How to Determine Appropriate Performance Measures During Mergers (cont'd)
The purpose of a process assessment is to determine "how things get done" in the two units that are merging and how best to integrate processes in the combined company. It is recommended that another transition team be assigned to this task. Process integration and the establishment of best practices can be time consuming. For the purposes of this discussion the identification of performance measures will be restricted to the processes that have key strategic implications. There are three categories of these "key" processes to be identified:
The first key process category is the most common. "Weakest-link-in-the-chain" processes should be tabbed for strategic improvement. Weakest links are defined as those processes that are the most significant in terms of preventing achievement of the combined mission and vision. Focus on these first. In the XYZ example, any number of processes such as purchasing, hiring, installation, etc. may have been substandard. Don't fall into the trap of trying to improve everything at once. Instead, note that the poorly defined XYZ sales process was the critical factor in poor product customization, rework / overwork in programming, poor customer communication and inconsistent customer performance. This could be the weakest link. Performance measures would be created that would isolate sales process success. A real-world example of strategic improvement can be found by looking at Chrysler. Upon acquiring AMC many years ago and looking at the product development process, Chrysler executives became aware of how silo-driven their organization was. The performance measures of development cost and "idea to showroom floor" development time received significant attention. As a result, the Neon was developed at a cost of $1.4 billion (billions less than the industry average) in 31 months (versus the industry average of five years).
Process extension is the second technique for identifying key processes to be measured during mergers. Process extension is the act of widening process boundaries to control more links in the value chain. Many mergers happen specifically for this reason. For example, Progressive Insurance currently airs commercials that trumpet their ability to research other carriers and give the customer the best-priced policy. In this way they are serving the role traditionally filled by the insurance broker, and this enables them to deal directly with customers and "eliminate the middle-man". It also enables them to retain the brokerage commission when writing other carriers' business, so it can be quite profitable. Other carriers wanting to match Progressive may do so by acquiring a brokerage and literally buying the skills. This would be an example of process extension. The distribution process would then become a natural candidate for analysis and ongoing performance measurement. Commission revenue, transaction speed, and customer satisfaction would be natural measures.
The final technique for identifying key processes to be measured during mergers is market extension. It involves leveraging process excellence to serve new markets or shift focus to higher-yield markets. The acquiring company often spots a process that could potentially be leveraged in new ways. The gold mine that has been unrealized due to any number of factors: the company to be acquired is undercapitalized, it is niche-focused and therefore cannot see bigger opportunities, etc. The merger is then orchestrated with the intent of extending into new markets. For example, De Beers Consolidated Mines, Ltd. is the oldest and largest diamond mining company in the world. Management consultant W. Edwards Deming once lauded De Beers for its work in finding new uses for diamonds. Acquisition candidates for a company such as De Beers could be 1) companies that had identified new uses for diamonds but were not bringing them to market effectively, or 2) companies using alternate materials in their processes when diamonds would deliver superior results. In this way a new market for an existing product / process would be created. Performance measures that reflect this market extension would be application dependent, but could include process performance (speed, cost, yield), new market revenue, or even market share.
System maps and cross-functional process maps are good tools to help identify candidates for strategic improvement in the early post-merger stage. Significant process and market extension opportunities are usually identified prior to a merger, but customer research and brainstorming can sometimes be useful.
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