As Mergers and Acquisitions (M&A) becomes a major strategic tool for businesses which they use frequently to grow, they need to be supported by a robust playbook. A playbook is a document that codifies the processes and practices pursued by a company for its M&A and integration process. These playbooks cover the entire M&A lifecycle stages, from deciding to pursue M&A, to post-merger integration.
In general, pre-deal stages of M&A tend to be quite regimented and structured in most regularly acquiring businesses. On the other side, for many of the same businesse, the post-merger integration stage are not defined as they are dynamic and a certain level of uncertainty exist.
During an integration phase, there are a several elements that are quite consistent. Changes to email-ids, payroll consolidation, financial reporting consolidation, and systems consolidation, are quite standard and can be easily accomplished.
On the other side, items like organizational structural changes, operating model changes, policy changes, cultural integration, people behavior changes, and extraction of revenue synergies are all examples of uncertain and dynamic changes. This is where a disproportionate number of playbooks fall short on addressing the uncertainties of these elements.
Let us explore this subject more. Let’s start with a little characterization of an M&A Integration playbook.
Businesses develop playbooks in order to drive consistency and repeatability of their M&A integration approach. These playbooks are documents that are written and codified on the basis of prior experience of their practitioners. These would include details for questions like: What functional areas to address? What tools to use? What tasks should be performed? What sequence to follow? How to report the progress of the functional activities?
In general, all playbooks need to have considerable amount of details that practitioners and newbies can follow consistently and comprehensively.
But just having descriptions of processes to be followed is not adequate. Playbooks should be able to handle undercertainties as well.
That is where most playbooks have shortcomings. So, what is the problem?
The problem occurs twofold.
First, the playbooks normally get written by a small number of individuals. While they seek input from other functional teams, playbooks in general, are a direct reflection of their own experience. In addition, the tone applied in these playbooks tend to be directive rather than suggestive. Another aspect is rare reference to external standards or citing of industry best practices, market intelligence or trends.
The second problem occurs due to company’s own narrow M&A experience. A large number of M&A transactions pursued by most companies tend to have remarkable similarity with their past acquisition. Same region, same set of customers, different products and same industry. Under these circumstances, the level of uncertainty is quite limited. As a result, a playbook with standard definitions and descriptions can be adequate provided that integrations do not run into significant people, leadership and cultural issues.
The above two elements do not pose a problem if the deals pursued stay to the script. The moment there is variation, it runs into problems. Let me share an example of a US-based product company. The company had significantly grown through acquiring other product companies who played in the same market and they were all based in the US. The company would acquire other product companies and neatly folded the acquired company into their mother ship. Everything went well till they decided to pursue a European acquisition. Like in the previous acquisitions, they decided to follow their playbook to a T. Little did they realize that European acquisition needed a radically different approach compared to their US ones. Unfortunately, they realized their inadequacy far too late in the acquisition. Needless to say, this acquisition bombed for them.
So, how does one address these challenges in a playbook?
The playbook challenges need to be enhanced through usage of three additional elements.
In general, most playbooks do not include a provision to run diagnostic and assessment processes. These playbooks are based on deep seated beliefs that playbooks are adequate in their descriptions and does not need to conduct any diagnosis before the processes get applied for an integration.
On the other side,we all know that every integration has some uniqueness to it. So, how does one address these unique nuances under the purview of a playbook.
This is where specific assessments must be included in a playbook that can help characterize uniqueness and help in driving consensus on how to address the variations.
A prescriptive approach refers to the approach where activities are pursued on the basis of a certain outcome. In case of transactions where it is routine acquisition of a standard business that the acquiring company has pursued several times in the past, the descriptive elements in a playbook are adequate. The moment the type of acquisition changes, descriptive approaches need to be supplemented with their predictive nature.
For example, when an acquiring company pursues buying another product company in a new geography, they should include predictive nature in their playbooks. For the same go-to-market process, they may get different outcome in different geographies. Thus playbooks should be provisions based on outcomes that are likely to arise from the same processes but in different geographies, or industries.
Prediction refers to the outcome that is most likely to happen given certain types of conditions and activities performed. Playbooks seldom mention the output or the results. They primarily focus on the tasks and activities that need to be performed instead.
As a consequence, individuals with limited experience are not able to vouch for the efficacy or the precision of the outcome. Instead, they measure themselves on their ability to perform the tasks and activities given to them as described in checklists and playbooks.
Very few playbooks are sophisticated enough to include a prescriptive element for their integration management. On the other side, to predict all possible outcomes in an uncertain environment may not be efficient usage of resources. It is prudent for organizations to take a balanced approach on this matter.
Prescriptive ability can be quite important especially when applied to critical points of failure of an integration. These failures could be linked with leadership disputes, sharing of confidential information, act of misconduct or violation of policies.
Prescriptive activities should be outlined for some of the biggest points of failure. I have seen several integrations struggle with leadership disputes and employee misconduct. In one integration, I saw that the acquired company took a lenient view on employees sharing their compensation details with their colleagues. The acquiring company had very strict policies around sharing personal information. As you can imagine, a person almost got fired for this violation once the integration was underway.
As you can see from the example above, this was an issue that was bound to arise at some point in time. If the playbook had prescriptive provisions included then these types of challenges can be nipped at the bud and many heartburns avoided as a result.
Companies should try and include at least some prescriptive aspect related toleadership, people, culture, organization design and emotions in their playbook.
As many companies start to exercise M&A strategy more frequently, there is a significant need to develop playbooks to conduct integrations effectively. Playbooks ensure consistency, drive adherence to standards and help toeing the company lines.
Playbooks needs to have standards to drive consistency, at the same time allow flexibility to meet the individual nuances of each integration.
Apart from being descriptive, M&A integration playbooks must also be diagnostic, predictive and prescriptive.
As the number of knowledge/talent centric acquisitions increase, we will need these three additional elements to ensure success of a integration.
To end the article, I must also say this. No matter how sophisticated your playbooks are, one should always exercise elements of wisdom, caution and context to extract the maximum benefit of a playbook. Remember integration is as much a science as it is art. And practitioners need all the help, wisdom, tools and last but not least, a great playbook to make them successful.