Quick takes

Citation

Gorrell, C. (2004), "Quick takes", Strategy & Leadership, Vol. 32 No. 1. https://doi.org/10.1108/sl.2004.26132aae.003

Quick takes

These brief summaries highlight the key points and action steps to be found in the feature articles in this issue of Strategy & Leadership.

Catherine Gorrell is President of Formac, Inc., a Dallas-based strategy consulting organization (formac@mindspring.com). She is a Contributing Editor of Strategy & Leadership

5 Making M&A pay: lessons from the world's most successful acquirersRon Langford and Collin Brown III

As the global economy starts to perk up, interest in mergers and acquisitions is once again building. This time it is expected that more activity will be in Europe and perhaps Asia, as national and regional regulatory regimes are relaxed and cross-border opportunities dominate strategic thinking. Now is the time to confront the paradox at the heart of M&A. Although study after study has shown that most deals destroy value for the acquirer's shareholders, why do companies proceed with M&A deals? Why does hope triumph over experience? Because, if certain fundamental rules are followed, M&A can create substantial value for the acquirer's shareholders.

This article shows that every industry has acquisitive exemplars and describes how they extract value from acquisitions for their shareholders.

Learning from acquisitive exemplars

Acquisitive exemplars view M&A as a means to a strategic end, rather than an end in itself. They have several decision biases as the basis for their success.

1. 1.

   General decision biases:

   • •

     Disciplined management processes – e.g. Alcoa, BP.

   • •

     Disciplined to make the most of their competencies and strategic assets – e.g. Nestlé, Unilever, and Shire.

   • •

     Exceptional, industry-specific M&A capabilities, such as target selection, bidding/negotiating or integration.

2. 2.

   Industry-specific biases, which can vary significantly from industry to industry:

   • •

     "Mature" industries – acquisitive exemplars buy small, buy often and buy cross-border.

   • •

     "Turbulent" industries – acquisitive exemplars are relatively rare: it is difficult to judge the right price and organic opportunities are plentiful and generally create more value.

Five decision biases to adopt

1. 1.

   Set the balance between organic and M&A-led growth in your corporate agenda, according to the maturity and dynamics of your industry. Exemplars are particularly active in mature industries and inactive in less mature industries.

2. 2.

   Challenge the level of acquisitiveness in your business unit's agendas, and make sure they are aligned with the dynamics of the industry. Depending on the business unit's industry segment, M&A could be a distraction or it could be a necessity.

3. 3.

   If the growth strategy needs to be biased toward acquisition, challenge your business at the both corporate and business unit level on the nature of these acquisitions (e.g. size, nature of synergies, cross-border or not).

4. 4.

   Develop the key M&A capabilities needed for success in your industry or market segment. If M&A offers the potential for competitive advantage, then building those capabilities should be a top priority. If it doesn't, don't over-invest in exploring deals; allocate time, talent and money elsewhere.

5. 5.

   Develop a fully accountable process and appoint fully accountable people to integrate your M&A decisions with strategy formulation and performance monitoring.

Two core rules

These five biases complement the two well-known, but often ignored, rules:

1. 1.

   M&As are a means to implementing a strategy, not a strategy in themselves.

2. 2.

   Each acquisition should be value-creating as part of the strategy it implements and, in most cases, on a stand-alone basis.

15 Strategy for the critical first 90 days of leadershipMichael Watkins

The actions taken during the first three months of a new job will largely determine whether you succeed or fail in the long term! This is important to know if you change jobs or take on a new position in your company. It is also important for you as a leader: think of all the transfers, promotions, or other job changes made each year in your organization. The implications are enormous both financially (with direct and indirect costs) and operationally (from the risks of a set back in a fast-paced business world).

The goal should be transition acceleration, not just failure prevention. Every minute saved by being systematic about accelerating the transition is a minute gained to build the business. How to do this? This article offers a blueprint for addressing the linked challenges of personal transition and organizational transformation that confront all leaders in their first few months in a new job.

Five propositions

1. 1.

   The root causes of transition failure always lies in a pernicious interaction between the situation (with its opportunities and pitfalls), and the individual (with his/her strengths and vulnerabilities).

2. 2.

   There are systematic methods that leaders can employ to both lessen the likelihood of failure and reach the breakeven point faster.

3. 3.

   The overriding goal in a transition is to build momentum by creating virtuous cycles that build credibility and by avoiding getting caught in vicious cycles that damage credibility.

4. 4.

   Transitions are a crucible for leadership development and should be managed accordingly. They strengthen diagnostic skills, demand growth and adaptation, and test personal stamina. Transitioning is a teachable skill.

5. 5.

   Adoption of a standard framework for accelerating transitions can yield big returns for organizations. Everyone (bosses, direct reports, and peers) needs to speak the same "transition language".

Match leadership strategy to situation

Far too many new leaders do a poor job of diagnosing their situation and tailoring their strategies accordingly. Then, because they misunderstand the situation, they make unnecessary mistakes, such as committing to unachievable goals. Methodically diagnose the situation and match your strategy to it.

Step one: diagnose the business situation. The four broad types of business situations: start-up, turnaround, realignment, and sustaining success. Each presents a distinct set of challenges. This article defines actions for each.

Step two: create a 90-day transition acceleration plan. A framework of the ten key transition challenges is included in the article.

21 The agenda for redefining corporate purpose: five key executive actionsIan Wilson

In the post-Enron/WorldCom/Tyco environment of public distrust and tightening regulation, corporations must proactively work to regain public trust. In this skeptical environment, they must do more to reflect the fact that corporate legitimacy depends on public acceptance. The new wave of legislation and regulation can achieve only limited results. What is needed is a more radical rethinking, by corporations themselves, of their true role and purpose in society.

Restating corporate purpose in terms of social needs rather than solely of maximizing profit is the surest way to be distinguished from the competition, to regain public trust, and to ultimately increase stakeholder (not merely shareowner) value.

What should the CEO do to ensure the success of this reformation? The agenda for executive action can be summed up in five key points:

1. 1.

   Develop consensus on a revised statement of corporate purpose and values. Any restatement of the corporation's purpose must start with recognizing that it is a social institution – not a social welfare institution, but one designed to serve a social purpose. Its function is economic, but its purpose is social. It exists, like any institution, at the discretion of society, to serve society's needs. Its continuing claim to legitimacy depends on its willingness and ability to serve those needs. Meeting customer needs is a means not an end. Service – to customers, to employees, to shareowners, to society at large – is the fundamental reason for the continued existence of a corporation.

2. 2.

   Clarify the role of profit in the business equation. Profit has a vital role to play as means, as motivator, and as measure of corporate performance. Rethinking and restating the purpose of the corporation in this way matters profoundly to guide and drive action. It establishes values and priorities, influences strategy and investment, and infuses the whole culture of an organization with a sense of passion and purpose.

3. 3.

   Articulate and communicate the distinctions between the old purpose, values and behaviors and the new. Moving from "profit-as-purpose" to "service-as-purpose" represents a culture shift of major proportions – one that will require patience and persistence to attain. It is not a shift that can be accomplished by edict. A constant drumbeat of executive leadership and action to underscore the reality and importance of this value shift is required. Only when managers see that the value change is genuine and consistent will they be inclined to change their own behavior.

4. 4.

   Set a strong personal example. While communication is vital, words alone will not suffice; action is what counts. In this arena, as in so many, it is leadership by example that counts. Consistency and sincerity are the essential qualities. By word, decisions and unspoken signals, CEOs do more than any other single influence to set the tone for an organization.

5. 5.

   Revise the management measurement and reward system. This guides managerial action must be revised. The importance of measurement cannot be overstated. Organizationally, we become what we measure. If we measure only profitability, then profit is what we'll get – at any cost, even to our ultimate detriment. Use the "triple bottom line" approach to measurement – focusing on corporate performance against economic, social and environmental parameters.

27 Prospecting for valuable evidence: why scholarly research can be a goldmine for managersRobert I. Sutton

Where do you get your new business ideas? Business magazines, popular business books, management consultants? Consider instead the comparative virtues of serious scholarly management research. Management actions supported by research-based evidence trump actions based only upon the intuition and war stories that you get from the commercial business press.

How scholarly research can help managers

In comparison to other business information sources, there are some clear advantages to using research offered in academic journals. Academic research has these attributes that promote quality content:

• •

  The research is backed by rigorous training and high standards, unlike most people who write for business publications or who work for management consulting firms.

• •

  If you use this work as a basis for practical ideas, the evidence and logic will usually be superior to that used by most authors of business books and consultants. Academics obtain evidence; consultants provide the war stories (Good examples are cited).

• •

  Scholarly research involves large-scale, longitudinal, and in-depth studies vs. the snapshot interviews by mass media journalists. Reporters working on deadline can't do long-term studies. As a rule, the evidence used to support the practical ideas in popular management publications is much weaker than that in scholarly journals.

Innovative thinking and competitive advantages often begin with contrarian ideas that are not offered in the mainstream business media. Because very few managers read scholarly journals, you are more likely to have any original ideas you find in them all to yourself, at least until one of the mass media publications writes a case study about how a company (yours?) has put them into practice.

Barriers to using scholarly research

On the other side of the coin, there are several disadvantages to using scholarly research to get ideas about how to run companies:

• •

  The experience gap: many management scholars are remarkably ignorant about what actually happens in organizations, outside the world of universities. They are apt to devote an absurd amount of time to points that have no value to business.

• •

  The jargon barrier: yes, most of these writings are difficult and dull to read.

• •

  Both academics and academic publications are incredibly slow moving. So if you need quick practical answers about a new problem, scholarly management research probably cannot help you.

Action to take

Astute companies can develop the capability to regularly mine academic publications for valuable ideas. It is worth the time to take a few hours a year browsing obscure scholarly journals like the Administrative Science Quarterly, Research in Organizational Behavior, Academy of Management Review, and the Strategic Management Journal (Others are also cited):

• •

  skim through the titles and abstracts several times a year; and

• •

  then, target and read in-depth for the new and powerful ideas that your competitors haven't encountered yet.

If your competitors only get their news from Wall Street Journal it might be a few years before they learn how your company is applying its research discoveries for a competitive advantage.

34 How CEOs can initiate and monitor a successful growth-project cultureCathleen Benko and Warren McFarlan

Do you suspect that many of your company's growth initiatives/projects have transformed into a herd of costly, untamed "opportunities" roaming the halls and eating up resources? Are they the best investment to for its future? Today, all companies are more dependent than ever on projects for growth; that is how innovations begin and are implemented. The problem is deciding, in an uncertain environment, which projects are truly the high values ones and which ones need to be cancelled. This article offers a project management methodology as a solution.

The three key premises:

1. 1.

   Over the past 20 years, the number of projects in organizations has grown more than 40-fold while the complexity of such projects has also greatly increased. Successful management of your business' project portfolio largely determines its ability to innovate and grow.

2. 2.

   Using an integrated analysis of the projects as a portfolio will better align them to the company's strategic intent, promote agility to adapt to changing business conditions, redirect resources to higher-value opportunities, and build improved capabilities.

3. 3.

   Adoption of three innovative practices to change the project management culture will manifest numerous performance improvements.

The methodology:

• •

  Adopt the best practice project management and organizational "traits". Traits are the skills and mindsets that help a company continuously adapt to a changing future. Use these to improve a review of projects by evaluating each project in terms of its merits: eco-driven (promotes effective collaboration of supply chain and channel relationships); outside-in (promotes the viewpoint of customers, suppliers, and stakeholders); fighting trim (promotes agility and coordination); house-in-order (promotes an efficient, collaborative intra-enterprise operation).

• •

  Use "sides" to group projects so as to understand their impact with customers, suppliers, and internal operations.

• •

  Break major projects into a sequence of smaller projects, or "chunks". Different from traditional design-develop-implement project phases, chunks are small project phases that can each produce a capability and an economic benefit. This alternative segmentation allows greater control, reduced risks and an increased ability to adapt to change.

The adoption of traits, sides, and chunking will allow the use of appropriate language, analysis frameworks, measurement techniques and mindsets that the organization needs to assess and prioritize growth opportunities.

43 How Sun manages its project portfolioAlistair Davidson

Sun Microsystems is a high technology firm that depends upon innovation for survival. This interview of Sun's Chief Information Officer, Bill Howard, gives insight into how this fast moving company balances the need for new development of innovations against limited resources. His goal: do more with less, but always try to produce the right quality and with good usability.

With an extended enterprise that can go anywhere in the world in a virtualized connected supply chain, the demands on IT are three times greater than the resources available to do them. The solution for making the hard choices: a multidimensional matrix and governance process to evaluate the projects. The components are:

• •

  The process for managing the project portfolio is based upon a governance model. Executives approve projects for their size, scope and fit to strategic objectives. A working committee prioritizes projects using 20 variables and regularly reviews progress. A multidimensional-rating matrix is used to rank the projects. Projects with payback are pushed to the top, but reviewed quarterly for results. Deliverables have to be produced in order to continue funding.

• •

  Comparing projects in the four categories (strategically critical, strategically important, experimental, and platforms) is done with a prioritization scheme.

• •

  "Shadow IT" projects (those that get started in an entrepreneurial fashion) are managed too, with the strong control of finance. At Sun, they are continuously evaluated for their value ranking.

• •

  For an innovation project, Sun has IT executives matched with each part of the business willing to support and be coordinators for them. The top IT executive must approve all money (above a certain amount) spent on consultants, integrators or other type of endeavor. In prior periods of high growth, projects proliferated and got out of control. Now, each effort is passed through a reasonable test to authorize the innovation work.

• •

  Strategy is often about deciding what NOT to do. Sun uses an EOL (end of life) classification to be ruthless about terminating legacy systems. Getting rid of old costs is key to justify and fund new initiatives.

• •

  To capture the softer side of project and portfolio management, Sun uses the formula Q×AE. "Q" is the quality of service or product. "A" is the acceptance and usability of the product or service (this is the soft stuff – training, user buy-in, etc.). "E" is the resulting effectiveness. The goal is a score of 100 percent, with special attention to the "A" side; this is critical to getting the technology used.

The bottom-line: "Every CIO today is being asked to do more with less. We need to manage the IT budget and look holistically at the spending in the corporation to enable the company to accomplish its mission".