M&A Integration Organization Design
M&A Integration of new business model transactions in technology, media, and telecom sectors.
In today’s era of rapid business model disruption, conventional approaches to M&A integration are also being disrupted, while new paradigms of preserving and enhancing value are on the rise. Integrating new business models involves several differences in how one should think about making the new organization work.
This blog focuses on TMT (Tech, Media, and Telecom) models, along with the key considerations that are applied to other sectors when planning the organization design of the new company.
Examine Decision Levers
The integration of new business model transactions is always a challenge — the new organization is a core value driver. Therefore, specific decision levers include keeping organizations separate in the short term, combining them quickly, and using an overlay approach. Moreover, decisions should be driven based on data and facts looking at the impact on brands, channels, markets, and products.
Another consideration for organization design and structure is the potential of one business to cannibalize the other e.g., SaaS and perpetual licensing business models can conflict with each other. SDN will cannibalize the existing MPLS business of Telcos; hence, these issues need to be carefully addressed with clear answers in place.
Once the executive layers of the company are announced, the second level needs to be put in place quickly. When integrating new organization design models like IoT, SaaS, SDN, etc., it is a given that the value is carried by the product, the people, and the brand; hence, making these the top three areas of focus. In a transaction where the product is driving the core value, the organization plans the design, creates linkages into marketing/brand integration, and then sells it in a particular manner, considering all risks and dependencies. Due care must be taken to avoid legacy business model benchmarks on spans, layers, and locations. The operational systems such as lead to cash and HR must support the new business model by not taking the homogeneity view.
Manage Executive Repatriation
One needs to pay specific attention to the skills and background of acquired executives. It has become increasingly common for people to get titles like ‘Vice Presidents’ in large traditional organizations and then transition into smaller start-ups with similar titles. While larger organizations tend to “title down” people from start-ups when calibrating them against the size, span, and job complexity of the acquirer, the core focus should be on people who had marched up the executive ranks in prior jobs based on their expertise since under-titling them could lead to discontentment and ultimately, departure.
The new business culture alignment approach focuses on creating a “new way” together. Typically, it is delivered by encouraging leaders and managers through offsite summits — by brainstorming the future state rather than assessing each other’s cultures. Critical success factors include strengths-based teamwork, developing relationships, genuine connections, sparking ideas, and driving ownership. This approach is gaining more adoption and has faster delivery of results in M&A integration that are more focused on culture alignment than homogenizing.
No Incentives, No Progress
Like everything else, homogenizing incentives will create a business drag. Given the inherent difference in the business models, one needs to align individual and group incentives with the core KPIs pertaining to the new business model.
Three C’s that need to be addressed are:
Commitment: Are the incentives really in place and is leadership committed to delivering on the committed plans?
Cohesion: Are the incentives going to propel the joint company?
Conflict: Is there a conflict of incentive structures between business models?
As disruptive technologies continue to emerge and impact existing organization design models, legacy companies will rely on M&A as a driver to transition their own businesses. In addition, integrating new business models differs greatly from traditional transactions involving consolidations, tuck-ins, or even adjacencies, and getting the organization design is imperative for maximizing value from these transactions.