How Lean Six Sigma Can Improve The Success Of M&As? Beyond The Financials
Did your last merger or acquisition (M&A) result in something less than what you had hoped or expected? The financial statements and business valuations do not reveal every opportunity and potential problems that you will be faced with when you conduct your merger or acquisition. In fact 70 percent of mergers fails to achieve its expected value (http://interlinkbusiness.com/mergers.html). Some examples of merger failure include AOL and Time Warner and Quaker and Snapple (http://www.investopedia.com/articles/financial-theory/08/merger-acquisition-disasters.asp#axzz2F3br8F7t) , while some examples of failed acquisitions include Microsoft’s acquisition of Danger back in 2008, and Google’s acquisition of Slide a social gaming company in 2008.
Some Reason Why Mergers and Acquisitions Fail
M&As tend to fail that may in part due to poor managed integration, as well as cultural, strategic and organizational fit. Integrating operations of two companies requires considerable amount of planning and design. The integration should be conducted in a way that results in a more efficient and effective organization; however, the design is often not optimized or planned well enough and hence implementation fails.
Poor strategic alignment between the two companies can also be a contributing factor to a failed M&As. In principal, merger should allow the merged company operates more effectively and yields more profit than it did as separate entities. If the organizations with poor strategic alignment come together by merger, the joint organization will likely be operated with higher costs and poorer performance.
In addition, cultural and organizational misfits can also result in M&A failures. Lack of synergies between the employees and managers of the companies and organizational structure can lead to mass exits of key management, organizational inefficiencies etc.
What is Lean Six Sigma?
Lean Six Sigma is a combination of two proven process improvement methodologies, Lean and Six Sigma.
Lean is a management philosophy and approach that entails creating more value for customers with fewer resources as well, maximizing customer value while minimizing waste. Waste is classified as anything that does not add value to the clients such as duplication within a process, over producing goods, carrying excess inventory that accumulates costs without generating profits, waiting etc. Lean eliminates the waste in the end to end processes resulting in processes that requires less work from employees, less costs, less time to produce products and deliver services or programs with fewer defects or errors.
Lean focuses on respect and continually improving and is predicated on 4 core values namely challenge, improvement (Kaizen), going to where the work is performed to understand the process and issues, respect and team work.
Six Sigma is a process improvement framework that improves the quality of process outputs by eliminating errors and creating stable and predictable processes through the deployment of improvement projects. In Six Sigma, defects are anything that does not meet the customers’ requirements or specifications.
Lean Six Sigma is used to eliminate waste in a process, produce high quality outputs, and stable and predictable processes.
How Lean Six Sigma Can be Used to Improve M&A Success?
Lean Six Sigma can be used to 1) ensure that proper planning and design is completed in the M&A, and 2) promote synergies and collaboration across the companies. For example, in Lean Six Sigma, prior to a M&A, you are likely to ask some of the following questions:
1) Will the merger promote the flow of work or slow it down?
Typically, the groups that you plan to bring together should have complimentary processes, so that the consolidation or merger will result in better performance than when they were separately. In many instances, it makes the most sense to merge two groups that must collaborate closely on a regular basis. As such, it will allow the two groups to work completely in sync maximizing the flow of activities. So it is important to consolidate the right groups.
2) Are there repetitive activities between the two groups?
This question may seem obvious; however, it is a question that is often overlooked even by the brightest and most experienced executives. When two organizations are consolidated you must think about what design will result in stable and predictable processes that are free of process waste.
3) Will the merger/acquisition be a perfect opportunity to redesign the process?
Despite how logical it may sound that a merger/acquisition is a perfect time to re-examine your processes many companies fail to do this. I see the M&A as a perfect opportunity to engage employees and management from both companies to work together to design and new more efficient and effective organization. This collaboration can promote synergies between employees within the two organizations, unify them under one company and result in operational efficiency and effectiveness.
The Lean Six Sigma methodology provides you a framework to answer these questions, design a end state solution that is more effective and efficient and creates culture cohesiveness.
In this article I have provided you with some of the prime reasons why M&As fail and some of the questions that the Lean Six Sigma framework will enable you to answer. Answering questions similar to those I provided should increase the success and the profits generated from your M&A.