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Business Integration Eight Key Questions And Lessons Learned June 3 2012
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Transcript of Business Integration Eight Key Questions And Lessons Learned June 3 2012
Eight Key Questions and Lessons Learned
Merger Integration Pty Ltd, March 2012
Our Perspective on Merger Integrations.
Many organisations view mergers and acquisitions as one time events where opportunity is frequently mixed with bewilderment, derailed careers, pain and frustration.
So it comes as no surprise that many executives think about how them over and done with rather figuring how to do them better next time.
We have over 15 years experience in business transformations, mergers, acquisitions and divestments. We get to see what are one-time events for organisations many times over.
So why are the promised benefits from a deal so difficult to honour? At first sight it doesn’t seem to be all that hard and surveys suggest that most organisations have a very good idea what needs to be done.
There are a number of ways of improving the odds for success. We would like to share with you 8 key questions and lessons learned on the dozen deals we’ve been involved in.
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
1. Does everyone know why the deal was done?
Questions:• Is there a vision and set of objectives for the combined business?• What are the expected synergies from the integration. Are they
mainly cost or revenue related?• What needs to be done to be done to deliver value from the deal?• Is there an understanding on how the work will be phased?
Experience:• We’ve noticed that there can be plenty of confusion on the merits of
the deal and the difference it will make. This is not just the staff generally but even executives can get a bit confused.
• The problem we’ve found is that confusion leads to a lack focus and accountability amongst the team responsible for delivery.
• In one case, we held a one day workshop with all key staff – just to go through the strategic rationale for the deal.
Lessons Learned:• Make sure people understand clearly and succinctly why the deal
was done, the intended benefits it’s meant to deliver and what the future will look like..
• Try and put the extra effort into the strategy and prepare a concise storyboard that talks to the strategic rationale for the deal.
• Define a core set of messages on the why, what and how of the deal and the integration.
cultural compatibility
(different)
geographic
presence
(overlapping)
relative size(sim
ilar)
resource valuation base (pinkware) produce
positioning
(competing)
acqu
irer
prep
ared
ness
(not
read
y)
sect
or
conc
entra
tion
(hig
h)
Makes sure the rationale for the deal and benefits sought are clear to all.
Benefits DeliveryBenefits Delivery$ improvement
FTE Reduction
Cost Reduction
Rev
enu
e G
row
th
Economy of scale
Extension ofpresence Bundling of
capabilities
NOGO
ZONE
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
Questions:• To what extent will the two business be integrated?• What will the organisation structure look like?• How will the channels, IT, operations, product etc be transformed?• What are the priorities?
Our Experience:• Sometimes there is not a clear distinction between what is considered
integration and what’s transformation, and what the terms might mean.• Investment requirements for delivery of long-term revenue synergies
are often not factored into the original business case for the deal.• The integration and transformation of the business isn’t always fully
scoped, in particular defining the end-game.
Lessons Learned:• Begin with the end in mind by mapping out the integration outcomes
and engineer the activities required to realise the planned synergies.• Avoid the temptation to start integrating common functions without
having a clearly thought out integration strategy beforehand.• Make sure the scope of the work is clear, covers transformation and is
funded.
2. Has the best integration strategy been arrived at?
Key
Ou
tco
mes
Time
Key stages in the journey need to be defined in terms of the business model and the performance of the combined organisation. This enables success to be measured as the integration progresses
Engineer success by starting at the end – along with stepping stones to get there..
Integration -> Transformation
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
3. How comprehensive is the Integration Plan?
Questions:• What are the key tasks that need to be done to ensure the synergy
benefits are realised?• What tasks must be performed to satisfy operational, financial, legal or
IT requirements?• How should tasks be prioritised for optimal value delivery?• How should tasks be planned in terms of management, resourcing and
timing?• Is there a plan ready to execute from Day 1?
Our Experience:• Planning usually doesn’t start in earnest until the deal is nearing
completion. • It’s not always fully appreciated what activities actually are required to
realise the strategic objectives.• The devil can be in the detail and sometimes tasks are not planned out
in sufficient detail.
Lessons Learned:• Avoid disbanding the integration effort after the first 100 days.
Delivering longer term synergies as BAU usually means they won’t get delivered at all.
• Plan as early as possible! Preferably at the time when due diligence begins.
• Plan, plan, plan. It’s rarely possible to over plan.
On the road to integration, priorities will change as the programme progresses
Don’t abandon the exercise after the first 100 days. Stick at it long enough to deliver the full range of benefits available.
TransformationTheme: Coaching & Facilitating
Transition ProgrammeTheme: Controlling, Monitoring & Communicating
Planning &Quick WinsTheme: Directing
Time Benefits
100 days(20-30%)
3 years(100%)
300 days(80%)
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
4. Are there processes in place to measure success?
Questions:• To what extent have synergy risks and opportunities have been discussed
in workshops?• Have the cause and effect relationships between opportunities been
reviewed? • What are the core business drivers that influence P&L in a business
division?• Can the business drivers be accurately measured? • Is there are process with responsibilities assigned for tracking and
reporting on the synergies?
Our Experience:• The actual tracking and reporting on synergies can be a bit of an
afterthought in organisations.• A significant amount of effort may be required to gather key KPI data. • There’s a tendency to measure success in terms of strategic and financial
goals and not enough on operational KPI’s.
Lessons Learned:• Make roles and responsibilities for measuring benefits is defined upfront.• Create baseline data for the KPI’s to be tracked before any changes are
made. • Agree upfront how benefits are to be reported and then stick to it.
Stakeholders hate changing goal posts.• Deliver against operational KPI’s – not just financial.
Deliver the benefits at the micro level, monitor at the macro level
-0.20
-0.10
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Year
RevenueCosts
Ben
efit
s
Report on benefit delivery at every Steering Committee
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
5. Will the cultural differences pose any significant barriers?
Questions:• What are the separate cultures? How are these cultures described
in terms of expectations, behaviours, work style etc.• Are the current cultures strong and therefore difficult to change?• Do these cultures run counter to the intended business strategies?
Our Experience:• Fast and effective integration can be hampered by the time it takes
for people to assimilate the deal rationale and establish social norms between the counterparties.
• People issues are generally not discussed at sufficient length prior to deal closure.
• The ‘us’ and ‘them’ attitude can sometimes prevail in the integrations we’ve experienced.
Lessons Learned:• Provide the needed time for people to assimilate changes.• Don’t take cultural issues for granted. Perform a full impact
assessment. • Avoid preaching organisational change tools and processes to
stakeholders. It can be a real turn off. • A great way of bridging cultural gaps is to assign short term projects
to working groups to solve problems.• Work as matchmaker by forging connections and wiring people
together.
Connect and engage with people.
Win their hearts and minds Become a lightning rod for all
concerns
Engage people throughout the organisation
Stakeholder Mapping
Sh
are
of
Vo
ice
(d
eg
ree
of
infl
ue
nce
)
Buy-in (attitude to project)
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
6. Has the Business Case been fully validated for synergy delivery?
Questions:• Has a detailed due diligence of benefits been performed in terms of
deliverability and timing?• Have the benefits been linked to the key business drivers ? • Has the business case been socialised with managers impacted by the
changes?• Does the business case cover transformation of the business?
Our Experience:• Business cases developed pre-deal by advisors and deal makers are their to
get a deal across the line but often don’t hold up well under detailed scrutiny.
• Synergy delivery can take a life of their own if the business case isn’t formally baselined and updated during the integration.
Lessons Learned:• Give the business case as good overhaul making sure it’s detailed and
precise enough to serve as a baseline for the integration.• Socialise and validate the business case with people impacted by the
changes. • Allocate common benefits to projects to deliver.• The business case must confirm the total value to be extracted.
Confirm the total value which must be extracted
ValueWaterfall
(NPV)
Intrinsicvalue
Dealcosts
Intrinsicvalue post
deal
Benefits/synergies
Back officesavings
Cross-selling to existingcustomer base
Streamlined IT systems
Marketing synergies
Leveraged saleschannel
Economies of scale
Head office savingsIntegrationcosts
HR costs
Loss of salesalliances
Capex
Costs
Tota
l Net
Ben
efits
A robust cash-based benefits model is required – measuring things that make sense to operational staff.
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
7. What will the communication strategy be to the various stakeholders?
Questions:• How will confidence and buy-in be achieved from the various
stakeholder groups?• Has been defined on how to best manage HR and organisation
issues?
Our Experience:• This is often performed quite well in organisations in particular to
regulatory bodies and external stakeholders.• However, quick reasons can be given to allow internal
communication responsibilities to slide.• Even though the plan is to cascade communications down the
organisation, in practice it doesn’t happen.
Lessons Learned:• Good communication has the power to drive the realisation of
business goals.• When there are no answers on employee futures, workforce
reduction and other structural changes doesn't mean communication should stop.
• Great communication is always face-to-face, delivered quickly and is open and honest.
Target communications appropriately with all key stakeholders to begin to build support
Owners and Corporate
Key Clients
Suppliers
Employees Key Influencers
Analysts and Press
It’s not possible to over-communicate.
Communicate, communicate and communicate again
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
8. How will operations continue while integration is taking place?
Questions:• What are the expectations for current business operations while
the integration takes place?• If key people are joining the integration team will it be necessary
to back-fill their roles?• Is there a perceived sag in morale amongst the workforce?
Our Experience:• Unless there are measures in place, the organisations operations
will take a performance hit during integration.• Staff are expecting change once a deal is closed , good or bad. If
there’s a sense that nothing is happening then it becomes an excuse to rest easy.
Lessons Learned:• Current operations needs to be included in the scope of the
integration project.• Re-enforce current performance targets, and if anything, create
an additional stretch goals for the business to achieve.• Establish KPI tracking to ensure there is visibility and report as
part of the program.
Rapidly gain control of the operational business
Re-enforce, even lift current performance targets.
GENERAL
Revenue (£k) x x
Profit (£k)
Non-Life Conversion Ratio (%) Dx x
Average number of products held per customer
x x
Key indicatorWas
(1998)Is
(1999)Has to be
(2000)
SALESFORCE
Sales Headcount 1148 1140 825
API per salesman (£k) 40 44 63
% Salesforce above MESPTarget
Dxx
3518
xx
Average size of Sale (£API) 250 340 500
Error-free Factfinds andProposals (%) 25 64 95
34 25 7Sales force turnover rate (% p.a.)
Key indicator Was(1998)
Is(1999)
Has to be(2000)
PERFORMANCE
Head Office Headcount 869 733 561
Average time to issue policy (days) 33 30 5
Average time to pay claim (days) D 1.55.5 2.5
Cost of Head Office (£k) 60,609 x x
Cost of Overtime (£k) 1320 540 360
82 87 95Calls answered (%)
Key indicator Was(1998)
Is(1999)
Has to be(2000)
MARKET SHARE
New customers per year (‘000) 43.5 x x
Multisales (%) 2 x 5
Customers buying this year (%) D 84.4 x
Non-regulatory Complaints 900 x x
Conversion Ratio (%) x x x
Key indicatorWas
(1998)Is
(1999)Has to be
(2000)
COLLECTIONS
Collections Headcount 2500 x 774
Total cost of collection (£k) 43,200 x 29,000
Debits collected (%) 96
x
x
Average number of calls percollector per day 33 x 60
Number of collectable households 1.2MM x 0.6MM
Key indicatorWas
(1998)Is
(1999)Has to be
(2000)
REVENUECumulative Breakdown
By product
By segment
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
J F M A M J J A S O N D
£k
Actual
Budget
Protection
Investment
Saving
Pension
Mortgage
TargetSegments
Non-targetSegments
HEADCOUNTTotal Headcount Breakdown
0
1000
2000
3000
4000
5000
J F M A M J J A S O N D
ActualBudget
Sales
Collection
HeadOffice
Value oflapses
0
1
2
3
J F M A M J J A S O N D
IBOB
Total number of policies (k)
Number of leads from Sales and Collections per month (k)
388
3,000
1,400
33
5
15
Value of churn
SERVICE LEVELCost savings realised
0
5000
10000
15000
20000
M A M J J A S O N D J F M A M J J A S O N D
£k
Head Office
Field Ops
Collections
100
x x
2
300
1
1999 2000
0
1
2
3
J F M A M J J A S O N D
IBOB
300
Sample
Sample
SampleSample
Benefits Reporting - Business Performance Dashboard
LAPSES CHURN
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
The rationale is sound and people understand.
The journey takes us to the end with stepping stones along the way.
Strength and focus provided by an outstanding and experienced hand.
People engaged and committed to the journey
A robust value case with benefits confirmed through micro measurement.
Successful
Integration
Strategic Rationale
Integration Strategy
ProgramManagement
Value Delivery
People & Communications
So what distinguishes M&A success?
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
What makes us different...
Experience.It’s better to have a veteran who knows the drill rather than someone with passing familiarity or has done it a couple of times before. It is not a time for juniors - there is only one chance to get it right.
Independence.We are outsiders who can give you an outside-in view, tell it as it really is and get on with the job - delivering successful business outcomes.
Cost EffectiveOur task is to drive out cost savings and create long term sustainable revenues. By engaging us you will also be keeping investment costs well down. This reduces the need to invest in services from major consulting and accounting firms.
Passion and DriveWe are not in the business of simply producing deliverables . The fundamental difference is that we are passionately focused on the business results. Your success is our success.
Peace of MindFinally, peace of mind comes from having an experienced hand who injects speed, works and connects with people, creates structure and engineers success.
We are experienced,
knowledgeable and
relentless in pursuit.
We are also cost effective
and fun to work with!
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
Recent TransactionsNo Transaction Industry Challenge Key Activities $AU1 Purchase of Funds
admin business by Royal Bank of Canada
Financial Services
Create a successful operational business in Australia for RBC.
o Transitional service management.o Business Integrationo Business Transformation
$50M
2 Sale of Receivables management business by Veda Advantage.
Financial services
Maximise the purchase price.Get the business separated and sold as soon as possible.
o Due Diligence o Deal Completiono Business Integrationo Business Transformation
$97M
3 Acquisition of Paltronics by Aristocrat Leisure
Entertainment/Leisure
Complete the deal.Extract and exploit the intellectual property.
o Due Diligence o Deal Completiono Integration planningo Business case development
$38M
4 Acquisition of Infochoice
Digital Media
Transform the business, boost revenue performance.
o Business Integrationo Cost and revenue synergy
Managemento Business Transformation
$22M
5 Acquisition of Hanover Financial Services
Integrate and reduce operating costs
o Business Integrationo Business Re-engineering
$15M
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
No Transaction Industry Challenge Key Activities $AU6 Acquisition of Secure Sentinel
from Suncorp by Veda Advantage
Financial Services
Integrate the business quickly. Boost business performance.
o Business Case developmento Deal Completiono Business Integrationo Business Transformation
$8M
7 Acquisition of Ekko Guardian by Veda Advantage
Financial Services
Manage customer list – avoid attrition.
o Transitional Service Managemento Business Integration
$1M
8 Sale of Clearview by Bupa. Healthcare Complete the deal and separate the business quickly.
o Deal Completiono Business transition
$195M
9 Purchase of Peak Health by Bupa.
Healthcare Complete the deal.Create a clear integration plan.
o Deal Completiono Integration Planning
$5M
10 Merger of Star Track Express and Australian Air Express
Supply Chain Logistics
Combine the two air operations. Achieve significant savings.
o Business Case development.o Business Integrationo Benefits management
$750M
11 Acquisition of Infochoice by iSelect
Digital Media Significantly uplift revenue performance.
o Business Integrationo Business Case developmento Business Transformation
$33M
Recent Transactions (cont.)
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
Lead Consultant: Toby Tester
Over the past 15 years Toby has managed over a dozen transformation programs, mergers, acquisitions and divestments. He has worked across a variety of industries such as Financial Services, Healthcare, Entertainment, Transport and Digital Media. This wealth of experience has provided Toby the special combination of skills to drive performance and deliver bottom line results in times of major change.
He holds an honours degree in Engineering from Imperial College, London and an MBA from the Macquarie Graduate School of Management. Toby is also an accredited PRINCE2 practitioner.
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
TestimonialsStar Track Express (STE) merger with Australia Air Express (AeE)“As a result of thorough planning and his ability to engage key stakeholders, it is a testament to Toby’s skills that the integration of the two businesses was achieved exactly as planned and below original business case budget. In addition, the business benefits from the merged business continue to track to the original forecast.” “It was a time of enormous uncertainty within STE, and he demonstrated excellent people skills in forming communications with all the relevant stakeholders to successfully complete the business case in the required timeframe” “I would like to thank you for the valuable support provided during the recent merger of Star Track Express and AaE here in Sydney. Combining the air freight operations in Sydney was a large and complex exercise. Knowing that the project was running to plan and that the hundreds of tasks were all on schedule was essential for both achieving the target date and being confident in my decision to go live”
Bupa’s divestment of Clearview Wealth Management “He has a wealth of experience, coupled with high emotional intelligence and a way of working with people to get things done... I would highly recommend Toby for any engagement he chooses to participate in (and would re-engage him without hesitation). He is vigilant in his selection process and not inclined to accept any engagement – only those where he can really add value with his unique and specialised skill set.” Acquisition of Secure Sentinel by Veda Advantage“The successful integration and transformation of Secure Sentinel could not have been delivered without Toby. His style of management achieved the results with a multi-disciplined project team.” “I found Toby to be dedicated, passionate and a joy to work with. He ran this project as if it were his own business” Divestment of Receivables Management business by Baycorp AdvantageToby was engaged to oversee and project manage the business separation and de-merger of the Baycorp receivables management business... He overcame the project challenges and within tight timeframes successfully delivered the business to the new owners”
Acquisition of Paltronics by Aristocrat. “I would gladly recommend him to anyone who needs a safe pair of hands to manage their M&A project”
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]
How we can help..
The following are just a few examples of the services Merger Integration can offer.
Managing the deal process•Establishing best practice project governance.•Managing due diligence activities.•Developing detailed business cases.•Communicating with all stakeholders.•Completing agreement schedules.•Creating transitional service agreements. Deal completion and business integration •Managing deal closing tasks.•Ensuring compliance against agreements.•Creating and mobilising an integration team.•Running the business integration program or a key component.•Managing delivery of cost and revenue synergies. Business Transformation•Planning and managing longer term synergies.•Running product consolidation and development projects.•Coordinating marketing and branding activities.•Amalgamating IT systems and processes.
For more information go to our
website:
www.merger-integration.com.au
Or contact Toby Tester:
toby@merger-
integration.com.au
Merger Integration Pty Ltd, March 2012 Toby Tester 0404 015 797 [email protected]