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Post-merger integration: “Most mergers fail. Why?”

History teaches us that most mergers have failed and most of the anticipated synergies have not been realized. This is an undeniable and uncomfortable fact for many companies. By whatever measure one chooses, i.e. stock price, revenues, profits or return on equity, most deals fall short of expectations. It does not seem to matter how thorough the planning is. Somehow, somewhere between the merger announcement and its implementation, all the promise fades, synergies become non-existent, savings disappear, cultures clash and finally people get fired. Why? Surely, no one enters into a merger intending to do a bad job and destroy value.

What are the main concerns in post-merger integration?

In most deals, companies devote many hours to the structuring of a deal. However, they rely mostly on their experience of previous mergers and are reluctant to spend enough time and allocate enough resources to planning the execution. Our experience indicates that companies face challenges not only in the areas of integration structure, organization, process, systems and how to achieve synergies, but also in many other areas such as:

 

  • Losing “day-to-day” business focus
  • Focusing on one’s own territory in order to gain synergies, rather than on the big picture
  • Not sufficiently clarifying roles, responsibilities and transparency
  • Not spending enough time defining all the needed projects; i.e. taking shortcuts
  • Not keeping key deadlines; i.e. program meltdown
  • Overloading the people involved in integration projects
  • Inability to manage many projects simultaneously
  • Inability to maintain the motivation of both organizations
  • Not paying enough attention to internal conflicts
  • Inability to settle power games

How can Synergy help?

We provide our clients with a comprehensive service, lasting from pre-integration to full integration and the realization of synergies, as follows:

 

Pre- integration phase:

    • Conducting operational DD
    • Identifying and validating synergies
    • Analyzing integration and carve-out issues
    • Providing facts as a basis for negotiation to complete the transaction

 

Integration planning phase:

    • Establishing integration vision, governance and architecture
    • Defining a new business model and organization for the merger
    • Defining new roles and responsibilities in each integration work stream
    • Validating and defining ways to capture synergies and creating a business case
    • Developing an integration master plan
    • Developing the tools needed to monitor project progress for each work stream

 

Post-merger integration phase:

    • Identifying the projects and tasks needed to complete the integration
    • Developing a detailed project plan for each project
    • Capturing synergies
    • Participating in and managing the projects 
    • Coordinating and steering the big picture concerning integration

 

It's important to start the merger integration process as soon as possible. To be successful, you must sow the seeds of integration well before the deal is closed. Successful integration is like changing the tire of a formula one car during a grand prix. It must be well-planned, quick and precise. Everyone should know what must be done and how. All activities must be scheduled in advance, and there should be a team manager who sets the rules and manages the whole race.

Lean Sourcing: “Creating Sustainable Savings”

Strategic sourcing has enabled many companies to achieve tremendous savings. However, many purchasing organizations that have implemented strategic sourcing processes and technology have begun to realize that there is still room for improvement – for example, how to create long-term sustainable partnerships with their suppliers that would improve supplier performance in areas other than price (such as on-time deliveries and quality). To tap this additional potential, some of these purchasing organizations have begun to coordinate efforts with their own supply chain and operational managers to achieve the benefits that Lean Sourcing could bring. The magic of Lean is that it introduces new production and operating processes that result in greater organizational productivity. In the case of manufacturing, this is expressed in reduced inventories, increased throughput and improved customer service levels. Lean also stresses lasting, collaborative relationships with suppliers and business partners.

What are the main concerns in Lean Sourcing?

Many companies are finding it increasingly challenging to keep the total cost of ownership under control, while maintaining high levels of service. Therefore they have decided to adapt lean manufacturing concepts and gain greater visibility into each other’s operations with a view to integrating resources and reducing waste. This can be achieved by:

  • redesigning sourcing and procure-to-pay processes to tap hidden potential and make cost savings.
  • improving intra-company collaboration between departments to increase value-adding activities and decrease waste.
  • reshaping supplier relationships so that they focus together on cost reduction opportunities.
  • improving the quality, consistency and transparency of work procedures and information sharing.

How can Synergy help?

We help our clients transform their purchasing and procurement operations into dynamic organizations that promote co-operation, create flexibility between suppliers and customers, and eliminate waste and unnecessary activities with a view to reducing the total cost of ownership (TCO). We work closely with clients at all organizational levels to help them achieve their business goals by:

  • supporting the development of long-term partnerships with suppliers and external partners in order to reduce total costs.
  • developing streamlined processes both internally (R&D, purchasing and supply chain) and externally in order to reduce waste and costs.
  • identifying potential savings areas for Lean Sourcing initiatives, as well as hidden and unidentified cost areas.
  • supporting the re-definition of structures and organizational setups in order to support collaboration that tackles hidden costs and aims at driving down TCO.
  • creating integrated demand-supply planning processes in order to improve timelines, reduce inventories and raise quality.
  • helping to simplify corporate taxonomy and rules of engagement in order to push for efficient and lean flows within organizations.

We believe Lean Sourcing is the key to the future sustainable savings that companies are looking for.

Service operations – “an opportunity area for growth”

Increasing competition, declining sales and more service-aware customers are putting pressure on companies to rethink and improve the level of their offerings. Superior service and service delivery can – and increasingly do – provide competitive advantage for both manufacturing and service companies. In the case of manufacturing companies, service may offer an important means of differentiation.

By their very nature, service operations are labour-intensive and complex to manage. Repetition and the ability to provide consistently good service inevitably becomes a “symbol of excellence”, and is a “must” to survive in this industry.

What are the main concerns in service operations?

Many companies are finding it increasingly challenging to keep service costs under control (especially labour costs) while maintaining high levels of service.  At the same time, companies are seeking ways to identify and capture opportunities for faster growth and higher efficiency that could include:

  • creating new service concepts to meet market needs in a value-adding and cost-competitive way
  • redesigning the service process and organization
  • defining the service business model, geographical coverage and service footprint
  • improving capacity utilization and billable hours
  • improving time-to-repair and reducing price and margin leakages
  • managing demand, seasonality and availability of workforce (full-time and part-time)
  • providing a level of service leadership that equals that of manufacturing
  • planning service delivery and defining the needed skill levels
  • improving service delivery quality and matching service requirements (right time, right part, right place, right method)
  • identifying potential acquisitions and successfully integrating them
  • developing measurement and compensation systems to improve profitability and customer satisfaction

How can Synergy help?

We help our clients to transform their service operations into dynamic, profitable organizations that promote growth, show flexibility and achieve high levels of customer satisfaction. We work closely with clients at all organizational levels to help them achieve business goals by:

  • developing service strategies to reach top-level growth
  • developing new service concepts that leverage the current client base and identify opportunities to grow profitably
  • identifying potential acquisitions and successfully integrating them to gain synergies
  • defining structures and organizational setups on the regional or national level that are optimal in terms of meeting market needs
  • redefining the footprint of service and competence centres
  • improving margins through the benchmarking of customer sales, opportunity analysis to create improved sales efforts, and customer management
  • improving operational processes  and work-streams to deliver reliability and on-time service capabilities
  • improving the efficiency of service operations through the analysis of internal time reports, the identification of improvement areas, and the creation of tools to eliminate poor work approaches
  • creating and setting up management models and support systems for service operations
  • optimizing client and service routings to create economies of scale and boost margins
  • re-scoping the service portfolio and generating new services for the current client/asset base to increase top-level sales

 

We believe service operations are the key to future sustainable growth and profitability that companies are looking for.

Innovation capabilities of Finnish companies – benchmark study

Synergy conducted an innovation study from April to June 2013 by interviewing 50 Finnish companies, all operating internationally but with significant development activities in Finland. The study combines benchmark results from the Finnish research, benchmarks from a sample of over 200 companies in an international study, public innovation research and Synergy's own 20 years of experience assisting clients in their innovation and product development activities.

Our key findings from the Finnish research

 

Companies don't invest enough in radical innovations. Finnish companies tend to be risk averse and not to focus sufficiently on finding truly innovative products. Whereas incremental development projects renewing an established product line are, of course, needed, it is shortsighted to believe that sticking only to the 'tried and true' will bring competitive advantage in the long run. The risk is that these companies will be out-innovated by their competitors, instead of taking the lead themselves.

 

* Good portfolio management is the key to successfully executing an innovation strategy. Partly related to the previous point is the role of portfolio management in implementing an innovation strategy. Today's product portfolio will need to be optimized in one to three years. Predicting the future is difficult, and the more innovative a development project is, the riskier it is. However, focused and effective portfolio management allows the critical factors to be weighed up: the available people vs. new projects, the division of products into different categories or segments, low-risk short-term projects vs. higher-risk longer-term projects, etc.

 

There is a lack of high-quality product ideas. The study showed that many companies rely too much on internal resources when looking for new product or service ideas. They don't involve the customers enough in their efforts to gain a feel for what could be a successful product on the market. Nor do they sufficiently utilize partners or research. It was also apparent from the studied companies that, in practice, the generation of ideas is often limited to a small group of people instead of leveraging the whole personnel.

 

* Professional project management is the foundation. Surprisingly, even in companies where projects are normally well-managed with respect to resources, schedules, business cases, etc., there is no professional project management culture related to innovations. While this alone will not create successful innovations, it is a basic framework within which to work and learn, for example, why a project didn't turn out as planned.

 

* Much can be learnt from startups concerning effective product development. The more progressive companies use development techniques and philosophies originating from startups or small companies. 'Agile Development', 'Lean Startup' and the 'Business Model Canvas' are the best-known tools and have been internationally applied across industries in both large and small companies. In Finland, only the software industry has broadly applied agile development methods for many years.

 

Report download

 

Download Innovation report

 

Infogram on study highlights

 

Want to participate?

 

We welcome companies who want to benchmark their innovation capabilities against the current benchmarks. The service is free of charge, but requires a 45-minute phone interview with two to three senior executives responsible for innovation or R&D in the company. The benchmark report provides a good initial perspective on each company’s innovation capabilities and the areas requiring development and is best suited for medium and large corporations.

 

For inquiries related to the study please contact Christoffer.Winquist (at) synergy.fi

 

Strategic sourcing and procurement

Strategic sourcing is the process of planning, implementing, evaluating and controlling strategies and operational purchasing decisions in order to achieve a company’s long-term goals. Strategic sourcing is about optimizing the supply base, contracting long-term relationships involving multifunctional and parallel supplier interaction, in order to create cost advantages.

Within sourcing and procurement there is an underlying, designed process in place that integrates key functions with “real time” information sharing and access to plans, forecast data and actions, in order to make the best value decisions.

 

Sourcing core competency gives competitive advantage.

 

What are the main concerns in sourcing?

Companies can struggle with different kinds of strategic sourcing problems, depending on the market conditions and competition, the supply base, internal organization, processes and skills.

 

They can include:

  • Unrealized savings or hidden costs
  • Poor contracts or poor selection of partners
  • Dispersed procurement organization and lack of adequate steering and control
  • Supply risk and supplier problems (poor performance, no  access to best talent or technology)
  • Uncertain or changing environment
  • Imprecise performance metrics
  • No accounting of total cost of ownership commitment
  • Insufficient knowledge or experience of the supply market
  • Poor competence within sourcing organization
  • Underutilized technology and information
  • Insufficient internal organizational compliance management
  • Non-working supplier relationship management (bad relations, opportunistic behavior)

 

How can Synergy help?

Our sourcing development program framework reduces the barriers to long-term success and identifies levers for the creation of savings.
Our framework treats individual areas within the sourcing practice as parts of the whole sourcing process.

  • Definition of objectives and scope, and alignment of goals with business strategy
  • Spending analysis and opportunity assessment
  • Understanding the supply market, drivers and trends
  • Development of sourcing strategy and strategic options accordingly
  • RFx events, negotiations and analysis to find and choose appropriate suppliers
  • Supplier relationship management and development
  • Performance management to sustain results

 

We feel that sourcing is a key area and has the highest potential for impacting total enterprise costs.
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