Archive for August, 2015

Are You Thinking What I Was Thinking VII

Friday, August 21st, 2015
  • We have a media that lionises CEO’s such as Michael Eisner at Disney and Ivan Glasenberg at Glencore when they are the benefactors of good fortune (largely from events out of their control) and canes them when the opposite occurs
  • Reading a news publication today you wouldn’t expect to know that a bet on the Shenzen or Shanghai stock market in 2012 would have you still sitting on a very impressive profit.
  • We have oil trading at $44 per barrel and experts predicting perhaps $30 by year-end. Airlines are sitting on record profits and their CEO’s about to collect huge cheques out of all proportion to the organic growth of those businesses.
  • We read headlines about probable interest rate rises in the US, UK and other developed nations and would be forgiven for thinking everyone will feel the impact akin to an “ice bucket challenge” on their finances.
  • We have way too many so called “role models”, Kelly Clarkson being the latest, who cannot construct a proper sentence. I am sorry being “totally pregnant” is nonsense!
  • The Crowdfunding ecosystem is finding it very hard to make money long-term with so many businesses living on the breadline and entrepreneurs unwilling to pay for proper advice.
  • We put undue “trust” in politicians whose track record is highly dubious to do the right thing (Iran, Russia, Greece), yet all too often we have insufficient “trust” in our own abilities to invest properly in developing our own skills
  • We are “surprised”in Europe by the lengths to which migrants from unstable political regimes will go to find work and security. Yet as far back as 2008 any holidaymaker in Greece could weekly see rows of migrants lined up on the harbourside of Greek islands awaiting on board travel to Athens to collect their papers.
  • When AirB&B is worth more than Marriott, we are living (a) in an era of unwarranted valuations, (b) technology has finally trumped bricks and mortar real estate assets, and (c) slick sales and marketing tools are more important than service in hospitality today.
  • When General Partners in Private Equity bemoan the shortage of reasonably priced deals in Europe, and the aggressiveness of corporate buyers, it says more about the fears that underlie the European investment managers (value-add vs. fees).
  • When everyone is led to believe the future is all about mobile, they forget that the “dull” desktop has benefits that no laptop, tablet or mobile can come close to for the desk bound worker, who is increasingly being asked to work longer hours.
  •  A New York law firm is described as “daring” for suggesting quoted companies forego quarterly earnings reports in favour of more long-term management metrics and reporting. Am I remiss in thinking these suggestions were bouncing around in the mid 1970s? Perhaps it shows that it is never too late to dust off that Donna Summer disco number and proclaim it as “cool” again.

© James Berkeley 2015. All Rights Reserved.

Uncommon Business Integration

Thursday, August 20th, 2015

So you are the proud owner and as CEO, guardian of the new combined business, the hard work now begins, turning the reasons why you bought the business (investment thesis) into an organisational reality.

You assemble the executives and managers in both firms with guidance on the strategic vision, financial synergies, operations, talent and culture. In all likelihood, they have interacted briefly to exchange information in the due diligence, negotiation and closing phases but they have rarely got to know each other on a personal basis.

How each party sees that you handle that first integration meeting in most cases creates an indelible impression for the ensuing relationships, the level of commitment to your objectives and your probable success.

Knowing “what to do” and “how to do it”, is largely a mixture of art and science for most leaders. “Art”, in the sense of gut feel and good judgement in creating a welcoming environment for the newly acquired executives and managers. “Science”, in the sense of knowing precisely like choreographing a play “what” business outcomes must be prioritised, “where” to devote time productively, “when” you must accelerate the conversation (agreed action points) or intervene to bring circular conversations to a close and “why” a chosen integration alternative is appropriate.

Here is seven “integration killers” you want to avoid in that first meeting of the “new” colleagues:

1. Ambiguous and Unclear Meeting Invite. The focus needs to be on performance-based priorities (crystal clear business outcomes) not tasks and activities (“getting acquainted with each other”).

2. Inviting Wallflowers. Peers want to meet, talk and reach agreement with peers or possibly employees who are one grade above. They don’t want to converse with subordinates, who cannot contribute meaningfully and do nothing more than to act as a “posse” or mute cheerleaders for an executive or senior manager.

3. Enabling People Who Arrive With An “Agenda”. Nothing kills an integration meeting like an HR person from the acquiring company, who arrives with an arbitrary alternative (“non-negotiable” policies and procedures) to force the newly acquired employees to comply to their process without first listening to and collectively examining whether it makes sense. The real crime is the facilitator who allows them to make a speech and enables their passive-aggressive behaviour.

4. Leaders Whose Behaviour Precisely Undermines The Meeting’s “Rules of Engagement”. If the understanding is that PDA’s and phones are to be switched off until the scheduled break, there is zero excuse for the leader, who blatantly ignores the rule. What the leader’s behaviour says to the other participants is “this discussion is not my priority”.

5. Kick off at the wrong starting point (integration alternative). Any discussion must start with “what is the desired business outcome?” (rapid reduction in business acquisition expenses), “what are the integration alternatives?” (adopt Company A or B’s sales approach or develop a new approach), “what is the risk and reward attached to each alternative?”, and ends with “what action is required to rapidly and effectively implement the preferred alternative” (next steps). Nothing else.

6. Priorities are given an arbitrary score (“7”) or (“High”). Organise and separate priorities into three headings (“GSI”): “Gravity”, what is the gravity of the issue? “Speed”, how fast does this need resolving or improving? “Impact”, what is the actual or potential impact on the firm’s future? Use actual descriptive sentences not scores.

7. Lack of definitive “next steps” with agreed action points (“I’ll discuss this with the COO when I next see him”). Every action point must have a time, date and accountability given to it with an understanding of the supplementary action to follow.

My observation is that most first integration meetings start with the very best of intentions. Where they go awry is that the meeting chair and participants overlook the importance of speed as well as quality. “Speed” in terms of, for example, identifying decision-making shortcuts that enhance the quality of the results (more impressive financial synergies, happier customers). “Quality” in terms of asking the right questions in the integration meeting to enhance the “speed” of accomplishing the desired business outcomes (ease of implementation, reduced risk).

© James Berkeley 2015. All Rights Reserved.

Consolidating The CEO’s Ego

Monday, August 10th, 2015

Why does most market “consolidation” in the insurance and financial services sectors rarely leave existing shareholders with a smile on their face? If the objective, is to rapidly improve top and bottom line performance shouldn’t we first start from a position of strength not
weakness.

1. Timing – with rare exception consolidation accelerates when convergent forces (capital, technology and distribution) and perceived wisdom infer it is the only viable option for profitable growth. The amount of uncertainty and competitive threat is sufficiently high that the very survival of the acquired firm is at stake (JP Morgan / Bear Stearns).

2. Re-Invention in A Tough Market – the very reason for consolidation is many businesses and top management have run out of other ideas. Faced with heightened pressure on operating margins in core parts of the business, there is a belief that top management can “buy time” slashing overheads in the combined businesses before conditions improve. What if those market assumptions are incorrect? A protracted period of sluggish demand continues or indeed customers have become more tolerant of managing greater levels of risk on their own balance sheet (reinsurance).

3. Cultures Clash – the deal logic is largely predicated on a new growth strategy, tactics and execution and the CEO’s ego without regard to changing operating beliefs and all employees behaviour in the newly combined entity. Individual teams become fiercely defensive about their client banks, unwilling to embrace new ideas or working habits, which they don’t see in their own best interest. Competitors prey on top performers’ frustration giving them the promise of an unfettered focus on what they love to do best and they are great at.

These are but three key factors you can readily apply to any sub sector in a period of intense consolidation. The loser in many cases is the existing shareholder of the acquiring businesses, their customers and their best employees.

Is there another option? Of course. Strong and dynamic businesses don’t need to play actively in the market consolidation. Sure they can pick off disenchanted and talented people.

This presumes that the CEO has a high level of self-worth and a trusting relationship with his Board and shareholders. He is willing to subordinate his own ego for the improved health and well-being of his firm in the long-term. You would be surprised how few CEO’s possess those traits in abundance.

Copyright James Berkeley 2015. All Rights Reserved.