M&A Drives Need for Agile Business Transformation by Eric Berridge
It used to be that M&A, in hi-tech, was a troubled endeavor
. All mergers fail. That was the edict. Integrating technology was too difficult, and it was cheaper to build organically. Over the past five years, that trend has changed significantly.If you are concerned about employment numbers, this trend is scary, because M&A typically reduces jobs. When Mark Hurd took over HP, a few years after the Compaq acquisition, and before a spate of HP acquisitions, including the swallowing of EDS, he immediately went into cost cutting mode and reduced HP's combined workforce by nearly 10%. Guess who is at the helm of Oracle now, after five years of continual acquisitions? You got it: Hurd.
There are the large acquisitions like HP and EDS, or Oracle and Sun, or Intel and McAfee, but underneath those, there are hundreds of smaller deals that are happening on a monthly basis. A recent one is salesforce.com's $140 million acquisition of Jigsaw (seven times revenue!!!) Several things are driving the trend for consolidation in high tech. For starters, the IPO market has never recovered from the .com bust, which means that small, private, companies are tuning themselves for M&A instead of an IPO. On the heels of that trend, the availability of Private Equity dollars has spurned an environment where the typical five year investment horizon of a Private Equity firm demands that companies exit in one fashion or otherPE ownership has little appetite for the long, risky, road to independent supremacythey want a return today.
Assuming that M&A remains as the ultimate "exit strategy" in hi-tech, and assuming that stalwart tech companies continue their defensive, acquisitive approach to innovation, what becomes the determining factor in a successful merger? You got it: technology. Or, more broadly, the ability of a company to use flexible technology to execute efficient business processes and to quickly absorb a new entity into those processes, while retaining any processes which are competitive differentiators for the company being acquired.
This is a prime example of what my company, Bluewolf, calls Agile Business Transformation(tm), or Agile Business Transformation throughAgile Project Management. For businesses, Agile Business Transformation encompasses the cultural, technological, and process oriented requirements for a company to survive and innovate in the 21st century. Organizations have to be prepared for change, and their vision must embrace things like M&A as a cultural reality. To embrace change, processes must be flexible and measurable, so that organizations make decisions quickly and objectively. If a process is going to changewhich it will, in an M&A environmentorganizations must be able to justify the change through a measurement which aligns to a vision and which the organization will buy into.
The good news for M&A is that flexible technology is becoming prevalent in corporate America. Even small, private, companies are leveraging the Cloud to automate their businesses. Salesforce.com has nearly monopolized the small to medium business landscape, and this means that when these companies are acquired, they bring blue chip processes, from forecasting to HR, that even the larger acquiring companies may not have in place. We see this regularly inSalesforce implementationsor "org merges" as we call themwhen both organizations need to decide which technology, and which processes, will survive. More and more, we see the smaller companies' technology and processes surviving.
Finally, it is also these companies that are ripe for acquisition. If a small company's processes are cutting edge, if their reporting is real-time (i.e. they can produce a forecast at a moments notice), they are more likely to generate interest and a premium in the M&A world. So having flexible technology, a cultural vision, and a process for sustaining on-going innovationor, againAgile Business Transformationbecome the key mechanism's for ensuring long-term success, either independently, or in the arms of a large, cozy, acquisitive industry stalwart.
Now just hang on to your job.
M&A Drives Need for Agile Business Transformation by Eric Berridge
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