Speaker 1: Companies that are going through a merger or acquisition ultimately end up having to figure out how they're going to integrate their operations. But what exactly is merger and acquisition integration? I'm going to talk about that here today. My name is Eric Kimberling. I'm the CEO of Third Stage Consulting. We're an independent consulting firm that helps clients throughout the world with their digital and business transformation journeys. And organizations that go out and buy other companies, either because they want to grow as an organization and or because they're private equity owned and the private equity firm is trying to grow the organization, need to figure out how they're going to integrate their operations. How are we going to bring these companies together? How are we going to get the most value out of the organization that we can? And it's often been cited that over 80% of merger and acquisition integrations fail, but what we need to understand is why do they fail? And so what I want to talk about today is what exactly is merger and acquisition integration and how can you ensure that you're focused on the right things to make your integration successful? So when organizations go out and buy and acquire other organizations, they typically have a reason for doing so. They want to increase value in some way. They want to increase revenue. They want to increase profits. They want to increase the overall business value of the organization. But beyond that, organizations need to have a clear vision of why exactly they're buying these companies and what exactly they expect to get out of these acquisitions and what they want that organization to look like longer term. So for example, if your intent is to enter new markets or acquire new customers or optimize your supply chain and go with vertical integration, whatever the reason is, you want to have a clear vision of what it is you're trying to accomplish, how you expect to get the business value out of the organization, and ultimately what is that strategic alignment that's going to drive you towards that future state ROI and business value. So once you have that clear definition, which most organizations do when they go out and buy another company, they know what it is they're trying to acquire and what they're trying to accomplish, but oftentimes they don't figure out how they're going to integrate their operations and integrate their systems and their people and their strategies to come up with one cohesive way of operating in the future. So ultimately we need to figure out what is our strategic vision as an organization and how does that strategic vision translate into some of the different components of your M&A integration plan, which I'm going to talk about throughout this video. So once you've clearly defined and articulated what that strategy is that you're trying to accomplish as an organization and as a combined entity, the next step is to figure out what is our operational strategy? How are we going to realize that business value? Is it going to be through cost reductions? Is it going to be through a better customer experience? Is it going to be through more effective business processes and operations? Or perhaps we're acquiring capabilities in the company that we're buying? But whatever the case is, we want to have a clear operational strategy that's going to help us But whatever the case is, we want to have a clear operational strategy for how we're going to tie this all together. How are we going to integrate our operations? How are we going to integrate our business processes and everything that's related to that? So one of the big keys to M&A integration success is to ensure that you've integrated your operations and you have a clear future state vision of what you want your business processes to look like and what you want your operational model to look like, your target operating model. So for more information on this, check out my YouTube channel for other videos related to business process re-engineering and business process management. We have some deeper dive videos that explain how to do this in a lot more detail than I have time to get to here today. But in general, understand that operational strategy is a key component of M&A integration strategy. As you're defining what your operational strategy is going forward, if you're doing it right, you're inevitably going to identify how the organization or the people are going to be affected by that operational strategy. So for example, if you're going to consolidate operations or standardize operations, change your customer experience, change your business processes in any sort of way, that's going to have a material impact on how people do their jobs day to day. So having a clear vision of what that organizational strategy is is very important. And I mentioned at the top of the video that about 80% or more of merger and acquisitions fail because they fail to integrate appropriately. And the number one reason why M&A integrations fail is because the cultures don't mesh. So one of the biggest things you have to do as part of your organizational strategy is define what is your culture as an organization today, what's the culture of the organization you're acquiring, and what's that future state culture of the combined entity. And it's important to have a very deliberate strategy behind this. A lot of times organizations and the PE firms that are involved in M&A integration don't really think about culture, but that is a crucial part and a critical success factor for ensuring that you integrate the two companies successfully. And it's also important to note that you're not going to change the culture overnight. You're going to be able to bend the culture, but you certainly don't want to break the culture. So it's important to identify what that future state is, know that it's going to take you some time to get there, but at least you have a deliberate strategy to get there. And ideally, what you want to do is take the best of all worlds. So if you're acquiring multiple companies and multiple cultures, what are the traits or the characteristics of these different entities that you can combine into that future state best of cultural model that'll help you get there? Now, one other component of organizational change that's so important in M&A integration is organizational design. What are roles and responsibilities going to look like? What's the org chart going to look like? What are reporting relationships going to look like? Those are all really important things to define so that you can ultimately realize that business value from the organization, whether your business value is focused on cost reduction or more efficiency, better customer experience, better operating model, whatever it is, you want to make sure that you have a clear vision and a clear plan for what that organizational design is going to look like. And ultimately, this overall organizational change strategy should be a core component of your overall M&A integration strategy and plan. The next thing to think about is the technical integration between the different entities that are being combined. Whether you're buying one company or multiple companies, you want to understand what systems you have today in the multiple entities and what new systems you might want to introduce to the organization going forward. So for example, we find oftentimes that organizations that are merging have multiple ERP systems or they have multiple HR systems, multiple business intelligence systems, just multiple technologies throughout the organization. So the first step is to understand what is the lay of the land of the technology landscape? What does that overall architecture look like? And what is the future state going to look like? What are the ways that we can use technology to enable a better business proposition and business value from our combined entities? So having that clear vision and understanding is very important. And this may or may not lead you down a path of evaluating potential new technologies. In some cases, organizations have plenty of technology and the goal is to reduce the number of systems that you have and ultimately narrow down to a standard set of systems. For other organizations, they might reduce the number of systems, but they might also replace the systems they have. They might come in and rip out the systems in both or all of the entities and replace it with a common platform going forward. So it really depends on your current situation and what you're trying to accomplish as an organization. Every organization looks different. Every M&A integration we work with looks a bit different. So it's important to understand based on your needs and your priorities and your current future state situations whether you keep the systems you have, whether you consolidate systems and or whether you replace some or all of those systems as well. The other component of technical integration is looking at your data. So just because you've consolidated systems doesn't necessarily mean you're consolidating data. And if you want to have true transparent visibility into the combined entity, you need to have a clear single source of truth and a clear data roadmap as well, data migration roadmap. So ensuring that you have that migration plan that you clean up the data and you have a single source of truth for your data is another important part of realizing the business value of your M&A integration. Ultimately, none of the things we've talked about in this video matter unless you have a clear vision and a clear plan for benefits realization and ROI. In other words, everything we've talked about so far needs to be tied to the future state business value and the ROI you expect to get out of the acquisition. So if you're going through a merger acquisition that entails cost reductions, what exactly are those cost reductions and metrics? Who's responsible for them and how are you going to achieve those metrics? And by the way, once you've integrated the organizations and you failed to realize all of the business benefits you've expected which most organizations do fail to realize some of the benefits, what is it we can do to optimize those benefits longer term? So the integration and business value plan doesn't stop at any sort of magical end date, it's sort of an ongoing process but you ultimately want to define what exactly those metrics are, what kind of business value you expect to get out of it and who's responsible for helping achieve it. And by the way, this is also very important to your business intelligence strategy. So as you think about reporting dashboards, visibility into the operations, visibility into the businesses that you've just acquired, it's important that you understand how the systems are going to tie together and provide a real meaningful information whether it's via a separate business intelligence tool or whether it's the reporting tools you may already have built into some of your existing systems but either way, you want to have a clear BI strategy as well. So these are some of the major work streams that are important to M&A integration and these are the different threads that you need to think about when building your overall roadmap and plan. So as you build your roadmap and plan, you want to break each of these threads down into different tasks and subtasks, different durations and owners and really treat it like a normal project. Any sort of capital project or software implementation would have a project plan. So too should an M&A integration plan. So you want to assign a project manager, assign resources to it, have different experts that can help in different parts of the project and ultimately if you need outside help with executing or planning that integration, ensure you bring in the right outside support. For example, organizations like third stage consulting can help you through this integration journey. So I hope that you found this information useful. I also encourage you for more information to not only check out some of the other videos on my YouTube channel, but download some of the materials I've included links to below. Things like our guide to digital and business transformation. Some of the best practices that are included in that guide will help you as you go through your journey in figuring out how you're going to integrate your merger or acquisition. So I hope you found this information useful and hope you have a great day. Thank you.