follows is an accepted approach, well-documented over the years by successful companies who have grown by acquisition.
Absorbing your acquisition
1. Work hard to earn the confidence of the players.
You need to quickly get to know the new team, including the second and third tier of personnel. You should be introduced by the former owner the day after the closing and you should deliver a talk.
Tell the team you’re committed to the company’s successful growth and, therefore, to the successful growth of the players. Your audience will be apprehensive about you, the unknown coach, and you shouldn’t make uncertain commitments such as “there will be no job losses.” Rather, stress that you’ll be trying to fully understand the company before making any major decisions.
In this early period after the acquisition, you’ve got to move quickly to find out who is for real, and if you’re not sure, give that person the benefit of the doubt. Give them important work and measure their progress. Make it clear that you won’t tolerate any infighting and that any back stabbers will have a short corporate life.
2. Develop an opening play sequence with a good chance for an early touchdown.
Early, visible successes are important for the morale of the team. After listening closely to the team and its ideas, call the plays which have a high likelihood of success and spread the credit around liberally. Within a month or two, you’ve got to (a) determine what is going well and aggressively defend these products or services; (b) expand on those products you need to become immediately stronger; (c) clean up or eliminate the poorly performing products, and (d) figure out what new products or services will give you the best shot at earnings growth.
3. Get to know your customers and suppliers and most of all, your employees.
Work very hard with your suppliers. Remember, they are committed to seeing you prosper as long as they do so in the process. The important feedback and concessions you may get by treating them as partners can be amazingly profitable.
4. Don’t be afraid to experiment with the product/service mix playbook.
It’s too easy to get caught up in the way things were always done.
Experienced managers know the return on investment varies considerably by product and product line. Since most companies don’t have unlimited capital, critical thinking is imperative about which lines to promote, which to de-emphasize, and which to eliminate.
5. Work on lowering costs.
Two CEOs I know stressed to me their conviction that bearing down on quality issues, both in-house and with suppliers, can have a dramatic impact on lowering costs. It may sound contradictory; but “this is absolutely not so” says this duo and they have had many experiences to share.
One high quality, low-cost strategy has been to reduce suppliers and give the good guys a much bigger share of the pie. “We’ll work with you and throw a lot more your way, but we need a commitment on quality, and by the way, you need a good profit, but we need a little help on price.” One manufacturing friend recited a litany of reduced costs, including but not limited to, inspection costs, lower rejection rates, fewer customer returns and lower work in progress inventory.
6. Consider changing the manufacturing process.
Some manufacturers have implemented a system of continuous flow manufacturing facilitated by expanded team involvement.
For one thing, this system allows for “first piece inspection” minimizing the risk of a whole bad batch. This means that the teams, if properly trained and nurtured, work together in an efficient manner. It may make sense to keep competitive scores on different teams making the same product. Peer pressure should help lower unit costs, improve quality, lower product cycle times and help weed out the unproductive players. One manager told me that continuous flow manufacturing lowered the finished goods inventory necessary for prompt customer delivery from three months of average sales volume to two weeks.
7. Contract Labor.
In today’s world, many companies keep up to 15 to 20 percent of their work force hired on as contract labor. For one thing, contract workers improve flexibility in meeting fluctuating demand; but the practice also improves morale of the permanent employees who feel more employment stability. This tactic takes the guesswork out of picking winners from the contract group when you hire permanent employees.
Probably, you should implement such a policy providing that no one stays a contract employee for more than six to nine months. This gives the contract worker a true incentive to strive for a permanent spot and it discourages feelings in the employee force that might be inclined to keep everybody else as “outside” contract workers forever.
The bottom line
In today’s messy economy, wonderful opportunities are out there for experienced investors. We advise our clients not to get reckless even though there may be apparent bargains. Due diligence may never have been more important. The risks can be high, but the rewards can be just as high. It’s not a job for the faint of heart, said one CEO who added, in a light moment, “I’m not sure we give enough credit for our acquisition touchdowns to the boost we sometimes get from plain good luck.”