5 Ways Acquisitions Can Reach Their Strategic Objectives
Tuesday Jul 3, 2012 by Jim McHugh - Experienced Executive & CEO Coach
First, let’s ask: Why don’t acquisitions reach their strategic objectives?
Perhaps:
- there are none – clearly defined strategic objectives don’t exist
- there’s no meaningful measurement – performance is not consistently tracked
- management teams are too optimistic – i.e. they don’t face reality
- strategic objectives are not defined after the deal is completed
The initial 100 days after a closing are critical to a deal’s success. This valuable time frame can be squandered.
The perception that management is too burnt out after a lengthy closing process and therefore can’t commence a joint planning process is wrong and misguided. Setting objectives, clarifying expectations, and working together as a new team (it’s not “make work”) needs to start before the closing and be completed within the 100 day “integration” window.
There are no meaningful measurement systems
Performance against the strategic objectives is not tracked. Numerous middle-market companies prepare only an annual budget and miss targets throughout the year – the thinking on “how we are going to get there” is often woefully inadequate. A solid, simple operational plan needs to: 1) define the major objectives for each functional area; 2) identify the major tasks to be completed, along with who owns them and the due dates; and 3) estimate the financial impact of each task (e.g. revenue enhancement, gross margin improvement, expense reduction, balance sheet change, etc.). The plan should be dynamic so that progress can be consistently tracked.
Management is too optimistic
As a private equity investor, how many times have you listened to outlandish expectations from the CEO about future performance? As you leave a Board meeting scratching your head, your gut is screaming… “There is no way this company can hit those targets!” Does your own hope and the CEO’s enthusiasm get the better of you? There may be inflated optimism and not enough effort made at analyzing the facts and confronting reality.
But, what's wrong with aiming high?
Nothing, as long as the predictions are believable and achievable. In the July 2003 issue of the Harvard Business Review, the article ‘Delusions of Success: How Optimism Undermines Executives’ Decisions’ warns of the negative consequences of ‘flawed decision-making’ based upon over optimism. The authors state: ‘…when pessimistic opinions are suppressed, while optimistic ones are rewarded, an organization’s ability to think critically is undermined.’
Jim Collins’ best-seller, Good to Great, devoted an entire chapter (‘Confront the Brutal Facts, Yet Never Lose Faith’) to dealing with reality. His research proved that great companies were continually objective about their performance, their competitive position and their customers’ needs. Breakthrough results don’t happen by simply rallying the troops with a lot of hot air.
How can an acquisitions's strategic objectives be reached?
Set clear expectations and goals
Challenge all the assumptions behind the strategic and annual plans
Continuously measure the team’s performance against the objectives
Look for specifics details on execution
Be honest and realistic about the company’s progress
Jim McHugh is an experienced executive and a CEO coach. You can find this post, as well as additional content on his blog called 9Stucks. You can also follow Jim on Twitter (@9Stucks) by clicking here.
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