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PMI Series - 3. Craft: Tackle the key questions with the best minds of both sides

Written by Joris Vanthienen


Summary: M&A transactions have a very high failure rate. Mainly due to failing to integrate the two parties involved. To achieve success, it's important to drop the P in Post-Merger Integration and consider integration as a holistic process. Ideally starting when formulating the strategic rationale of a transaction. We’ve seen that top performers prioritize merger integration projects and follow BrightWolves’ six principles for successful integration. Today, we’ll dive into the third principle: craft


Principle 3: Craft

Merger integration is a challenging process that cannot be easily translated into a manual. You need to develop and exercise certain skills that very often companies do not have in house. This requires a dedicated and skilled approach that takes into account the unique circumstances of each merger.

It is essential to leverage the collective intelligence of both companies. In the integration management office, the best minds from each organization should be brought together to tap into a wealth of knowledge and experience. By collaborating closely, potential pitfalls can be identified and effective strategies developed to overcome them.

In the previous article I’ve talked about setting up the integration management office. We’ve seen it works best to select a highly respected integration leader.

“The best integration leaders combine 3 crucial skills: integration management skills, with business knowledge and people skills."


Figure 1 - Skills of a top integration leader


Tackle the key questions: How to design a target operating model that delivers


A crucial question, where collective intelligence should be harnessed, is determining the target operating model. To successfully achieve the anticipated benefits of a merger, significant changes to the operating model are often required. Moreover, a merger presents a unique opportunity to reconsider the organizational structure. And for the leader, organizational design is one of the most powerful tools in the toolbox to shape future value.

“For the leader, organizational design is one of the most powerful tools in the toolbox to shape future value.”

It is crucial to approach this task diligently. Mergers often prioritize speed, which can tempt decision-makers to take shortcuts in redesigning the operating model. Many tend to focus solely on organizational charts and reporting lines while neglecting the importance of processes and people. Based on our experience, this approach is generally a mistake and can lead to significant challenges in managing change during the transition.


The BrightWolves’ 5x5 approach to create an operating model in a merger integration


At BrightWolves, we have developed a 5x5 approach to create a Target Operating Model (TOM) during a merger integration. We expand upon the conventional target operating model approaches because we find them insufficient in scope. If these approaches only consider the traditional relationship between processes, people, and technology, they may overlook critical aspects such as where the work will be performed, how it will be reported and measured, and how it will be governed and controlled.



Figure 2 - BrightWolves 5x5 approach


1. Assess the baseline of the two current operating models

To begin, it is needed to do a thorough diagnostic on how the two current separate businesses are run. How are the two companies delivering value today? Gather as much facts as possible and do a value based analysis of the functions, team sizes, processes, systems & governance bodies with which they operate.


2. Translate the vision & strategic rationale of the NewCo in a set of guiding principles

This step refers to the broader strategic rationale of conducting the deal in the first place (see the first principle of this PMI series: clear choices). Which value did you want the NewCo to create? Which experience do the customers and the business want to have? Can you translate that in a set of guiding principles? It is important to lean on the design principles and a strong fact base to determine what is right for the new organization—that may mean maintaining structures and processes from the original organizations in some instances and developing new ones in other instances.


3. Define the end state operating model by drawing out the end-to-end value chain and the different functions you need

How will the organization serve its customers and generate value? What will be the main streams in the E2E value chain? Especially define level 1 here (= Exco level). Will they be best grouped by business unit or category, by geography, by product, or some other factor? How will functions and shared services serve these value streams? Level one should define the main value creating stream. (I.e. by country, product, function...). Level two then (= Exco - 1) defines the second dimension (I.e. by country, product, function...).


4. Lay out an organization design on the foundations of the operating model defined above

Based on the foundations of the operating model, you can now build the organization design. We do this both for level 1 and level 2. This compromises of the following:

  • Who reports to whom? Structure Boxes and reporting lines

  • Who does what? Assign clear Roles & Responsibilities

  • Where to work from? Decide on prime locations

5. Now detail the organization design by completing the 5 key elements

  1. Team Sizing. Workforce size (synergies): Here we conceptualize the future workload: what does this function need to be successful at this step? What can you learn from competitors in this regard?

  2. Crucial Processes: A central team should select at least five to ten of the most important cross-functional processes to design early in order to achieve stability as quickly as possible (i.e. Order to Cash)

  3. Crucial Systems: draw up a high level end state architecture from the beginning.

  4. Data & Reporting: define the main performance indicators for each team & each exco member. List which insights and data are needed to be successful, and how these data will be provided and accessed. Make sure to work towards one source of truth.

  5. Governance: how will decisions be made? Clear governance provides a necessary structure for setting goals, managing resources, and ensuring compliance with regulations, thereby promoting transparency, fairness, and long-term sustainability.

By following the approach described above, BrightWolves assisted a well known private equity player in future-proofing the organizational set-up of three of their acquired companies to enable growth.

See you next week!


Need help setting up your M&A for success? BrightWolves offers consulting services along the full M&A spectrum: ranging from helping to define your M&A strategy, to target screening & selection, commercial due diligence, deal closing and post-merger integration. Do not hesitate to reach out to our expert, Joris Vanthienen

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