By Liam O’Neill, Director, bpmd
Mergers Matter
Recently an upstream oil company continued their strategy for growth by acquiring a similarly sized competitor in their local market. While across the world a retail conglomerate was planning the integration of a smaller retailer – their fifth acquisition in the last year. Acquisitions and consolidation are taking place across most sectors in markets globally and the reasons for these differ greatly. The oil company was broadening their skills in dealing with deeper oil deposits. While the retailer was expanding their geographic footprint, extending their knowledge of the local market and adding diversity to their supply chain with access to more localised products from that market. The strategic reasons for mergers and acquisitions are multi-fold: seeking to access new markets; consolidating to drive efficiency; broadening capability and thus products/ services; extending production capacity; and many more. As quoted in Statista (www.statista.com) “The value of M&A deals globally has risen over the past decade and tends to mirror the state of the economy overall. Dips can be seen in the years during and following a recession, and M&A activity increases in periods of economic growth. In 2021, the value of global M&A deals amounted to nearly six trillion U.S. dollars. This was about a 64% growth over the approximately $3.6 trillion in 2020. Activity was suppressed during the pandemic lockdown years and then significantly increased as markets opened up. Now, with the pressure on the global economy, many organisations are seeking to drive value out of the integration activity to build more robustness in dealing with the expected tighter economic conditions.
Process Matters
Regardless of the reason for the integration activity, focused and effective process management is a key ingredient for achieving the strategic objectives faster and more reliably. Let’s look at both the Oil and Retail examples, outlined earlier, to find some answers for this.
Organising Oil
While there were benefits with the Oil Company to be gained by rationalising management and operational support activities, this was not the main driver of the strategic business case. The NewCo needed to integrate their extraction operations without losing any capacity. Safety and regulation are paramount and they could not afford to have any of their platforms out of operation due to accidents or regulatory breaches. They urgently needed the one way of working – a single set of operational practices that was well understood by all in the united NewCo. Utilising skills from one of the old entities on rigs from the other relied on this consistency of work practices.
The Process Management team worked with leadership to establish a single high level operating model with industry standard process terminology. These were then prioritised based on the importance in ensuring production reliability. In short order the team then organised the key players from both organisations to work collaboratively in creating the “NewCo Way”. The processes were documented in a process repository that made them easily accessible to everyone across the two organisations and provided a quick and easy way to ensure one way of working.
Retail Restructure
The Retail Company used Process Management in a very different way. At the outset of their expansion drive, they created a single operating framework. This they did by aligning the operating processes of ten of their more successful stores. This was done in a very similar way to OilCo where they again invested in producing a single new operating model – the RetailCo way. The high level processes were documented in a process repository and then used to communicate the new way of working across the organisation.
The process management team used an innovative approach leveraging Process Mining to help in identifying the most effective stores and thus the best practice processes. This guided which practices were used as the basis for creating a processs led framework. This new way of working, once properly documented, was then used as the basis for rationalising and optimising the existing business and then as the framework that was rolled into the newly acquired stores. It significantly accelerated the integration efforts and enhanced the quality of the resulting operations.
Process Management – the Method
Regardless of the strategic rationale for merger integration, process management should be considered as the foundation of the transformation journey. As one operations director said: “How can you change what you do if you don’t have a clear view of what you do and what you would like it to look like – clearly articulated to all those involved?”.
So, how do you make that happen? It is about three key ingredients: Focus, Improve, and Sustain.
Focus
The key starting point of any process informed transformation is ensuring that we have a clear view of the process landscape and the terminology used to describe it. Then focus on the processes that have the highest impact on the strategic objectives and the lowest level of maturity. I have found that through a very basic process impact assessment, consisting of a series of interviews and surveys with key stakeholders, the 20-30% (40 to 60) high impact processes can be identified. This is then whittled down through determining how well these are performing, typically highlighting 30-45 level 3 processes. This prioritises where the focus of our transformation efforts must be.
In the case of OilCo, the production activities on the rig were quickly identified at having the highest impact of delivering a consistent and safe level of operation. Some of the processes were identified as already following industry norms and were thus consistent across the two businesses. These were deemed to be of a higher maturity and thus lower priority for definition and improvement.
In RetailCo, again getting to the High Impact processes was relatively easy and was clarified as part of establishing the process framework. The maturity of operation of these processes was then assessed for each new merger candidate and the integration efforts were prioritised to focus on these High Impact and Low Maturity (HILM) processes.
Improve
While we have identified the highest priority processes individually, they still need to be analysed as an integral part of an end-to-end process. In the case of RetailCo this was in their supply chain around Procure to Pay (P2P) and in OilCo this was in the Rig Operations processes.
In RetailCo, the team then mapped out the end-to-end P2P journey and analysed each of the HILM processes in this context. This process visibility surfaced pain points across the value stream and a root cause analysis then identified where the improvement needed to occur – very often this will not be directly in one of the HILM processes. In this case, consistent procurement of products was of major importance but, to get this right, alignment of the vendor master information was an important upstream driver of the alignment.
Improvement interventions cover a range of different areas: Function; Roles; Organisation; Systems; Information; and Regulation. Changes and/or alignment of these are the major levers in bringing about change to the root causes of any process improvement. Most often it is necessary to look across these, as change will be required in more than one of the 6 areas. In merger integration, organisation structure is often the key lever used. This is only successful when the detailed roles are identified with clarity of the tasks (Function) that needs to be performed. Systems integration quite often takes more time but should also be prioritised based on the HILM impact.
It is this list of improvement initiatives that can then be grouped and planned into the transformation programme. In a short space of time we have taken a very broad integration challenge and focused down on those areas that are going to have the biggest impact on its success. Once these priorities are addressed, the method can be repeated to get to the lower impact areas in waves of change.
Sustain
While the change programme is progressing, process management needs to focus on sustaining the new improvement in the new processes. This starts with an accessible and intuitive collaboration platform where impacted users have easy access to the details of the processes. This is then coupled with a well-structured, bi-directional communication programme. The business users must be able to properly understand the processes and the rationale for doing them in a particular way, and proactively raise issues for resolution.
Sustaining the improvement also includes the regular measurement of Key Performance Indicators, again making these understood and accessible to the business users in such a way as to enable them to take corrective action themselves.
This will also highlight opportunities for fine tuning the process and thus providing an agenda for a well targeted continuous improvement programme.
Delivering the results
This top-down approach to merger programmes, using a process lens, has proven to deliver integration faster, more reliably, and with greater realisation of the overarching programme goals. Most mergers could benefit from this process-driven approach and transformation programme leads would be well advised to include this as further justification of their ability to achieve the promised business case.
In merger integration, Process Matters!