Anyone who has been involved in a deal (whether it’s a merger, acquisition, partnership or other type of transaction) knows it is not easy. Challenges such as multiple owners, complex governance structures, competing cultures, and interdependence all require careful consideration.
All too often, companies emphasize and invest disproportionately in the financials – hard analytics, projections or synergy targets. While there is certainly no “one size fits all” approach to maximizing the value of a deal, some behaviors and factors can enhance success.
It comes as no surprise that organizational health plays a big role in deal value creation. What makes an organization “healthy?” According to McKinsey & Co, three behaviors matter – selecting the right talent, maintaining a strong external focus, and running a tight ship internally.
On the talent side, a rapid, systematic approach to talent selection is important. Decisions on “in” or “out” should be direct, quick and fair. Taking a “train and teach” mindset (vs. delegation) is also important in developing talent and building teams.
Healthy organizations also understand the importance of what their customers and partners want and leverage strong communication to nurture those relationships. They communicate frequently and clearly. They get internal alignment on objectives of the “the deal” articulated and written down. They co-create strategies and adopt joint KPIs and performance dashboards. By investing in personnel, processes and tools, they are able to seek and act on customer feedback and bring in best practices/methods from outside the organization.
Finally, healthy organizations have strong internal discipline. They emphasize accountability and metrics to run a tight integration process. They have clear oversight and control of finances at all levels. They have good governance and consistent performance tracking and transparency. They are able to successfully transition service agreements and IP rights. They have role clarity and provide attractive incentives for high performers and clear consequences for underperformers.
Organizational health is a two-way road. Healthy organizations aren’t afraid to change and redesign things that aren’t working. In fact, alliances that had at least one restructuring are 2.4x more likely to be successful than those that remained essentially unchanged. They adopt levers that can be adjusted, such as exclusivity provisions, equity levels, organization structures, or operating authority. Actively-managed alliances have better success rates.
Sources:
Kaetzler, B., Kordestani, K. and MacLean, A. McKinsey & Co. July 2019. “The secret ingredient of successful big deals: Organizational health.” Retrieved from: https://www.mckinsey.com/business-functions/organization/our-insights/the-secret-ingredient-of-successful-big-deals-organizational-health?cid=other-eml-alt-mip-mck&hlkid=fdd88f4d320a495091fd08dd038e4233&hctky=10115817&hdpid=9ba5d891-1a87-4c56-9bf7-025327b12503
DeBacker, R. and Rinaudo, E. McKinsey & Co., July 10, 2019. Optimizing partnerships: maximizing the value of joint ventures and alliances. Retrieved from https://scfmckinsey.webex.com/mw3300/mywebex/default.do?nomenu=true&siteurl=scfmckinsey&service=6&rnd=0.09461760147529785&main_url=https%3A%2F%2Fscfmckinsey.webex.com%2Fec3300%2Feventcenter%2Fevent%2FeventAction.do%3FtheAction%3Ddetail%26%26%26EMK%3D4832534b00000004c1dc4334947a6a41c5f428478663c4f4af6220aeeecbaa3ffaafb4a755ccd337%26siteurl%3Dscfmckinsey%26confViewID%3D133235689777036852%26encryptTicket%3DSDJTSwAAAAQddPM0dvq4StoOWGqzudsFwFlEcJNJNrMGwBqoY9IXyw2%26