So this may be a bit out of scope (did you see what I did there?) of what these posts are going to be, but it makes perfect sense to me, so I’m going to go with it. Buckle up, chochachos!
As I mentioned in my class introduction, I work for KeHE Distributors, and I have had the distinct pleasure of serving as a role player on a couple of project teams. In my time at KeHE, I have supported integration efforts on two distinct acquisitions, and (as you might expect) each of the integrations came with a plethora of projects, first focused on merging systems and processes, then on tapping into latent operational efficiencies.
I was reminded of this fact when I came across this article in WSJ.com: (http://blogs.wsj.com/moneybeat/2015/06/25/goldman-sachs-predicts-big-uptick-in-ma/?mod=WSJBlog&mod=MarketsMain). In brief, this article talks about the expected growth in M&A activity in the coming years. When I first read this, I didn’t really think that it has any relationship to project management, but the more I thought about it, the more I felt that it was highly relevant.
M&A activity is jam-packed full of large- and small-scale projects of many types, and they will very likely require exceptional project management – by which I mean both high-quality and out-of-the-ordinary. In my experience, the success or failure of M&A is directly correlated to how well it can be executed – which ties right into project management!
See? I told you we’d get there.
Like I said earlier, I’ve been through one acquisition of one company roughly the same size, and am working as a role player on a second integration today. In both integrations, my company used a matrix approach to project management, but these two acquisitions have yielded very different experiences. The first time around (2009), my company had many antiquated operating procedures and cultural trappings. Said simply, it was a company that sold shy of $1BB/year out of four warehouses and functioned very much like a family business circa 1980s. We had acquired a company roughly the same size but with a much larger operation trappings (international vs. domestic and 14 warehouses vs. KeHE’s 4) and a fundamentally different approach to data management.
On paper, the prospects were great. We thought that we could just combine two companies, taking the best from each, and drive greater growth within 18 months – with few growing pains for anyone involved. Admittedly, we had lofty goals, but we thought we could do better than the average – which spoke to a little bit of ego. What we didn’t anticipate was a paradigm shift in the market that forced us to fundamentally redefine how we went to market. Two years later, we were hanging on for dear life, hemorrhaging accounts, an irate vendor community, and a disenfranchised employee base. What we learned is that, far from being the cat’s meow, our company fell well short of our lofty expectations, and we were humbled by our shortcomings. The integration should have been a series of carefully choreographed and executed projects, but the scope of the project was overly optimistic and didn’t factor for the unexpected.
Fast forward to today, our company is older and wiser for our previous challenges. We recovered well and are on a great growth trajectory, and while this integration is set at a slower pace, what we learned from our mistakes helped us to avoid the mistakes of the past – not least being our failure to factor in risk. We continue to use a matrix approach, but we’re much more deliberate in how we create teams and manage project resources. We plan for multiple contingencies and are able to adapt to the unexpected. This planning has already come into play, as we have to advance a major IT conversion by four weeks to accommodate new business recently awarded to us. Had this happened four years ago, we would have crashed and burned, but the lessons we learned have helped us keep our focus where it needs to be.
There’s no doubt that there’s risk associated with M&A activity, but these risks can be mitigated with strong planning and project management. The more effectively the project team, the greater the financial, operational, and strategic return. And, if the Journal has anything to say about it, we’ll be seeing more M&A activity in the future. Who knows? There may be an M&A project in YOUR future!
Mark,
I like you have heard about more M&A activity (I actually see it in my banking career), but did not tie it to project management. But you are right, and supported by another article I found at the link below. One of the main reasons these M&A deals can fail is because of lack of management capacity around integration. To me, that screams project management. I can see project management specialists forming around the area of integration. Planning across two companies and functional teams will be key from the beginning.
http://www.forbes.com/sites/forbesleadershipforum/2012/03/19/why-half-of-all-ma-deals-fail-and-what-you-can-do-about-it/
Mark, I agreed with you that M&A deals are full of different scale of projects. Our company announced an acquisition of a company in the same industry last year. The deal was sealed in the 4th quarter but we are still working on post-close integration. We probably need another year to be fully integrated.
Initially, people thought it should be easy because both companies use the same ERP system and focus on the same market and customers. However, it was not what we predicted. Although both ERPs are developed by the same company, they were customized. There were over 13,000 customized features for each company. There is no easy way to merge the two. We decided to completely abandon one system and migrated data to the other one.
This is just an example of thousands of projects involved in the acquisition. Other small projects include reviewing and consolidating policies and procedures, rearranging staff, reallocating resources, etc. To perform all these activities, we need highly motivated project management teams.
M&A is a very hot topic right now in the commercial real estate industry where I work. Bigger firms are taking advantage of cheap debt and available capital and are buying up their smaller brethren to expand their strategies, diversify their portfolios and for other long term benefits. As an investment manager buying and selling the stock of these companies, we consider M&A an investable theme right now and part of what drives our buy/sell decision is how well we believe the integration of the two companies will go. Key to the smoothness is the project management team. A local retail owner acquired one of its competitors last year and before the deal was even announced they were devoting resources to help ensure a seamless transition that would be rewarded by the market rather than punished by it for a botched merger. So, while I’m not directly involved in it, project management teams of companies we own on behalf of our clients are critical to our stock selection decisions.
Mark: I very much enjoyed reading your blog post. M&A activity is certainly appearing to be an upwards trend; particularly since the economic downturn. A large amount of businesses were holding onto cash, and as things rebuild in an economic-recovery sense, those dollars are ready to explore additional options.
From a project management perspective, I noted that aside from lessons learned, a organizational matrix was still utilized for both M&A efforts. Do you think that this approach was repeated because of the current organizational structure, or because the lessons learned still appeared to fit within the same matrix approach to integration of companies? I wonder if a project organization (separate organization) that is specifically dedicated to the integration would make sense? My thought there, is that having a project organization for this effort would make the group completely separated from both business units, which would create separation of cultures, procedures, tribal knowledge, politics, and people. Perhaps that approach would result in a better project profile with team members whom are fully dedicated? I remember moving through an acquisition, in which we were the acquired company, and our team members were allocated to the integration team. However, it appeared that our team members, as well as the acquiring team members, were sort of segregated in their beliefs; almost a “we do it best” type of mentality.
Lastly, I also wonder if the project alignment with company strategy played an impact in some of the “woes” experienced. Just like you said, an acquisition or merger is multiple projects rolled into one master project. Perhaps that master project was not fully aligned with the strategy of the company? As an example, the antiquated systems may have been in place due to costs, or, perhaps they were utilized because they gave KeH the flexibility to be successful? This was a very interesting blog post that was enjoyable to read, particular due to my experience from an “integration gone wrong” after an acquisition of similar sized companies.
Hi Sara!
Thanks for the feedback! You’re asking some great questions here. In my experience at KeHE, the matrix system is being used out of organizational necessity. Historically, KeHE has operated very much as a family-owned company, warts and all. I don’t think our company even got email until about ten years ago (no joke). We’ve grown and matured a lot over the past decade or so, and we’re getting better every day. The problem is that we’re still in a breakneck growth mode and have only recently begun to consistently attract and retain high-level talent. Subject matter experts are still fairly thin on the ground, and pulling someone with both system- and process-mastery would leave us very thin in key positions.
Now, that’s less true today than it was a couple years ago, and from where I sit I can see a time in the next 12-18 months when we’ll have several generations of that mastery in place. Our company is still very much in growth mode, and we’re likely to continue to grow in leaps and bounds as we currently are. I think what we’ll see is a continued evolution of how we approach projects in KeHE, but I doubt we’ll be moving away from using a matrix any time soon.
What a relevant article to my current company! Recently, my company merged with another company of, let’s say, the same size. Well… this was not a merger. It was a hostile takeover and since this topic does not apply to the scope (did you see what I did there?) of this class, I’ll spare you the details.
I 100% agree with you. A merger is a series of mini projects. One of them is figuring out the headcount and the org structure, and to eliminate duplication on both sides of the company. Each Division or Function is evaluated and must go through this process. Time is of the essence. The scope is clearly defined. The budget of the newly designed Org Structure is also determined. There is a team responsible for interviewing and selecting new Heads, a team responsible for handling exits and severance, a team handling communication. Who said that M&A isn’t a project?
Thanks, Iwona. I was glad to chat about your experience at the Kraft Heinz Company, and am happy to hear how things are working out for you. With any luck, you’ll have some great integration experiences coming up, and you’ll be able to put some project management skills to the test!