You want your company to grow, and a merger can be a very effective way of achieving that goal. But the business world is littered with failed mergers. In fact, 50-70% of them fail. So, how can you prepare for a merge to give you the best chance of beating those odds? Read this article to find out.
Why preparation is important
A merger is a very significant transaction both for the acquiring firm and the target organisation. “Synergies”, e.g. in the form of cost savings by removing duplication, is often an important justification for a merger.
However, synergies don’t just happen by themselves post-merger. They are the result of careful planning and execution. The fact that 50% – 70% of mergers fail to live up to expectations, is evidence that preparation on both sides is essential.
Streamline processes
One aspect of preparation is pre-merger due diligence to ensure the two companies are a good fit and that there won’t be any nasty surprises once the merger has taken place. Another aspect is ensuring that both organisations’ processes have been optimally streamlined.
Integrating processes and procedures is always challenging. But it becomes exponentially more challenging if those processes and procedures are more complex, dysfunctional and convoluted than they need to be.
So, it makes good sense to optimise processes as much as possible pre-merger. There will be many processes to optimise and they may differ from industry to industry. One area that’s relevant across industries is the optimisation of Procurement processes. Typically, a symptom of those processes not working optimally, or being absent altogether, is an excessive number of suppliers.
Having too many suppliers is a sign that not all is well
Having too many suppliers is a problem because it introduces expensive and unnecessary complexity. Monitoring and risk managing your supplier base also become near impossible. The number of suppliers you have should be driven by a deliberate procurement strategy.
What often happens, though, is that the lack of procurement strategy, governance and guidance allows for uncontrolled growth of the supplier base. Much like cancer, this can be very destructive. On the surface, the wide choice of suppliers may seem like an advantage. But in reality, what’s happening is that there is too much choice – to the extent where the “flexibility” becomes counter-productive. Having a few backup suppliers in critical areas makes sense, but having 10, 20 or more, just creates confusion and prevents staff from picking the optimal supplier when the pressure is on.
It also unnecessarily increases the workload of your non-Procurement core staff. These are people that should be spending all their time growing your business. Instead, they are spending time selecting, negotiating with and managing (or worse – not managing) suppliers.
Be ready for growth
While ineffective or non-existent Procurement processes may not have been big enough a problem to warrant management intervention in the past, it could cause serious problems as the organisation leapfrogs in size through a merger. Whatever process inefficiencies exist will simply be magnified as the company grows. So, it’s easier, less costly and less risky to address these issues while the company is still small.
Read the article, Is Having Too Many Suppliers Slowing Your Company Down? for more hints and tips on this topic.
