STRATEGIC ACQUISITION OR ALLIANCE

How to increase the odds of success with a strategic acquisition or alliance

Posted 6/10/2012, Updated 9/19/2019

Most acquisitions and alliances severely underperform relative to expectations set at the time of their inception.  No matter how great they look on paper, it is always a lot harder to make things come out anywhere near where they were meant to be than it seemed at the start.  Fortunately, based on first-hand practical experience and learning from  the experience of others, there are some things that can be done to raise the odds of success.

Why Acquire or Ally

The reason for one organization to acquire or ally with another almost always boils down to one or more of the following three:

  • To obtain new products and services to sell to existing customers.
  • To secure access to new customers for existing offerings.
  • To acquire needed new resources such as technical skills, leadership, or industry knowledge.

Why Not Acquire or Ally

There are also three basic reasons for one organization to decide NOT to acquire or ally with another:

  • Most require the buyer to pay a premium price except in distressed situations in which case a bargain price is offset by high risk.
  • Integration and assimilation of people, processes and systems is time-consuming and difficult. Time and effort spent to overcome cultural differences is enormous and rarely successful.  Despite management’s best intent, the wisdom of working together on the front-line is lost, without a lot of attention from the top, in favor of protecting turf, in-fighting, and favoritism.
  • Acquisitions and alliances require alarmingly high concentrations of management attention to consider, plan, execute, launch, and nurture to success. Once the deal is done, even greater amounts of time from the most senior managers is required to plan and guide the integration of people, products, services and administrative processes which diverts management attention from other important matters.

There are three steps to successfully acquire or ally with another operation with the intent to merge it into existing operations (i.e., as opposed to operating as a separate unit):

  • Determine whether the nature of the relationship between the two organizations is to be transactional, collaborative, innovative, or identity-shaping where who they are is literally defined by their relationship to each other.
  • Develop a picture of the way things will work when operations come together as envisioned, including:
    • A multi-year financial plan that lays out the target financials which justifies the terms and to serve as the foundation for performance goals.
    • An operating model to show who will do what to deliver the joint entity’s products and services with excellence, on time, and in budget; systematically and programmatically sell the venture’s products and services; and develop its capacity to fuel growth.
  • Assign leaders from both organizations to work together to identify issues, perform analysis and recommend actions consistent with the goals of the partnership. Success or failure to achieve targeted results must be a primary component to these individuals’ personal performance assessment and bonus compensation for the performance period.

Success Factors

Three things that dramatically improve the probability that two organizations will be successful as partners in an alliance or acquisition:

  • Mutual Clarity: It must be clear to people, particularly the leaders, in each organization why they have decided to work together (see: Mastering the Merger).  The rationale must be written down and shared with others in both organizations each from their own perspective AND from the perspective of the other.  For example, people in Organization A must be able to say why it makes sense for Organization B to have entered into the relationship as well as why it makes sense for their own organization to do the same.
  • High Stakes: There must be a lot at stake for both parties. This means there must be a lot to win if the goals are met and a lot to lose if they are not.
  • Accountable Leadership: Each organization must assign a senior person to represent the interests of their respective organization. This individual needs to be a leader who personally stands to gain or lose a great deal both from a financial, career, and professional perspective depending on the fate of the venture. Their number-one goal has to be the success of the initiative. They serve as gateways to their respective organizations to facilitate the success for their counterpart who would otherwise be in a hopeless position of having to navigate how to work effectively in an alien organization. Those assigned to this key role have to be senior, seasoned, well-regarded executives who can move mountains in their own organizations, as needed, to make things work.

SEE ALSO

Alliance Continuum

Alliance by Design