Most acquisitions and alliances fall well short of their original expectations. However strong they look on paper, execution is far harder than it first appears. The good news is that practical experience shows there are concrete steps that can materially improve 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:
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Most acquisitions require buyers to pay a premium. In distressed deals, the lower price is typically offset by significantly higher risk.
- Integrating people, processes, and systems is slow and difficult. Bridging cultural differences takes enormous effort and often falls short. Without sustained attention from senior leaders, frontline collaboration gives way to turf protection, infighting, and favoritism, undermining the promise of working together.
- Acquisitions and alliances demand intense management attention at every stage: evaluation, planning, execution, launch, and ongoing stewardship. After closing, the burden increases as senior leaders must guide the integration of people, offerings, and processes. That effort inevitably diverts attention from other critical priorities.
Watch video of PeterD discussing
Alliance by Design at an Intelliven Learning Community Session.
There are three steps to successfully acquire or ally with another operation with the intent to merge it with 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 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.
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- An operating model to show who will do what to deliver the joint entity’s products and services with excellence, on time, and on budget; systematically and programmatically sell the venture’s products and services; and develop its capacity to fuel growth.
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- An organization and governance model to show who is responsible for doing (see: post on every top leader getting at least one thing right) and reviewing (see: post on connecting top leaders to the front-line ) what initially and over time.
- Assign an individual leader from each organization 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 … and vice versa.
- 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 should appoint a senior executive to represent its interests. This person must have real skin in the game, with meaningful financial, career, and professional exposure tied to the venture’s outcome. Their top priority must be the initiative’s success.
They act as the gateway into their organization, clearing obstacles and enabling their counterpart to operate effectively without having to navigate an unfamiliar system alone. The role requires a seasoned, respected leader with the authority and credibility to mobilize resources and make things happen when needed.