Mergers and Acquisitions: Driving Supply Chain Benefits (8 of 10)

on Sep 8th, 2014 in BI, Analytics, & Performance Management, Change Management, Enterprise Integration & IT Strategy, | Comments Off on Mergers and Acquisitions: Driving Supply Chain Benefits (8 of 10)

Blog #8:  Physical Infrastructure Rationalization/Consolidation – Distribution Networks

For M&A activities that are focused in the same geographic market, a quick glance at a map would seem to suggest multiple synergy and savings opportunities, including:

  • Common supplier locations
  • Distribution centers located in close proximity to each other
  • Transportation routes that travel down the same highways
  • Deliveries made to the same or nearby customers

However, as tempting as it might be to jump into a strategy of consolidating distribution centers and merging freight onto common routes, a deeper analysis here is prudent.  Many of the anticipated savings from consolidated operations and transportation often fail to materialize due to other factors that are often not recognized when forecasting integration synergies.  Some of the elements that could negatively impact full savings realization include:

  • Differences in inbound supply chains
  • Differences in packaging requirements
  • Differences in documentation requirements
  • Differences in legacy host systems interfaces
  • Differences in returns policies and processes
  • Differences in order cut-off times and delivery schedules
  • Differences in service level commitments

In one instance in which two global automotive companies merged their service parts distribution networks in the U.S. market, only four of the primary twelve business processes within the warehouse could be fully integrated despite a common WMS platform.  The remaining eight activities had to be performed in parallel due to the various differences noted above.

In our next blog in this series, we will review the need and benefits associated with performing a detailed distribution network analysis to validate a physical distribution integration initiative.

Mergers and Acquisitions: Driving Supply Chain Benefits (7 of 10)

on Apr 18th, 2014 in BI, Analytics, & Performance Management, Change Management, Enterprise Integration & IT Strategy, | Comments Off on Mergers and Acquisitions: Driving Supply Chain Benefits (7 of 10)

Physical Infrastructure Rationalization/Consolidation

The third primary aspect of the M&A challenge focuses on how to best leverage the combined physical infrastructure of the two former companies in a manner that results in the most cost effective and customer focused solution going forward.  Companies must carefully analyze and quantify the holistic impacts of physical integration and consolidation scenarios, including one time transition costs, in order to fully understand the on-going implications of these actions on the firm’s bottom line financial performance.  This level of analysis can be time-consuming and often is contrary to senior management’s desire and pressure for quick wins and realization of merger synergies.

Typically, there are three primary areas that physical infrastructure initiatives focus on:

  1. Manufacturing Footprint
  2. Distribution Network Footprint
  3. Rest of Supply Chain Activities

Let’s examine each of these areas in greater detail.

Manufacturing Footprint:

Given that a primary driver of many M&A actions centers around expanding the company’s product offering, some high level manufacturing strategy and capacity analysis has likely already been performed during the Due Diligence phase leading up to the deal.  Determining what products will be manufactured at which facilities and how those products will be distributed to the market is a key component in the newly merged enterprise’s future success.

However, prudent companies should perform a comprehensive analysis that captures current and future running costs, required investments and one time transitions costs, including movement of equipment, transfer of tooling, labor separation or relocation costs, and on-going lease obligations.  Once fully implemented, the firm can realize the optimal benefits of a manufacturing footprint that cost-effectively supports the enterprise’s product and volume requirements and has the capability to flex its capacity as market conditions change.

In our next blog in the series, we will begin to examine the challenges and benefits of consolidation of the physical distribution network. Find out more about Ciber’s Supply Chain Strategy services.

Mergers & Acquisitions – Alternative Approaches to IT Integration (6 of 10)

on Mar 13th, 2014 in Collaboration, Enterprise Integration & IT Strategy, | Comments Off on Mergers & Acquisitions – Alternative Approaches to IT Integration (6 of 10)

To continue our discussion of  IT integration in Merger and Acquisition environments, once the decision has been reached to proceed with integration of various systems and applications, there are different schools of thought on how aggressively the firm should proceed with systems integration:

  1. The most conservative approach is to maintain both former company’s technology platforms in the short term and focus on building interfaces and/or data conversion tables only where necessary to support those business processes that will be standardized.  While this approach is definitely the least disruptive and costly, it does little to encourage or force greater collaboration though-out the new entity and ultimately delays many of the benefits sought in the merger.  This strategy fosters an environment where “Its business as usual around here”
  2. The more traditional approach is to align IT strategy to integration activities on the business side where process and policy stakeholders are hammering through how and where to harmonize and standardize processes and policies going forward.  Once the new business model and operating environment has been defined, a supporting IT technology solution can be determined. A major pitfall of this approach is that in many M&A situations, the standardization of processes and policies can be a very contentious and time-consuming activity that is ripe with debate, obstacles and turf wars, all of which can significantly elongate the timeline to begin the technology platform integration.  The approach often results in a “But don’t you know, we’re different “ mentality.
  3. The most radical approach, designed to force the speed of process and policy integration is to develop and announce a hard timeline by which key systems and technology will be migrated to a common platform.  While it may seem backward to have IT actions drive business strategy, this approach does create the positive tension and sense of urgency to force the business side of the enterprise to make the tough decisions on how processes and policies will be harmonized.  This methodology, while unorthodox, does result in a “Let’s get it done” spirit.

Regardless of which approach is utilized, the primary catalyst of IT technology integration in M&A situations needs to be the degree of value creation that this action can either directly bring or enable for the consolidated business enterprise.  In addition, the required steps necessary to identify those business processes and policies which will be standardized versus those that will remain separate and distinct will not happen unless mandated and enforced by top level management.

Mergers and Acquisitions: Key Considerations of IT Integration (5 of 10)

on Oct 30th, 2013 in Enterprise Integration & IT Strategy, | Comments Off on Mergers and Acquisitions: Key Considerations of IT Integration (5 of 10)

In our previous series of blogs on the topic of Mergers and Acquisitions:  Driving Supply Chain Benefits, we have looked in depth at the opportunities and challenges of creating Organizational Alignment and managing cultural differences between the former companies.  These tasks normally are spearheaded by the Executive Leadership team supported by the Human Resources organization.

Another critical aspect of any M&A activity that is normally led by the IT organization is to develop and implement a strategy focused on the level of IT and technology integration advisable and required to support the new company going forward.  Legacy systems and technologies exist within the two entities being joined together that support similar processed and policies.  The likelihood of redundancy and higher costs of maintenance and operations provide a compelling case to develop an IT integration strategy quickly.

However, before companies charge down this complex, time-consuming and expensive path, they would do well to evaluate some key considerations:

  • The ultimate goal of any M&A activity is create value.  To what degree does integration of systems and technology create or enable value creation in the new enterprise should be closely examined.
  • What is the long term plan for the company being merged or acquired?  If there is a likelihood or strong potential that the newly acquired company will be sold or divested in the future, then a full IT integration likely should be avoided.  Instead, the priority in these situations should focus only on back-office functions such as HR, Finance and Accounting.
  • In those situations where the intention is to fully absorb the acquired company or merge all aspects of the companies into a single operating enterprise, a more complete technology integration should be pursued.  However, even in these cases, a roadmap should be carefully constructed that prioritizes system integration and investment decisions based on the value and need of the organization, as well as minimizing business disruptions during the transition period.

In our next blog, we will examine the differing schools of thought on how aggressively IT systems and technology integration should be targeted.

Mergers and Acquisitions: Managing Cultural Differences (4 of 10)

on Sep 25th, 2013 in Collaboration, Enterprise Integration & IT Strategy, | Comments Off on Mergers and Acquisitions: Managing Cultural Differences (4 of 10)

In our previous blogs we discussed the challenges an organization faces in achieving organizational alignment and to what extent compensation and benefit programs should be harmonized between the two former companies.  Perhaps the most challenging aspect of creating organizational alignment centers around managing cultural fit and creating a new corporate culture for the merged companies.

Broadly defined, culture is “the way things are done around here”.  In today’s increasingly global business environment in which many cross-national merger activities are common, cultural differences are even more pronounced and are driven by ethnic, geographic differences, social norms and divergent business philosophies.  Prudent companies commit the time and resources to understand these key cultural differences and develop an appropriate strategy to manage these difference respectfully.

A critical component of corporate culture is the set of beliefs and values by which the company will operate.  Regardless of the degree of planned integration, the company must operate with a clear and consistent value system that is modeled by top leadership behavior and reflected in the words, actions and decisions they make.

In the end, there are three primary approaches to cultural integration:

  • Cultural Preservation:  While this strategy may have advantages in addressing strong market or geographical differences and is the least disruptive during the merger process, it may, in the long term, reduce standardization and retard the speed of synergistic gains sought in the merger.
  • Cultural Combination:  This strategy does create a stronger sense of unity and purpose within the company, as well as presents a common face to the customer.  It is most often applied in situations where both former companies operate in the same or similar geographic region.  Expect some level of resistance to change from those employees and leaders who prefer the status quo.
  • Cultural Creation:  Creating a new corporate culture does not happen overnight.  It requires a long lead time to plan and implement, and requires constant communication across the organization, as well as strong leadership and support.  If successful, this approach can provide the merged company with a new and fresh start with which to move forward.

Without the full focus and commitment of people at all levels of the new organization to design and address organizational alignment issues, the complete goals and objectives of the merger or acquisition may be under-achieved.  Success requires the attention and participation of the entire leadership team, not just the HR organization.

In our next series of blogs, we will examine the importance and different approaches in developing a Technology Strategy for the new company.

Mergers and Acquisitions: Harmonizing HR Policies (3 of 10)

on Sep 3rd, 2013 in Enterprise Integration & IT Strategy, Talent Management, | Comments Off on Mergers and Acquisitions: Harmonizing HR Policies (3 of 10)

As we continue our series of blogs on the topics of mergers and acquisitions, let us examine the importance and some key considerations on how to go about reviewing and harmonizing compensation and benefit programs between the two former companies.

Build a Relevant and Competitive Benefit Portfolio

The primary objective in determining the degree to which compensation and benefit programs should be harmonized is not to create a single program across the newly merged company.  Instead, the goal should be to have a total compensation and benefit portfolio that is relevant and competitive within the respective industry and markets in which the company operates.  For instance, it would create a significant financial penalty if a U.S. based company acquired an Asian partner and attempted to bring the newly acquired employees up to the pay scale and complete set of benefits that their U.S. counterparts have.  Likewise, financial advantages, even within the U.S. on a regional basis, should be continued wherever possible.

A particularly challenging element that requires forethought and planning is when merging companies that are union represented with a company that is not.  In most instances, the union-represented employees will enjoy higher total compensation, including cost of living adjustments, and a more comprehensive set of benefits.  When performing their due diligence analysis prior to finalizing a merger, the acquiring company should consider the potential implications and financial risk that could result if more employees elect union representation.

One aspect of the compensation structure that should be harmonized across the new company is executive compensation.  These are the individuals that are most likely to be transferred and integrated across the two former companies in an effort to align leadership and corporate direction.  Maintaining large discrepancies in executive bonus calculations or stock option programs will most certainly become a major source of distraction and controversy.

In our next blog, we will examine perhaps the most challenging aspect of organizational alignment within a newly merged company – cultural fit and how to manage cultural differences.

Mergers and Acquisitions: Organizational Alignment – The Wisdom of Parallel Organizations (2 of 10)

on Aug 19th, 2013 in Enterprise Integration & IT Strategy, | Comments Off on Mergers and Acquisitions: Organizational Alignment – The Wisdom of Parallel Organizations (2 of 10)

As was discussed in our initial blog on this topic, effective Organizational Alignment is one of the primary challenges that face all companies that are going through a merger or acquisition.  In many instances, the ultimate success or failure of M&A activities rests largely with the quality and effectiveness of human capital management and cultural adaptation.

“Is there wisdom in maintaining a parallel organization for a period of time?” is a common question that most companies struggle with after a merger or acquisition has been finalized.  While there may be some benefits of operating with a parallel organizational structure initially, the sooner the consolidated company can transition to an organization to manage the on-going running of the business, the more efficient the new entity will be.  However, this step should not be taken until there is a clear vision for the new company that is communicated to all employees and a new leadership team is announced.

Another common question faced by companies in an M&A situation is “Where should we begin with building a new leadership team going forward?”  In most instances, consolidating responsibilities in key positions in the executive leadership ranks sends a clear message to the total organization that the blending of the two former companies into a single entity is moving forward.  However, realization of bottom line synergies, especially in areas like Supply Chain Management, will likely only be achieved when mid-level management is included in organizational cross-pollination.  Adoption of common processes and best practices will only occur when operating management who has direct responsibility of the planning and execution of the running business is given a clear mission of how the new company will operate in the future.

Retain Critical Employees for M&A Success

In any M&A deal there will be perceived “winners” and “losers”.  In addition to those individuals who are displaced during the organizational consolidation, a growing concern is the retention of key, high-performing individuals.  In several recent surveys, over 25% of companies that have gone through a recent merger or acquisition have experienced separation rates of critical employees at a higher rate than less critical workers during and immediately following an M&A action.  Reasons for this high separation rate range from poor communication, insufficient attention to workforce issues and the individual employee’s perception that his or her career path has been blocked or is unclear under the new organization.

Regardless of the reasons, the departure of key individuals at a crucial time in the new company’s infancy represents not only a loss of critical talent, but also affects the corporate morale and diminishes the financial value of the M&A deal.

Mergers and Acquisitions: Driving Supply Chain Benefits (1 of 10)

on Jun 6th, 2013 in | Comments Off on Mergers and Acquisitions: Driving Supply Chain Benefits (1 of 10)

Whenever I speak on the topic of mergers and acquisitions, I usually begin the discussion by asking for a show of hands from the audience of individuals that have personally experienced a merger of two companies or have been acquired by another company.  Invariably, over 50% of the audience raises their hand and emits a collective groan.

Bringing together two former distinct and separate companies into a single, cohesive entity moving forward is never an easy or painless process.  Business history is littered with countless examples of well-intentioned mergers or acquisitions that have significantly underachieved their desired goals or have failed outright.

While the pace of M&A activity slowed during the recent economic downturn, as the global economy begins to show signs of strengthening, we can expect to see that many companies with sufficient cash reserves and secure financing will once again take look for opportunities to merge or acquire other firms where there is a perceived economic or strategic advantage.

Regardless of the primary business drivers that are prompting the merger or acquisition, there are three key elements in any M&A activity that must be carefully designed. Planned and executed in order to maximize the benefits of the merger or acquisition across the new enterprise:

  • Organizational Alignment:  Determining the new organizational design and reporting structure, retaining key employees, and creating a new corporate culture for the consolidated company are some of the more challenging and stressful aspects of any M&A deal.
  • IT Technology Integration:  Determining how to bring together multiple IT systems and technologies that support divergent processes and policies into a seamless and integrated environment is a complex task.  Deciding on which technologies to retain, which to integrate and where new investment may be required to support the new business entity can be a lengthy and very costly transition process.
  • Infrastructure Rationalization:  Perhaps the area that is pressured most to yield quick synergies or savings as a result of a merger or acquisition are the Manufacturing or Distribution footprints and their respective Supply Chains.  Product redundancy, excess capacity, overlapping distribution networks and leveraging consolidated purchasing power on everything from raw materials to transportation expenses quickly come under the microscope for savings opportunities.

Over the next several series of blogs on this topic, we will examine these three key areas in greater detail to better understand how to dramatically improve a company’s chances of success in the merger and acquisition process. For more depth, read the full white paper, “Mergers and Acquisitions: Impacts on Supply Chain Management“.

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