2015 set a record for activity in mergers & acquisitions
The sheer quantity of decisions that follow a corporate merger or acquisition underscores the need for excellent organizational decision-making. Yet these decisions must be made at a time of rapid organizational change. According to Dealogic analytics, the volume of global mergers and acquisitions in 2015 surpassed $5 trillion for the first year ever, leaving companies scrambling to blend cultures, products, processes and strategies.
Transitions including lay-offs and power shifts are a constant with any M & A leaving lean staffing struggling to make the necessary adjustments. Downsizing and cost cutting are inevitable because they dramatically improve the bottom line while the organization struggles to both consolidate operations and expand revenue. In Q4 2015, when Avago Technologies and Broadcom merged, Zach’s Investment Research anticipated $750 million of annual cost savings within the first 18 months of operations, noting that the “synergistic benefits from the merger are likely to increase profitability through economies of scale.”
Decisions that must be made at all levels of the organization can make or break merger success. Not only is the ability to make and justify decisions critical during this period, it is also important to include the right executives, managers and employees in the decisions that will affect them as members of the new organization.
When one of our client organizations doubled in size by acquiring five companies, 26 study teams were charged with streamlining the business operations. Ray, the vice president of organizational development was asked to lead a risk management study team drawn from the insurance-related functions of all the companies. Each of the new companies came with its own army of insurance providers, brokers and overlapping insurance plans.
Consolidating the insurance was necessary, but after the turmoil and other fallout from the acquisitions, Ray knew that people would be reluctant to talk freely and objectively. He was trained in Kepner-Tregoe clear thinking processes and was confident that the systematic approach would counter apprehensions and direct the team forward; toward fact rather than opinion. He summarized his approach as decision-making backed by substanceand let these five questions guide their work:
1. What is going on now and why is a decision being made?
2. Who should be involved in this decision?
3. What do we want? Musts and Wants.
4. What could go wrong if we make a choice?
5. Can we justify the choice we make?
Before beginning any decision-making, he worked with the team to analyze and record what was going on, to identify existing policies and procedures and raise any concerns about the current state. This analytic, team-based approach revealed that the existing insurance coverage was not comprehensive. To guide their decision – making, the team developed a decision statement: Select the best alternative for the future arrangement of insurance from a cost, coverage, and administrative perspective. The team decided to do this by selecting the best broker and having the broker put together the best program, benchmarked against industry standards.
For consideration, a broker had to meet specific criteria that the team agreed upon. These included musts or minimum requirements for consideration as well as wants—desirable attributes that the team could use for comparison. For example, the team decided that the ability to serve global needs was a must while maximum industry experience was a want, which would allow for comparison of brokers.
Ray facilitated the team using the KT Decision Analysis process to establish all the musts and wants for selecting the broker, weighting the wants and comparing and rating the alternatives. Once the choice was made, the team considered any risks in making their final selection. Although the team members had existing relationships and priorities for coverage, following the process helped them to easily reach consensus and they selected two brokers, one for Marine Insurance and a second for Property and Casualty.
The brokers built programs of superior coverage that saved the companies $1.3 million the first year and $300,000 the second. In addition, the team negotiated a $79,000 reduction in broker costs by converting to fixed compensation.
This example illustrates how using analytic processes, demonstrating how a decision was made based on specific criteria and involving the right people at the right time, can bring order to chaos. When emotions and stakes are high and there is a level of uncertainty, using a systematic process for making decisions can move an organization forward and build consensus. Ray noted that to earn the cash equivalent of what the team saved, based on his company’s consolidated net income after tax, the company would have had to generate $125 million in revenue.