Humatica’s new whitepaper on Buy & Build. Download now

closeicon

Humatica’s new whitepaper on Buy & Build. Download now

closeicon

Buy & Build Secrets of Success – A Five-Part Series | Part 2 of 5: Collaborative Design of the Target Operating Model

ndetails

Defining a target operating model “TOM” is an essential first step following a bolt-on acquisition. It sets the organizational framework for the future management structure and long-tail of PMI decisions. A TOM is the block-diagram level description of how the merged company should be organized to deliver the value creation plan. It defines the major activity areas and interfaces needed to drive organizational efficiency and effectiveness for execution.

Often, the acquirer will try to define the TOM pre-deal, in isolation, and force it on the target after closing. The problem with this is that acquiring managers don’t understand enough about the target, its structures, interfaces, processes, and its management to make good decision. It’s a recipe for disaster.

The optimal TOM will realize scale and experience-curve synergies, while minimizing interface costs, facilitating subsequent acquisitions, and ensuring clear accountabilities. Making the right calls on a set-up that optimizes these economic factors requires the combined experience and business understanding that both management teams collectively bring to the table. It’s therefore essential to involve the acquired firm’s management in defining the future TOM. However this is often difficult, especially in cases where the companies were previously direct competitors.

Another common concern is that effected managers can not be involve in defining the future, merged operating model as they will be directly effected and biased based on their self-interest. Conventional wisdom says that integrating N-1 managers into the TOM definition process is risky, and like “inviting turkeys to Thanksgiving”. However, this need not be so.

Up front transparency on each standalone organization gives managers the context for merger decisions and the integration logic. An education process needs to deliver a joint understanding of the other firm’s history, culture, strategy, organizational strengths and weaknesses to build trust before discussing the best future set-up.

Objective, fact-based transparency on each of the to-be-merged organizations is the starting spot for trust building and involving managers from both companies in designing the future operating model. Andros Payne of Humatica notes, “Objective transparency on each of the organizations is critical for getting the facts on the table up-front and taking the emotions out of the discussion to enable good collaboration. It’s also essential for understanding structural, process and governance trade-offs in the new TOM and avoiding misunderstandings among the management teams”.

Risks are further reduced and time won by engaging an unencumbered, neutral third party facilitator to drive decisions and consensus on the new TOM. First impressions are always difficult to overturn. So it is most important for a high-EQ facilitator to make sure the first meeting of managers from both companies is a good meeting which builds trust and avoids anchoring misunderstandings or suspicions.

It’s also important from a change management perspective to collectively explore various operating model alternatives before getting consensus on the optimum TOM in the face of diverse constraints. Group discussions, based on logic and the merits, rather than off-line side-discussions will up the quality of thinking, and avoid back-room gaming that destroys trust.

Gilde Buy Out Partners acquired IronRidge, EcoFasten and Quick Mount PV, three of the largest US solar panel mounting competitors in quick succession as part of their ESDEC Solar Group international roll-up in 2019. They applied a transparent and collaborative best-practice approach to defining the new TOM. According to Gilde’s Joost Heeremans, “transparency on each of the organizations and collaboration among the management teams were essential for building trust and a fit-for-purpose operating model”.

A well-structured and transparent process involving managers from both companies increases the quality of decisions and buy-in, while lowering implementation risk. But it is essential that it gets off to a good start from the first meeting when first impressions are made.

This article is the second of a five-part series on Buy & Build Secrets of Success. Click here to read the third article on merging Marketing & Sales Organisations.

Related Insights

Ignite Your Sales Engine to Turbocharge Growth – An Introduction (1/6)
08 Sep, 2021 By Humatica

Ignite Your Sales Engine to Turbocharge Growth – An Introduction (1/6)

Sales is an essential function of every business. An effective Sales Engine can supercharge the value generated from your products and services. But Sales teams…

Read more arrowicon
Interview with Dr. Thomas Costa of Coventya
28 Jul, 2021 By Humatica

Interview with Dr. Thomas Costa of Coventya

In the new episode of the alpha Talks Podcast, Enno Krey speaks to Dr. Thomas Costa, former CEO of Coventya, a leading international specialty chemicals…

Read more arrowicon
Assessing Organizational Readiness Pre-deal: Deal Makers Need More Than 10 Questions
19 Jul, 2021 By Humatica

Assessing Organizational Readiness Pre-deal: Deal Makers Need More Than 10 Questions

A side-effect of full-priced markets and the industrialisation of private equity is funds looking to upgrade and standardize their deal processes – the way they…

Read more arrowicon

Subscribe to our Monthly Newsletter and other News Updates

Receive our news and valuable perspectives on organizational effectiveness each month.

I agree to Humatica’s Data Protection Policy and that Humatica may use my data to contact me via email.