25 Mar Engineer the Delivery of Value
Note: This is part of a series of posts about driving transformation through Mergers and Acquisitions (M&A). Here’s my first post. This summarises the M&A challenge and the ten recommendations I have for success.
Another Note: The delivery of value from an acquisition is a massive topic and quite frankly, pretty hard to do proper justice in just a few hundred words. I have copious notes on the topic; it really deserves at least several blog posts, if not an entire book! That’s not possible here, so instead, I just want to convey a sense that an engineering mindset and approach is a powerful way of cracking the code on deal value.
The Great M&A Challenge
One of the great M&A challenges is the ability to identify, deliver and measure deal value.
The tried and tested response is to leverage the wide arsenal of financial accounting tools and techniques to help make wiser strategic and operating decisions.
But another way that nicely complements this approach is put on the engineering hat and go for a deeper and more granular understanding of how the interaction of people, processes, and technology affects the bottom line. What’s called for is a deconstruction of the operating model – the firm’s engine of growth, down to its essential nuts and bolts. In doing so the goal is to seek out structure and connections in a way that logically explains the way the firm delivers value. This is followed by the reconstruction of a working model that helps translate understanding into meaningful, decisive and ultimately more successful strategies for value delivery.
When it comes to value, don’t just spreadsheet it, engineer it!
3 major steps… Let’s go…
Get an operating model view of your organisation
The operating model describes how an organisation creates and delivers value. It’s an excellent starting point in understanding business operations as they currently stand.
Through workshops and plenty of ‘post-it’ notes, it’s possible to get a deeply shared appreciation on the way value chain activities deliver upon customer propositions. It’s certainly a detailed exercise but also very rewarding as it provides the necessary evidence for a coherent diagnosis of the firm’s strengths, weaknesses, and opportunities for improvement.
Get consensus on gaps, capabilities and value drivers
With the firm now reduced to its innermost workings, the gaps in people, process and technology functions become easier to pinpoint. Also, the key organisational capabilities (the combination of people, tools, and processes that makes a business competitive) should be identified and given closer scrutiny. Finally, for each of the capabilities defined, there needs to be a consensus on the levers of value that most directly contribute to business performance.
With a detailed evidence-based understanding of how backstage operations deliver upon onstage customer value propositions, it’s then time to start looking ahead at acquisition objectives, design principles, and actions required to deliver upon the firm’s acquisition goals.
Engineer the Delivery of Deal Value
With the nuts and bolts of the organisation laid bare through the deconstruction and analysis of the operating model, the task at hand is to reconstruct what the business will look like operationally at the end integration – otherwise known as the Target Operating Model.
During this exercise, two specialised techniques are employed to help engineer value at the enterprise level.
Value Mapping. This is a powerful technique for understanding and presenting a comprehensible view of the way business activities connect together in the value creation process. Moreover, it helps identify the value levers that positively impact business performance. Through careful analysis and clever engineering, organisations can sequence these value levers so they interact with each other providing a multiplier effect on business performance.
Value Delivery. This is a special method used for defining specific integration initiatives and transformation opportunities. This delivers a ‘road map’ for deal value delivery – an approach that concentrates the overall effort on the value levers that matter most on business performance. Moreover, it’s a powerful visual technique that allows everyone in the team to see how business outcomes can be best engineered for success. In doing so it ensures the team is on the same page and pulling in the same direction.
Cracking the Code
Organisations are increasingly using M&A to transform themselves so they can continue to thrive and prosper in the long term. This means there’s intense pressure to realise every drop of value from a deal. The old days of extracting only the Combinational Synergies from a deal are now long gone. What’s required instead is a bolder and more energising approach to deal value delivery that uses the predictive power of operating models and value management techniques to engineer the kind of success no spreadsheet could ever achieve.
There should be no enigma to cracking the code on value. What’s required is strong management commitment, teamwork, and an engineering-mindset. While this might seem unnatural and unnecessarily difficult, organisations with a nuts and bolts understanding of how value is created and delivered will extract far more value from their M&A deals compared to those who don’t.
There should be no enigma to cracking the code on value.
Hopefully, this particular tip has given you some thought. With this, and other posts in the series, I’m chipping in with my own thoughts and experiences so that all of us professionally involved – CEOs, CFOs, Executives, Product Managers, Consultants and Advisors – get that little bit better next time around. My email is below; happy to discuss this and other posts in further detail.
Thank you for reading!
Senior Consultant, BTD Consulting