Is Synergy Realization a Project or a Line Management Task?
By GPMIP Partner, Michael Holm
Is the ultimate approach to synergy realization a project or a line management task? The reason for an acquisition is to create value in combining two companies to achieve 1+1>2. Every year, there are about 10, 000 – 30,000 attempts made to make that equation come true, the numbers depending on deal size threshold. To whom do you give the trust to realize those deal synergies? Let’s first look at two ends of the spectrum.
An army of external help: An external advisor is tasked with setting up a synergy program or a synergy work stream within an integration project structure. A pyramid of analysts and consultants with industry or functional knowledge are brought in to analyze, challenge and drive activities in the line organisation, also to track progress. The synergy program lasts somewhere between 12-18 months and the number of external consultants go down along the way. Line management are given responsibility to do analysis, benchmark with industry peers, off-load a lot of admin work connected with the synergy program, and the line organisation is for a period augmented by the army of bright people. Remaining tasks after the 18 month period are included in budgets, business and operational plans. The synergy targets are met and the cost of the army is motivated by that success.
DIY – Do It yourself: The line management takes in the synergy targets and starts to analyze them with internal resources. Staffing is based on knowledge and mandates within the line organisation. Cross-functional teams are setup and managed by target owners. Analysis is focused on hitting the target with the resources, experience and understanding within the line. Benchmarking is not used very often. Analysis is done the same way as for investment decisions per internal processes. The synergies are landed in the budget and business plans as per the company yearly cycle. A controller is tasked to track the synergies and report progress. The synergy targets is viewed as just another strategy or investment execution project and at no external costs.
With two ends of the spectrum covered comes the question of what is the optimal setup? First, there is a need to place you in either end of the spectrum or in the middle.
- Is there M&A synergy experience in your organisation?
- Is the company used to cross-functional projects?
- Have there been a number of strategy execution or investment or rationalization projects?
- Is there a well-functioning accounting/finance system and organization?
- Is there a need for benchmarking with your peers to set the targets?
- Is there a need for deep analysis beyond the capabilities of your own internal organisation?
- Do you have a well-functioning yearly cycle in budgeting, KPIs, scorecards, business planning and follow-up?
- Does your leadership have bandwidth for driving synergy projects?
- How much costs for external help can the acquisition case carry?
If there are many negative answers to the above questions, you would tend to lean toward the army of external resources. If positive answers, you end up with the ability to do it yourself. You can, of course, think of more questions to pinpoint your capabilities, but the approach holds true.
The optimal answer will often lie in the middle, i.e. you can do a lot by yourself, but need to source certain competences, facilitation and resources. The suggestion is that you go through a capability assessment early in the transaction to determine your need of external help or how to best assist the line organisation.
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