Mergers and acquisitions can represent unnerving territory. Yet by borrowing some hard-won lessons from product management, M&A can become both manageable and predictable using the tools explained here.
The Spine-Tingling Season
As I compile this post, my calendar diligently reminds me that the month of October is coming to an end, and Halloween is only a few days away. Like many, I enjoy the fun-loving scares and fantastic frights associated with the Halloween season. When I ponder the plethora of Halloween haunts, numerous themes pique my sense of fear: haunted houses, poltergeist phenomenon, and disembodied voices to name a few. While ruminating over the subject of personal frights, I ask myself: what terrifies most executives in the business world? The very first thing that pops into my head is: mergers and acquisitions.
Why We Fear M&A
Why are mergers and acquisitions so fearsome in the first place? Perhaps it’s the inherent degree of ambiguity and uncertainty. When two companies come together, either through merger or acquisition, two different sets of cultures are expected to meld together seamlessly. This means different approaches to sales and marketing. Different product positioning. Possibly different languages and time zones.
Beyond culture, there are dissimilar systems and processes to take into account as well. One company may prefer Microsoft Office365, while the other is a Google GSuite shop. One product may be built on a Python stack running in Amazon Web Services (AWS), whilst the other runs on a .NET stacking with the Microsoft Azure cloud.
The Real Reasons M&A Goes Awry
While there are practically endless differences among merging companies, most of these gaps can be bridged. Yet in order to do so, some up-front planning is required. In fact, I would argue that the majority of “painful” mergers and acquisitions can be attributed to poor planning. More specifically: when companies come together in a bespoke, system-by-system fashion, there will almost certainly be pain.
Years ago, I worked for a company which acquired a company roughly half its size in order to add a much-needed product line to the company’s existing portfolio. A “big four” consulting firm parachuted in, enumerated the acquiree’s system landscape, then presented the acquiring company with the “map” of applications. Wherever there were overlaps (e.g both companies used Box.com for file storage) it was an easy decision: use the parent company’s instance of the app. But when there was divergence– like Hubspot versus Marketo– things got dicey. The parent company didn’t want to come across as overly assertive, yet the acquired company wasn’t sure how to integrate marketing platforms. The result? Chaos.
Over time, the business processes among the two entities’ systems became overly complex. Layers of middleware created a patchwork of duplicate systems here. Compensating business processes emerged to deal with overlapping and redundant solutions. Nobody ever took a step back and asked: “what does the ideal state look like with just one set of optimized business systems and processes?”
On Productizing M&A
The idea of using a limited set of integration archetypes comes from product management; specifically tiered pricing. The best known example is the good/better/best pricing paradigm of SaaS companies. But speaking a bit more broadly – choice architecture is the core tool that empowers stakeholders to make certain choices while curtailing the universe of options down to a manageable number. Moreover, how options are presented can also “nudge” decision-makers in one direction or another.
When consumers consider a smartphone purchase, it’s really a matter of selecting either the iPhone or an Android device. The vast majority of consumers would never consider starting from scratch; that is to say buying a bunch of electronics components and soldering them together. Instead, customers want a user-friendly, off-the-shelf starting point which they may decide to further personalize. This is the key to reducing M&A complexity. We start with relatively standardized integration offerings or “archetypes” and customize as needed. We do not, however, start from scratch with each acquisition.
Enter the Integration Archetypes
Few people like hard-and-fast rules, especially so when you’re working for the company being acquired. Yet the other extreme are no rules whatsoever, which as I described above, equates to chaos. So, how does one architect M&A deals to balance governance with autonomy? For that, I present the integration archetypes.
Generally speaking an archetype is an example, or model template for which future endeavors are modeled after. Arnold Schwarzenegger is an archetypal bodybuilder, and Beyoncé is an archetype of a successful singer. So, if you want to get buffed, perhaps look at Arnold. If you want to achieve fame by belting out hit songs, Beyoncé is your model. The key here is that you’re not trying to actually become 100% copies of Arnold or Beyoncé; but rather be like them in specific ways. We leverage that same approach with M&A integration archetypes insofar as creating some baseline guardrails and principles, then leaving the rest to decide on a case-by-case basis. Here are my three “go-to” foundational archetypes:
- Autonomous wholly owned subsidiary – While fully owned by the acquiring company, the acquired firm is allowed to operate with a vast degree of autonomy; ranging from technology selection to retaining their original brand. Commonly used when culture and mission deviates significantly among companies.
- Back office integrated – Back office systems (such as ERP and CRM) migrate to the parent company, while the customer-facing product stack remains as-is. This is perhaps the most common integration type I come across, and is widely adopted when keeping the product consistent and stable among customers is key, but harmonizing enterprise processes like lead-to- cash (L2C) and hire-to-retire (H2R) need to take place within a consolidated system of record within the parent company.
- Fully integrated – The most extreme of the three, the fully integrated option requires acquired companies to leverage parent company assets across the board; from back-office suites to product technology stacks to employee facilities.
Of course these are overly-simplified examples. But the idea is that an acquisition is quickly assigned into one of those categories, and all the complex decision-making around integration is expedited according to the baseline rules and principles. This really accelerates M&A duration by decreasing the decision-making time (and disputes) associated with traditional “divide and conquer” system-by-system analysis.
Moreover, these archetypes aren’t static nor intended to be frozen in time. In other words, a company can evolve from one to the next. In fact it’s quite common for a company being acquired to go into a “do no harm” phase for the first 30-90 days, then move into back office integrated, and perhaps eventually become fully integrated.
Final Thoughts on M&A Integration
Mergers and acquisitions are complex for many reasons. And while M&A will never be as repeatable as manufacturing gadgets in a factory, we can borrow some lessons from consumer product management. The key example here is to create integration offerings or archetypes with a set of known tradeoffs, which thus reduces decision making time and makes M&A much more predictable.