge contribution, content management, retrieval
  3. People. This refers to the participation of team members in knowledge sharing, collaboration, and reuse to achieve business results.

At Flevy, we’ve developed a Knowledge Management Primer that examines and discussed the purpose and nature of the key components of Knowledge Management. It demystifies the KM field by explaining in a precise manner the key concepts of KM tools, strategies, and techniques, and their benefits to organizations.

The quest to set up a Knowledge Management system requires an understanding of the essential elements integrated within the Knowledge Management Approach. This includes an understanding of the DIKW Model or Pyramid, the importance of Knowledge Assets, and the structure and priority of information based on its Knowledge Hierarchy.

What is Knowledge Hierarchy

slide 1 Knowledge Management Primer

  1. Operational Knowledge. The focus of Operational Knowledge is to gain operational effectiveness. It helps organizations understand how service performance, compliance, and overall IT operational effectiveness is managed.
  2. Tactical Knowledge. Tactical Knowledge is focused on service value. It helps organizations understand how to manage and ensure service value.
  3. Strategic Knowledge. Strategic Knowledge is focused on benchmarking and advanced analytics. It helps organizations understand the effects of operational decisions.

In the Knowledge Hierarchy, it must ensure that resulting knowledge is well defined, specific, comprehensive, and with high average quality information.

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banking-brochure-commerce-1374544Transforming a product-driven firm to a customer-driven enterprise is inevitable in order to stay ahead in today’s extremely competitive markets. The days of mass marketing, mass media communications, and little-to-none direct interface with customers are long gone. The emphasis, now, should be on maximizing customer relationships and becoming customer-driven organizations rather than merely selling products. The technological advancements of this age offer potent tools for organizations to utilize in order to engage with the customers directly; gather and mine information; and tailor their products and services appropriately.

Leading organizations are making huge investments in data analytics and transforming their strategies to focus on the customers’ evolving needs. They are striving hard to improve their customer retention and deepen their relationships utilizing rich customer insights, tailoring products according to the personalized needs of the customers, and presenting the offerings in a variety of store formats.

The Customer Department

To become customer-centric organizations, companies need to transform their traditional marketing function into a new unit called the “Customer Department.” The Customer Department should be created to deliver maximum profits to the customers and nurturing customer relationships instead of pushing products.

This necessitates transforming the organizational structure, culture, strategy, and reward programs in line with the shift in focus from managing transactions to cultivating customer relationships. Specifically, there is a need to add the position of Chief Customer Officer (CCO)—under the CEO—and various Customer Managers underneath the CCO. The roles and responsibilities of these positions should be:

Chief Customer Officer (CCO)

The most prominent shift in a customer-centric organization is replacing the traditional Chief Marketing Officer (CMO) role with the Chief Customer Officer (CCO) role. Reporting to the CEO, the CCO is primarily responsible for devising and executing the customer relationship strategy, directing all the client-facing roles, and fostering a customer-driven culture in the organization. The main tasks of the CCO position include ensuring smooth flow of customer information, increasing productivity utilizing various metrics, and regularly interacting with the customers to understand their concerns.

Customer Managers

In a customer-centric organization, the Customer Managers (CMs) are in charge of various customer segments. They are accountable for enhancing the value of a customer relationship by ascertaining customers’ product needs. To make this role effective, there is a need to realign resources—people, budgets, authority—from product managers to the CMs.

The main tasks of the CM position include defining customer needs, extracting and interpreting customer insights utilizing various sources—e.g., mining customer forums, blogs, and online purchasing data—, and striving to improve the lives of the customers.

Additional Responsibilities of the Customer Department

Customer-centric organizations make the Customer Department accountable for some of the critical customer-facing functions which were once considered an integral part of the Marketing Department. These functions include:

  1. Customer Relationship Management (CRM)
  2. Market Research
  3. Research & Development (R&D)
  4. Customer Service

Customer Department--Customer Centric Organization

Customer Relationship Management (CRM)

Traditionally, the CRM function belongs to the Information Technology Department owing to the technicalities involved in managing the CRM systems. The function demands evaluating the customer requirements and behaviors—which is a core function of the Customer Department alongside gathering and analyzing data necessary to execute a customer-development strategy.

Market Research

In customer-centric organizations, the Market Research function goes all the way from the marketing unit to other units that deal with customers—e.g., Finance for payments, Distribution for delivery. These organizations take a more granular view of customers’ behaviors, and gather and incorporate clients’ feedback to further improve customer lifetime value and equity.

Research & Development (R&D)

The R&D function should also report to the Customer Department, as, nowadays, the traditional R&D-driven new product development models are conceding to creative collaboration between the client (users) and producers. It’s not a good idea anymore to pack tons of features into a product and cause feature fatigue to customers. What’s more appropriate is to seek and incorporate customers’ input into product features by involving them into the product design process.

Customer Service (CS)

CS is another function that should be handled by the Customer Department to guarantee quality of service and to nurture long-term relationships. This important function isn’t worth outsourcing overseas as this often causes negative impact to the clients and organizations alike, due to poor customer service.

Interested in learning more about Customer Metrics, Customer Department, and Customer-centric Organizations? You can download an editable PowerPoint on Customer-centric Organizations: The Customer Department here on the Flevy documents marketplace.

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Changing the behaviors of people is the foremost issue with every transformation initiative.

Nudge theory is a novel Change Management model that underscores the importance of understanding the way people think, act, and decide. The model assists in encouraging human imagination and decision making, and transforming negative behaviors and influences on people. The approach helps understand and change human behavior, by analyzing, improving, designing, and offering free choices for people, so that their decisions are more likely to produce helpful outcomes for the others and society in general.

Nudge theory helps reform existing (often extremely unhealthy) choices and influences on people. The theory is quite effective in curtailing resistance and conflict resulting from using autocratic ways to change human behavior. The model promotes indirect encouragement and enablement—by designing choices which encourage positive helpful decisions—and avoids direct enforcement. For instance, playing a ‘room-tidying’ game with a child rather than instructing her/him to tidy the room; improving the availability and visibility of litter bins rather than erecting signs with a warning of fines.

Organizations are increasingly using behavioral economics to optimize their employee and client behavior and well-being. Nudge units or behavioral science teams are being set up in the public and corporate sectors to influence people to address pressing issues. For instance, to increase customer retention by changing the language of support center staff to motivate customers to consider long-term benefits of a product; or to make employees to follow safety procedures by placing posters of watching eyes to remind them of the criticality of the measure.

An effective Nudge initiative necessitates much more than deploying a few experts in heuristics and statistics. The senior leadership should lay out a conducive environment for successful behavioral transformation. This entails assisting the Nudge unit to focus, place it appropriately, create awareness, train and de-bias people, implement effective rewards, and follow high ethical standards.

The leadership needs to think about and prepare to tackle 6 key challenges Nudge units face when implementing effective behavioral transformation initiatives:

  1. What should be the focus of the Nudge unit?
  2. Should the Nudge unit be placed at the headquarters or at the business unit level?
  3. Which resources be made part of the Nudge unit?
  4. What are the critical success factors to consider for the unit?
  5. How to communicate the results and early wins?
  6. What should be done to tackle skepticism and resistance to change?
Nudge Theory
Leaders who are able to confront these challenges improve the chances that the unit’s nudges will cause real change in the organization and in its productivity.

Let’s, now, dive deeper into the first 3 key challenges.

What should be the focus of the Nudge unit?

The foremost action in creating a Nudge team is to clearly spell out the value proposition for the unit. The leadership needs to define the purpose of creating a Nudge unit. They need to clearly outline whether the Nudge team will focus on employees, on customers, or on both. For instance, the purpose of its creation could be to deal with workforce motivation, to make better decisions in boardrooms, to increase the internal capabilities, or to improve the behavior of employees. The focus on customer issues, for example, entails encouraging better pension provision, inculcating behavioral science into the marketing mix, or to analyze the experiences of customers and employees—e.g., in-store service initiatives, digital operations, and HR processes.

Should the Nudge unit be placed at the headquarters or at the business unit level?

The second challenge is to decide where to deploy the Nudge unit. The placement of the Nudge unit depends on the strategic purpose of creating the unit. At some companies, it is housed centrally within the corporate headquarters as a global Nudge operations center; a few have accommodated the unit within the R&D or marketing department; some have benefited by moving the unit away from the corporate center so as to be closer to products and services; whereas other practitioners believe that the customer-focused behavioral science team should sit within the product management domain.

Regardless of where the Nudge unit resides, its flexibility and assimilation with other methods of behavioral change—e.g., cognitive neuroscience, social psychology, and personality-trait science—are critical.

Which resources be made part of the Nudge unit?

Another critical element for the success of the Nudge unit is hiring and deployment of right resources. At the commencement of the program when key capabilities are typically not available in-house, most organizations hire people from the outside for their Nudge units. A few companies have recruited solely from the in-house due to the criticality of institutional knowledge and the long learning curve required to acquire it, whereas some have recruited across different geographies. On average, the unit comprises of 3 to 8 members, however, larger organizations can have more people scattered globally.

The ideal composition of the Nudge team is to include behavioral scientists and specialists in psychology, marketing, and advanced data analytics. The team should include people with the right attitude and abilities—e.g., curiosity, can-do attitude, problem solving, entrepreneurial mindset, ownership, and communication skills.

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adult-elderly-woman-newspaper-2877151

Corporate Social Responsibility (CSR) is an organization’s commitment to produce an overall positive impact on society.  CSR encompasses sustainability, social and economic impact, and business ethics.  It makes a company socially accountable of its operations, stakeholders, and the public.  Businesses undertake CSR programs to benefit society while boosting their own brands.

CSR affects every aspect of business operations and functions.  Encouraging equal opportunities; partnering with organizations practicing ethical business methods; putting part of earnings back into environment, health, and safety initiatives; and taking care of communities and charity are all examples of CSR initiatives.

Communities, customers, employees, and media consider CSR vital and gauge companies based on these initiatives.  Executives of leading companies consider CSR as an opportunity to deal with critical issues innovatively, reinforce their organizations, and serve the society simultaneously.

The Need for CSR Implementation

Organizations need to come up with a robust approach to unlock potential benefits and value from CSR for them and for the society.  The organizations practicing Corporate Social Responsibility do that with one of the following 4 objectives in mind:

  • Philanthropy:  These initiatives (e.g. corporate donations) make the companies and society feel good, but produce low value for the business—questionable repute building benefits to companies, but offer much to society.
  • Propaganda:  These CSR initiatives are predominantly geared towards promoting a company’s standing, but offer little real value for the society.  This form of CSR is more of advertisement and becomes risky if there are any gaps between the firm’s commitments and actions.
  • Pet Projects:  Some companies engage in CSR initiatives that support the personal interests of senior executives.  These initiatives are much touted about, but are actually of little value to the business or community.
  • Smart Partnering:  These initiatives concentrate on common themes between the business and the community.  Organizations, in this case, create innovative solutions by drawing synergies from partnerships to tackle major issues concerning all stakeholders.

Among these objectives, Smart Partnering offers maximum opportunities for shared value creation and finding solutions to crucial business and social challenges.  Whereas for the society, smart partnering helps create more employment opportunities, improve livelihoods, and enhance the quality of life.

Guiding Principles for CSR Initiative Selection 

An effective way for the companies to maximize benefits of their CSR efforts is to map the current initiatives; identify the objectives, benefits, and resources responsible for realizing value from those initiatives; and define the projects valuable for addressing key strategic challenges.

Pet projects, philanthropy, or propaganda are easy to plan and execute.  However, the real issue is to implement CSR opportunities that bring value for the business as well as society (smart partnering).  This goal can be achieved by applying these 3 guiding principles:

  1. Focus on the right segments

Real opportunities lie in the segments where the business collaborates with and influences the society the most.  These segments help the business interpret mutual dependencies and uncover maximum mutual benefit.

  1. Recognize challenges and benefits

After finalizing the opportunity segments, it is imperative to appreciate the potential for mutual benefit.  The key is to find the right balance between the business and community and recognize the challenges that both sides face.

  1. Find the right partners

Collaboration with right partners—who benefit from business endeavors and capabilities of each other—creates a win–win situation for both sides and motivates them to achieve mutual value.  Sustainable collaboration demands long-term alliances and deeper insights on the strengths of each other.

These principles are helpful in selecting appropriate CSR opportunities, identifying societal and business needs to be addressed, and the required resources and capabilities.

The Case for CSR Benefits 

The goal of unlocking mutual benefits—associated with CSR (specifically Smart Partnering)—is critical for long-term success of the program.  As required by any other strategic initiative, the mutual value creation objective needs to be carefully assessed based on the true value-creation potential, prioritized, designed, staffed, and audited.

The next step is to outline the list of potential benefits for the business and community.  A well-defined business case and a compelling story immensely helps involve and gain commitment from the senior leadership, investors, and employees.

Interested in learning more about how to tap CSR opportunities effectively? You can download an editable PowerPoint on Corporate Social Responsibility (CSR) Opportunities here on the Flevy documents marketplace.

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assemble-challenge-combine-269399Takeovers can turnaround companies in a short period of time, but there is a significant degree of risk to be anticipated and mitigated prior to undertaking such transactions. Lack of careful deliberation of the potential risks, insufficient planning, weak execution, and lack of focus on Post-merger Integration are the major reasons why many Merger & Acquisition deals fail to achieve their desired goals.

The course of an M&A transaction has to be set at an early stage, way before the actual deal closure. The period prior to the deal approval by the regulatory authorities and while due diligence is being done is most critical, and should be utilized by the leadership to clearly define the goals of integration, the potential risks, and a layout for the execution of the actual integration process. It is the right time to perform a structured evaluation of 3 core pre-merger considerations associated with such deals, i.e.:

  1. Strategic Objectives
  2. Organization & Culture
  3. Takeover Approach

Understanding these PMI Pre-merger considerations helps the stakeholders ascertain the unique challenges and constraints related to M&A transactions and make informed decisions. These considerations assist in developing a systematic approach to undertaking a Post-merger Integration (PMI) — which is devoid of any “gut decisions,” and ensures realization of synergies and value. These considerations set the direction and pace of the post-merger integration process.

Now, let’s discuss the 3 core considerations in detail.

Strategic Objectives

Organizations undertake Mergers and Acquisitions as a way to accelerate their growth rather than growing organically. The foremost core consideration associated with an M&A transaction is the strategic objectives that the organizational leadership wants to achieve out of it.

M&A deals take place to fulfill one or more of these 5 strategic objectives:

  • Reinforcement of a segment
  • Extension in new geographies
  • Expansion of product range
  • Acquisition of new capabilities
  • Venturing into a new domain

The PMI approach needs to be tailored in accordance with the desired strategic objectives of the deal.

Organization & Culture

The senior management should be mindful of the significance of organizational and cultural differences in the two organizations that often become barriers to M&A deals. Small companies, typically, have an entrepreneurial outlook and culture where there aren’t any formal structure and the owner controls (and relays) all the information and decision making. Whereas, large corporations typically have formal structures and well-defined procedures.

A takeover of a small firm by a large entity is bound to stir criticism and disagreement. M&A process often faces long delays between the offer, deal signing, and closing — due to antitrust reviews or management’s indecisiveness — triggering suspicion among people. This should be mitigated during the PMI process by orienting the people of the small firm with the new culture and giving them time to transition effectively.

For M&A deals to be effective, leadership needs to carefully evaluate the behavioral elements of the organizational culture and contemplate the overriding principles guiding a company.

Takeover Approach

Integrating the operations of two companies proves to be a much more difficult task in practice than it seems theoretically. Organizations have the option of selecting the takeover approach most suitable for them from the following 4 methodologies — based on their organizational structures, people, management, processes, and culture:

  1. Direct Hit
  2. Hiatus
  3. Deferred Decisions
  4. Quick and Unsympathetic Disposal

Interesting in learning more about the takeover approach and the pre-merger considerations in detail? You can download an editable PowerPoint on Post-merger Integration: Pre-merger Considerations here on the Flevy documents marketplace.

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deal-desk-greeting-862734 Mergers and Acquisitions (M&A) are unique and complex endeavors.  These initiatives demand tailored solutions keeping in view the varying environments, ways of doing business, culture of the two combining organizations, and internal and external forces influencing the deal.

These transactions necessitate making 8 important decisions based on thorough deliberation and analysis of all relevant factors well before the integration process.  These fundamental decisions and relevant factors form the 8 decision levers of Post-merger Integration (PMI).   These 8 decision levers of PMI are essential for devising an optimal integration approach and, subsequently, the success of an M&A initiative:

  1. Form of Synergy to Be Created: Cost-cutting versus growth
  2. Required Pace of Integration: Quick versus steady
  3. Degree of Integration: Extensive versus partial
  4. Nature of Integration: Buyout versus a merger
  5. Commencement of Integration: Urgent or delayed
  6. Integration Project Team Organization: Clean or shared
  7. Decision Making Style: Implicit and prompt versus lengthy and analysis based
  8. Transaction Change Management: Tacit versus one that requires comprehensive actions

These decision considerations facilitate Post-merger Integration across all industries and organizations of various sizes.  Let’s discuss the first 3 decision levers in detail now.

Lever 1 – Form of synergy to be created

The foremost element of a PMI is deciding on the type of synergy to be achieved through integration.  The question is to either focus on achieving cost reduction or growth synergies. If cost cutting is the objective of an M&A then the leadership of the combined organization needs to outline potential costing saving opportunities across the board.  This should be followed by robust communication strategy to convey the implications of the M&A program.  However, if the management’s objective is to unlock growth synergies from the acquisition, then the integration is to be treated as a strategic endeavor—e.g., understanding the customer needs, evaluating market potential, generating innovative business ideas, and developing execution plans.

Lever 2 – Required pace of integration

The 2nd lever demands from the senior leadership to determine the pace most appropriate for the integration of their newly combined enterprise—i.e., to choose between a fast track and a steadier integration approach. A majority of executives believe that PMI should be executed as quickly as possible, so that upon completion of the initiative they could divert their center of attention back to business operations.  This approach, however, involves decisions that aren’t backed by detailed analysis of facts and data, and is likely to face increased risks and uncertainties. On the other hand, a slower pace of integration is beneficial in case of a friendly takeover or expansion in a new domain.  A steadier pace of integration works well to reduce any apprehensions, cynicism, bottlenecks, and risks due to oversight.

Lever 3 – Degree of Integration

PMI necessitates gauging the appropriate degree of integration beneficial for the organization—i.e., choosing between extensive across the board versus partial integration. An absolute focus on cost synergies warrants an extensive degree of integration across all departments and geographies.  This puts extra pressure on teams in terms of work and risks dwindling enterprise focus on the customer.  Committing more resources and setting the priorities right aids in offsetting the risks associated with an extensive degree of integration. A partial integration, on the other hand, is simpler, less controversial, and predominantly warrants consolidation of sales or alignment of mission-critical processes.  This typically works well in takeovers requiring new products acquisition or addition of new customer segments.

Interested in learning more about the other 5 decision levers of PMI?  You can download an editable PowerPoint on Post-merger Integration (PMI): 8 Levers here on the Flevy documents marketplace.

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Money GlobeStiff market competition, expansion into new territories, product portfolio extension, and gaining new capabilities are the prime reasons why more and more organizations are seriously looking into the prospects of—and carrying out—Mergers and Acquisitions. However, only a few M&As achieve their desired revenue objectives.

Revenue Synergies are a decisive factor in closing such deals. However, identifying precisely where these Revenue Synergies lie and then capturing them isn’t as easy as it sounds.

McKinsey study comprising of 200 M&A executives from 10 different sectors revealed that all the respective organizations of the respondents remained short of achieving their Revenue Synergy targets (~23% short of the target on average). Securing Revenue Synergies is a long-term game. The companies that succeed in securing Revenue Synergies achieve the target in or around 5 years.

Leaders aspiring to achieve Revenue Synergies should first clarify the objectives from and the schedule of the revenue synergies, lay out the organizational priorities and go-to-market strategies, remove obstacles from realizing value, and gain across the board readiness and commitment for the initiative. Organizations that are most successful in securing revenue synergies pay close attention to these 7 guiding principles during the Post-merger Integration process:

  1. Source of Synergies
  2. Leadership Ownership
  3. Customer Insight-driven Opportunities
  4. Salesperson Driven Strategy
  5. Ambitious Targets and Incentives
  6. Sufficient Support
  7. Performance Management
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These 7 guiding principles to capturing Revenue Synergies are critical for effective integration of two firms after a merger and unlocking potential benefits from the deal. Let’s discuss the first 3 principles in detail now.

1. Source of Synergies

The inability of the leadership of the acquiring company to spot major sources of revenue that integration brings in results in losing significant pools of opportunity and failure of M&As. Realizing Revenue Synergies demands a thorough methodology to ascertain and qualify revenue prospects along markets and channels, Go-to-Market Strategies, and developing commercial capabilities. This entails:

  • Evaluating customers and markets, selling offerings of the combined firms utilizing existing and additional channels, and adequately training and rewarding the sales teams.
  • Coming up with innovative new products and bundles utilizing combined R&D capabilities.
  • Sharing best practices and commercial capabilities that mergers offer.

2. Leadership Ownership

Organizations that accomplish their Revenue Synergy objectives guarantee that their top management and employees commit themselves fully to the initiative from the onset. They identify potential value pockets from the integration, examine the assumptions about securing value, and get them endorsed by the senior management and front-line staff. The potential Revenue Strategies are regularly evaluated by inter-departmental experts.

3. Customer Insight-driven Opportunities

Accurate estimation of Revenue Synergies demands top-level estimates—assumptions on market share gain, revenue enhancement, or improved penetration—alongside comprehensive bottom-up customer insights, and evaluation of customer relationships. Other important elements to consider include analyzing the offerings being offered to customers, discerning other potential products and services required by the customers, and assessing the ability of the sales team and brands in terms of the potential they offer to the clients.

Interested in learning more about the other guiding principles of securing PMI revenue synergies? You can download an editable PowerPoint on Post-merger Integration (PMI): Securing Revenue Synergies here on the Flevy documents marketplace.

Are you a Management Consultant?

You can download this and hundreds of other consulting frameworks and consulting training guides from the FlevyPro library.