The typical approach to improving productivity focuses on assessing variance in quality, time, rate, service, or cost, around which management systems develop incrementally or revolutionary. Organizational Health Index, on the contrary, focuses on improving performance through improved alignment of organizational systems. For example, by improving competence of key components such as mindset, work design, technical expertise, [...]
The typical approach to improving productivity focuses on assessing variance in quality, time, rate, service, or cost, around which management systems develop incrementally or revolutionary.
Organizational Health Index, on the contrary, focuses on improving performance through improved alignment of organizational systems. For example, by improving competence of key components such as mindset, work design, technical expertise, or relationships; or through improving the interface between work processes, or the interaction between work practices.
Simply put, the capability of an organization to achieve its strategic goals and their alignment defines an organization’s health. The Organizational Health Index (OHI) leverages logical consistency to manage the organizational health. OHI entails quantifiable evaluations, diagnostics and recipes for success that allow the leaders to calculate and accomplish the organizational health goals, required to sustain long-term performance.
Organizational health refers to the need to address soft (leadership, direction or culture) and hard factors (accountability, reporting lines, or controls) affecting performance. The organizational health index is an ongoing continuous improvement system applicable across an organization. The OHI measures not only the current health level, but also determines the next steps for an organization. There are numerous advantages to the organizations implementing it, including:
- Benchmarking organizational health against the rivals.
- Aligning the organizational systems, units, and people by communicating shared goals and priorities; and highlighting and plugging the disconnects.
- Improving organizational performance by pinpointing variances and opportunities to improve health and drive business success.
The OHI Diagnostic Framework provides a road map for leaders and managers to improve organizational health. It measures the organization against the 9 most critical health outcomes; these outcomes comprise both hard and soft organizational elements. Careful measurement of these 9 elements has a proven link with improved financial performance and earning above-average EBITDA margins:
- Coordination and control
- External orientation
- Innovation and Learning
- Work Environment
- Shared Vision
- Strategic Clarity
- Employee Involvement
- Role clarity
- Performance contracts
- Consequence Management
- Personal Ownership
Coordination and Control
- People Performance Review
- Operational Management
- Financial Management
- Professional Standards
- Risk Management
- Customer Focus
- Competitor Insights
- Business Partnerships
- Government and Community Relations
- Authoritative Leadership
- Consultative Leadership
- Supportive Leadership
- Challenging Leadership
Innovation and Learning
- Top-down Innovation
- Bottom-up Innovation
- Knowledge Sharing
- Capturing External Ideas
- Talent Acquisition
- Talent Development
- Process based Capabilities
- Outsourced Expertise
- Meaningful Values
- Inspirational Leaders
- Career Opportunities
- Financial Incentives
- Rewards and Recognition
- Open and Trusting
- Internally Competitive
- Operationally Disciplined
- Creative and Entrepreneurial
Years of research have shown the healthiest companies to align with 1 of the 4 recipes for organizational health. These recipes constitute concrete management practices and activities for the organization to implement. Leaders need to acknowledge and align to the recipe that is appropriate for them. They can use these success recipes to plan and implement a change program that results in sustainable outcomes. The 4 recipes for organizational health are:
- Market Maker
- Continuous Improvement
Interested in learning more about the other recipes for Organizational Health and the OHI Diagnostic Framework? You can download an editable PowerPoint on Organizational Health Index here on the Flevy documents marketplace.
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In this era of rapid change only organizations that are evolving and continuously learning can flourish. Successful organizations discover how to tap their people’s commitment and capacity to learn at all levels. A Learning Organization is a place where people continually expand their capacity to create the results they truly desire, where new ideas and thinking are [...]
In this era of rapid change only organizations that are evolving and continuously learning can flourish. Successful organizations discover how to tap their people’s commitment and capacity to learn at all levels.
A Learning Organization is a place where people continually expand their capacity to create the results they truly desire, where new ideas and thinking are nurtured, and where people are continually learning to see the whole together. A Learning Organization is established on the principles of innovation, free flow of ideas, and a consistent focus on transforming the ways of doing business.
Learning Organizations adopt 5 distinct practices to succeed, which form the “building blocks” of such organizations:
- Systematic Problem Solving
- Learning from Experience
- Learning from Others
- Knowledge Transfer
Five key characteristics distinguish a Learning Organization from the rest. These attributes serve as the guiding principles and practices that these organizations study and integrate into their DNA. A blend of these core characteristics helps organizations adopt a more interconnected way of thinking:
- Systems Thinking
- Personal Mastery
- Mental Models
- Shared Vision
- Team Learning
By adopting and mastering these core characteristics organizations become communities that employees can commit to. Let’s, now, discuss the first 3 characteristics in detail.
Systems thinking allows people to study businesses as bounded objects. Learning Organizations possess information systems to assess the performance of the organization and its components as a whole. Systems thinking states that all the characteristics must be present together in an organization for it to be a Learning Organization. However, some experts consider that the characteristics of a Learning Organization are gradually acquired, rather than developed simultaneously.
Personal mastery is an individual’s commitment to learning. It is about becoming more productive by applying skills to work in the most constructive manner. It involves clarification of focus, vision, and to interpret reality objectively. Training, development, and continuous self-improvement are the sources of individual learning.
Mental models include assumptions and generalizations retained by individuals and organizations, which go undetected, as mental models limit peoples’ observations. Learning Organizations need to identify and challenge these models. For a learning environment it is important to replace confrontational attitudes with an open culture that promotes inquiry and trust, introduce mechanisms for uncovering and assessing organizational theories of action, and discard any unwanted values.
Role of Leadership
Productivity and competitiveness relies on knowledge generation and processing. Therefore, organizations not only have to invest in new machinery and systems to improve production, but also focus on knowledge generation and learning of their people. Learning Organizations require a new view of leadership. Leaders in Learning Organizations create workplaces that help people keep building their capabilities to understand complexity, clarify vision, and improve shared mental models.
Peter Senge describes the 3 key qualities of leaders to be critical in leading the Learning Organization:
The key roles of a leader as a designer in Learning Organizations is designing the policies, strategies, and systems. The designer also outlines the governing ideas — the purpose, vision, and core values — for the people. They plan and develop the learning processes whereby people throughout the organization can deal productively with the critical issues they face, and cultivate personal mastery of the team members in the desired learning disciplines.
According to Peter Senge, the notion of management in this modern age should be replaced by “stewardship” — whereby control and consistency should be swapped with partnership and choice. The leader as a steward tells ‘purpose stories’ about their organization and relate those stories. They explain the reasons of the tasks that are required to be performed, the need for the organization to evolve, and the purpose of evolution. They learn to listen to other people, involve them, and develop vision — both individual and shared.
Interested in learning more about the key attributes of leaders and core characteristics of a Learning Organization? You can download an editable PowerPoint on Learning Organization Primer here on the Flevy documents marketplace.
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Transforming 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 [...]
Transforming 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.
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:
- Customer Relationship Management (CRM)
- Market Research
- Research & Development (R&D)
- Customer Service
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.
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 [...]
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:
- What should be the focus of the Nudge unit?
- Should the Nudge unit be placed at the headquarters or at the business unit level?
- Which resources be made part of the Nudge unit?
- What are the critical success factors to consider for the unit?
- How to communicate the results and early wins?
- What should be done to tackle skepticism and resistance to change?
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.
Interested in learning more about the Nudge Theory? You can download an editable PowerPoint on Nudge Theory: Key Challenges here on the Flevy documents marketplace.
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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 [...]
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:
- 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.
- 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.
- 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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Takeovers 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 & [...]
Takeovers 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.:
- Strategic Objectives
- Organization & Culture
- 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.
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.
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:
- Direct Hit
- Deferred Decisions
- 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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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 [...]
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:
- Form of Synergy to Be Created: Cost-cutting versus growth
- Required Pace of Integration: Quick versus steady
- Degree of Integration: Extensive versus partial
- Nature of Integration: Buyout versus a merger
- Commencement of Integration: Urgent or delayed
- Integration Project Team Organization: Clean or shared
- Decision Making Style: Implicit and prompt versus lengthy and analysis based
- 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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Stiff 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 [...]
Stiff 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.
A 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:
- Source of Synergies
- Leadership Ownership
- Customer Insight-driven Opportunities
- Salesperson Driven Strategy
- Ambitious Targets and Incentives
- Sufficient Support
- Performance Management
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.
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FlevyPro (a subscription service from our partner Flevy) offers a comprehensive library of consulting frameworks, presentations, and business templates. FlevyPro recently surveyed its subscribers and learned their biggest fans are essentially all independent consultants or owners of boutique consulting firms. So, Why is this the case? The reason is simple. A core competitive advantage of global consulting [...]
FlevyPro (a subscription service from our partner Flevy) offers a comprehensive library of consulting frameworks, presentations, and business templates. FlevyPro recently surveyed its subscribers and learned their biggest fans are essentially all independent consultants or owners of boutique consulting firms.
So, Why is this the case?
The reason is simple. A core competitive advantage of global consulting firms is they have access to an internal, proprietary database of consulting frameworks and past deliverables. This allows them to deploy inexperienced project teams to clients, because their teams are armed with well-researched and proven methodologies. FlevyPro now provides the smaller firms that same–if not greater–access to a library of consulting frameworks.
After the survey, Flevy has since increased efforts to produce more and more consulting frameworks. They are adding several frameworks every week. These frameworks cover a wide range of management consulting disciplines–e.g. Strategy/Transformation, Lean/OpEx/Process, Digital, Change, Organization, HR/Talent, IT, etc. They are all based on the research of those global consulting firms (including McKinsey, Accenture, and Deloitte) or renown business academics.
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