The business world is witnessing a rash of mergers, acquisitions and divestitures. Aisha Steptoe, group director of system, transformation and operations with The Coca-Cola Company, explains the reasons behind the trend, and outlines some common mistakes that companies make in the process.
Q: Is there a mergers and acquisitions wave out there? And if so, why?
Steptoe: Absolutely, for a couple of reasons. One of the key drivers is that companies are looking to gain new capabilities, and accelerate the cycle of innovation. One of the ways they're doing it, if they're not developing that innovation in house, is through acquiring the capability. We’ve seen a surge of activity over the past three years, especially with global consumer-products companies.
In addition, a lot of companies are taking the time to reevaluate their core competencies, what they really want to focus on. They're thinking about their business strategy and changing their operating model. Some are divesting certain businesses as they look to streamline and focus on key areas of innovation.
Q: One could speculate that a major reason we're seeing so much M&A activity is because companies have the money to spend on it. There’s a lot of cash out there, and a desire to do something with it. But you can fall into the trap of spending money the wrong way. What are some common mistakes that companies are making as they move in the direction of M&As?
Steptoe: A common mistake is that they're not clearly defining the reason for the M&A. We saw a rash of activity in the 1990s, particularly in the airline and telecom industries. Everybody was acquiring everyone and getting bigger. In consumer products we've also seen a surge, and if you're acquiring just for the sake of acquisition, to add to your portfolio and P&L, it can work against you.
In addition, when companies make the decision to acquire, they might be so focused on getting it done in a timely matter that they fail to do strategic planning on how to execute and integrate the acquisition. They’re not taking the time to scope out the project, to define structured timelines and decide what the I.T. capabilities and platforms are going to be. That causes a lot of disruption, both in the business and for their customers.
Q: When it comes to integrating business processes, systems and people, where do you see the biggest mistakes occurring?
Steptoe: The people, process and technical transitions are all key components. But the biggest challenge is on the people side. Change management is so critical, yet a lot of people have the wrong idea about it. It’s bigger than just training and developing communication plans. It's about looking at all the key stakeholders involved in the transition — including employees, suppliers and customers — and making sure that everyone understands the degree of change that each is going through.
As for the technology side, I've seen it go both ways — where we've allowed the acquired company to stay on its legacy I.T. platform, and where we’ve brought them onto our technology platform from day one. Although it seems to be a lot to do all at once, I've seen more success and less business interruption from getting both companies on the common I.T. platform quickly. It enables more end-to-end supply chain visibility, and doesn't cause disruption in data flow. It's a little more painful because of the big bang approach, but you get through the change management and learning curve quicker because you're managing all the change at one time. Then you can focus on stabilizing the business and getting back to normal operations afterwards.
Q: I would think that human nature would your biggest obstacle, because people don't know what their fate is going to be. How do you deal with that?
Steptoe: At Coca-Cola, we try to create as much transparency as much we can. Obviously there are some things that have to remain confidential, but being upfront with employees who are being impacted by the acquisition is really important. They need to be a part of the process, and part of the change. They need to feel like their voice is being heard. Those individuals who are impacted need to be treated fairly, with dignity and respect.
But I agree that the people element is number one in importance, with the technology piece second. You can have the most perfect plan laid out, but you're going to encounter obstacles. That’s why having the strategic planning piece up front is so important. It allows you to identify the potential risks, and adjust the execution plan to address the ones that come up.
Q: What are some other keys to success in a merger or acquisition?
Steptoe: At Coca-Cola, we completed the largest re-franchising effort in U.S. history in consumer products. We had a structured framework for how we were going to manage each transition, with clearly defined phases of planning, execution and implementation. We had excellent processes in place for engaging the partners that we were divesting to. We created reasonable timelines, knowing that we had certain objectives we had to hit, while making sure we were fully aligned on timing. We also had an agreement up front about what the technology approach was going to be.
We partnered with our bottling partners who were acquiring our facilities from the very beginning. Supply chain had a seat at the table very early on in the process, as did other key functions such as finance, I.T. and H.R. We had a dedicated transition team, and that's all they did for four or five years. Obviously, not everything went smoothly. We had some challenges. But we were transparent enough to talk about those risks up front. And we came up with the best mitigation strategy possible — one that everyone could live with, and still meet the objectives of both parties.
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