Chris Adams and Andy Neely
According to a long parade of authoritative studies, mergers
and acquisitions have no better than a 50-50 chance of creating value for the
acquirer. Mergers go sour for many reasons: poor strategic concepts,
personality problems at the top, cultural differences, poor employee morale and
incompatible information systems. But the most ubiquitous cause is the failure
by management to successfully integrate the two entities. In the maelstrom of
deal-making, executives invariably fail to install effective post-merger
integration tracking and monitoring processes.
Following a two-year research effort, we have devised a
measurement framework and process, the Performance Prism, which helps to
extract maximum value from performance management systems. Its chief merit for
business combination applications is that it embraces all of a merger's
critical success factors, many of which are not addressed by other approaches.
Beyond the Balanced Scorecard While the commonly used (and abused) "balanced scorecard"
approach addresses only the needs of two stakeholders, investors and customers,
the Performance Prism goes further and considers employees, suppliers,
intermediaries, regulators and communities. Uniquely, it also addresses both
stakeholder satisfaction and contribution. Because it drills down from
strategies to processes and then to underlying capabilities, the Performance
Prism achieves a comprehensiveness and wide-angle view that is lacking in other
business performance measurement frameworks. The result is a much more
realistic picture of the drivers of business success.
Tracking all the elements of post-merger integration at the
appropriate level of detail is critical. Comprehensiveness is particularly
important in merger situations, where integration of two businesses often
involves complex trade-offs and specific interdependencies. The Performance
Prism prompts managers' thinking, ensuring attention to all the key post-merger
integration success factors and potential pitfalls.
The Performance Prism in Practice Each of the Performance Prism's five interrelated facets
(figure 1) represents a key area that determines success. The weight given to
each will depend on the particular strategic objectives of the deal: e.g. cost
reduction, brand enhancement, research synergies and so on. The fundamental
questions to ask are:
- Who are our key stakeholders and what do they want and need?
- What strategies are we pursuing to satisfy these wants and
needs?
- What processes do we need to put in place to achieve these
strategies?
- What capabilities are necessary to operate and enhance these
processes?
- What do we want and need from stakeholders to maintain and
develop those capabilities?
Figure 1
 Let us now briefly consider each of the five facets of the
Performance Prism:
Prism Facet One: Stakeholder
Satisfaction The goal of mergers and acquisitions is to enhance
shareholder value—everything else can be considered "damage limitation."
Notwithstanding some cost-driven post-merger redundancies,
it is vital that those executives and employees selected for retention do not
become disaffected by the decline in morale that frequently occurs. A merger
also has to ensure that customers' wants and needs are better satisfied after
the merger than before. Measurement can help to detect and prioritize solutions
to declining morale and service to customers.
The Performance Prism makes a broad range of stakeholders,
including employees, customers, suppliers and regulators, the focus of measures
design.
Prism Facet Two: Strategies The key elements of a business combination's strategy will
typically be to:
- Leverage the merged companies' brands, products and services
to customers
- Strengthen market share or competitive positioning
- Improve net cash flows through substantial cost
savings
- Deliver the benefits anticipated at the business unit
level
- Manage budgeted costs for the post-merger integration.
The Performance Prism enables relevant monitoring to
determine whether strategic goals are being met and to provide the data for
informed executive decisions.
Prism Facet Three: Processes Business processes play a vital cross-functional role in
post-merger integration. They are the engines that enhance value:
- Supporting revenue generation through integration
- Spurring cost reduction through shrinking headcount and
facilities
- Optimizing procurement and logistics channels.
Prism Facet Four: Capabilities Capabilities are the amalgam of people skills, business
practices, leading technologies and physical infrastructure that create value
for stakeholders. They are the fundamental building blocks of a corporation's
ability to compete distinctively and thus present many challenging issues for
post-merger integration implementation teams. What is the right level of
employee headcount and facilities? What functions should be moved from one
place to another? Which are the unique product and process technologies and
best operating practices of the merging organizations?
Prism Facet Five: Stakeholder
Contribution The Performance Prism addresses not only what all
stakeholders want and need from the newly merged enterprise, but also what the
company reciprocally wants and needs from them. Most importantly:
- A stronger investor profile
- A positive response from securities analysts and business
media
- Retained employees loyal to the new enterprise
- No erosion of its combined customer base by opportunistic
competitors.
The Performance Prism is a broad-gauged tool that deploys a
deliberately wide variety of measurement perspectives. These should be
installed early in the merger planning phase and maintained for as long as they
provide the data on which insights and judgements are needed to ensure a
merger's benefits realization.
Chris Adams, experienced
manager—Finance & Performance Management, is based in the United Kingdom.
Andy Neely, professor—Cranfield School
of Management, United Kingdom, heads the school's Centre for Business
Performance and is author of the book "Measuring Business Performance"
a.neely@cranfield.ac.uk.
For more information, please
contact us.
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