Saturday, March 14, 2015

Data - the new 21st century fourth pillar for a successful M&A

As industries mature, we start seeing a higher number of Merger & Acquisitions (M&A) activities. The rule of thumb is that the larger a company grows, the more likely it can leverage its scale to drive competitive advantages such as getting lower prices from suppliers, reducing its delivery costs and more importantly keeping entry barriers high for other competitors. Most of the M&A conversations start with a “How much we could save for our shareholders if we could merge or acquire this competitor”, and while it is true that fewer players in the market lead to more business for the companies that remain, it is not trivial to achieve success.

Success is defined as the new entity, let us called it “Z” having a higher market share than the sum of the old players, let us call them “X” & “Y”, so in other words for success to happen Z > X + Y with significantly less overheads (e.g. corporate staff or people/resources not directly associated with delivering the service or product that generate revenue)

The 20th century M&A playbook focused on three pillars 1) People integration, 2) Process integration and 3) Technology integration. This blog will attempt to prove that the 21st century M&A playbook needs to add a 4th one: Data.

Data becomes the foundation for the digital identity of the new company, enabling a much faster integration of the People, Process and Technology components as well as setting the benchmark for tracking milestones in each of these tracks; more importantly it provides an unequivocal method to declare success (both in terms of market share and overhead reduction)

To better illustrate this point; let us look at some of the recent M&A activity in the retail market.

When retail A acquires retail B, the first action they will attempt to perform is to homologate supplier purchases to reduce their cost of goods. The only way to achieve this homologation is to understand what products/SKUs each of the company is buying across each of its providers. This might be a highly complicated exercise, especially if each firm has multiple buying offices distributed across different states/counties/continents. In fact, the only accurate way of doing this activity (and thus maximize the outcome of the negotiations with the suppliers) is to define a Single Product catalog using Master Data Management (aka Product Information Master – PIM)

The second action these two retailers will attempt is to homologate their processes, making sure they are visually and operationally consistent across the two entities. In this situation, data will also play a crucial role as each of these processes will have to be measured, tracked and reported against. In fact, multiple IT services companies have created entire reporting and analytics solutions that focus on this aspect of the M&A life cycle.

As their third action, the retailers will try to attempt to consolidate their supply chain operations across warehouses, distribution centers, transportation routes to service the new stores, keeping in mind that some locations might have changed (e.g. some locations might have closed while new ones might have opened up). Without the right analytics data support for this activity the new operations might be less efficient that the previously independent ones, which again supports data playing a critical role in the proper design of the new supply chain

Once all the M&A activities are completed, data will again take the primary role to report to the shareholders what are the benefits that have been achieved, thus proving the point that data is indeed the digital currency of the 21st century and needs to occupy its rightful place as the 4th M&A pillar.

1 comment:

Sam Maron said...

Data becomes the foundation for the digital identity of the new company, enabling a much faster integration of the people, process and technology components.
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