Friday, August 01, 2008

Acquisitions: 8 Steps to Success
By Denise A. Harrison

Once we have determined an acquisition is part of the solution to achieve our strategy; we must evaluate the potential candidates. This evaluation step is paramount to the financial success of the acquisition. One recurring error is that only one company is identified, or a specific company becomes available and is deemed to be the solution. DO NOT LET COMPANY AVAILABILITY DRIVE STRATEGY OR LIMIT THE CHOICES YOU EVALUATE. Once your team identifies potential acquisition candidates, rate each company based on criteria:

1. How well does the company fit with strategy? How well does the company actually fulfill the desired objectives of the acquisition?
2. What else comes with the acquisition? Very few acquisitions are pure plays.
3. Do they have competencies (then rate to see if they are strategic), or do they have strategic assets (knowledge resident in one or a few individuals)? How is the competency shared and documented?
4. Will the targeted company’s culture fit our culture?
5. What will happen to the key people? Will they walk? Do we want them to walk?
6. What is the targeted company’s market position in all of its markets? Are they the number 4 player or number 1 or 2?
7. What are the industry dynamics? Are there any significant threats on the horizon? New competitors? New technology?
8. How will this acquisition change the competitive landscape? Will the acquisition enhance the company’s competitive position? Where will it detract?

Let’s explore each one of these criterion.

Fit with strategy
Very rarely is a targeted company a “perfect” fit. All candidates must be evaluated based on how closely they fulfill the strategic objective for the acquisition. Does the company meet the customer relationships set out as part of your objective? Does it have the required products and/or services? Does it have the distribution channels that we need? It is important that the team sets up key criteria before acquisitions are evaluated. If this is not done up front, you will have no way to evaluate how one company stacks up against another company.

Other Baggage
“Other baggage” is where many acquisitions fail. The targeted company has what you want and fits nicely into the strategy you are looking to accomplish; but it comes with many other areas in which you have no interest. It may have products and/or services not part of your strategy; it may also not be in your strategic market. Now what? Whew, it looks like a minor problem; however, your team could lose focus due to these extraneous products/services and/or markets. All of a sudden, your strategic plan includes areas that are not part of your core business; and resources are diverted to these areas instead of focusing on the original strategy. Conflicts arise concerning priorities within the company and these conflicts distract the company from its original mission.

Recently a medical devices company wanted to fill a gap in its product line. They purchased an available company and began integrating the acquired company into its planning process. This acquired company was in a number of market segments new to the original company.

These segments had different requirements for the product; thus, causing a great deal of conflict in product development and future feature/ functionality requirements of the product. The product had one set of requirements meeting the acquiring company’s needs and another set meeting the extraneous segments’ needs. A product emerged which was a compromise, and neither of the markets was happy with the result. The new products were not successful, and new product development time lengthened because the product being developed served two different masters. Trying to serve these conflicting priorities sent the acquired business into a tailspin. When you make an acquisition, consider accompanying baggage when evaluating an acquisition target. You must have a plan for dealing with the baggage (spinning off, keeping) before you make the acquisition; otherwise, conflicts will occur and cause the acquisition to be unsuccessful.

Strategic Competencies
Evaluating the competencies of the acquisition target is important to understanding the true value of the acquisition. The intellectual capital may, in fact, be the reason for the acquisition. For example, your product is offered in either of two technologies: you have a strategic competency with one technology, but no in-house knowledge of the other. With a goal to expand, you find that there are specific cases where the other technology has advantages over the one you offer. In this case, you can decide to develop the expertise in house; or acquire a company where the knowledge exists. The latter is often the faster path, allowing you to capitalize on the technology and the current customer base of the acquisition target. In order to fully assess the resident competencies, you must evaluate the following:
1. Is this really a competency or an asset? Is the knowledge only held by a single person? If it is held by a single person, it is a strategic asset and this asset has legs and may walk.
2. How is the competency knowledge passed on to other employees? Is it documented? Is there formal training in place? Is there hands-on training? You want to be sure there is an educational process in place to ensure skill, knowledge and process sharing.
3. Is there a process for continual improvement? This may set the company apart now, but how easy is it to copy? Are there plans for the next generation? Is it possible for the competition to leap frog?
4. Is the production or service function outsourced? If so, does this create a future competitor? Is the knowledge really resident in house? Gaining a competency is often an important part of the acquisition strategy; however, you must ensure this knowledge is positioned in a way giving you a sustainable competitive advantage.

Cultural Fit
Spend time understanding the culture of the new organization. Is the management approach top down and autocratic, or bottom up and participative? Is there a strong work ethic, or are people out at 3:00 p.m. on Friday leaving customer calls unanswered? What are the stories being told within the company? Important? You bet! Add information by looking at the HR manual — what are the policies — will they mesh?

A government contractor was looking to make an acquisition to enhance their market share in a particular government agency. They knew from customer comments the company was run by a very autocratic leader having his fingers in everything. The acquisition team was sure the acquisition would flourish once the leader was out. Was this a realistic assumption? What type of leader would the next tier of management be? These were the folks who stayed with this leader for more than 20-plus years in spite of the leader’s autocratic style. Do you think good autonomous leaders would stay in this environment? No, of course not!

An agricultural services company was looking to expand customer services being offered. It decided to expand by purchasing a company selling and applying fertilizer and other soil nutrients. While working on one of the ranches, an acquiring-company principal was offered some fertilizer at a low price by employees of the acquired company. They did this by siphoning off some fertilizer going to a customer and returning the liquid to its original volume by adding water. When the employees were fired, they walked off with the account lists. Honesty should be one of the key values for which you look. So often we assume honesty is present; but if this team had asked around, I expect they would have uncovered dishonest practices by these employees. Spend time interviewing customers and people who actually work with the individuals to see if there is a pattern inconsistent with your company’s values.

Key People
The targeted acquisition opens up key channels of distribution for you in Asia. You know these channels developed through personal relationships. After the acquisition, the people responsible for making and maintaining these relationships leave and the door to Asia is closed to your products and services. It is important to know who the key players are and the intent of each of those key players. There are many ways to keep key employees around including tying the payouts to performance over future years. However, you must also ensure that there is honest knowledge transferred about backing up every key position. Before making the acquisition, you will want to know how back-up responsibilities are handled and whether or not there is a succession plan. If there is a succession plan, are the people who are designated successors being trained to handle the job? Also, ask what happens when key people go on vacation. A clear warning sign is some key people not having gone on vacation or taken more than a few days off at a time. This lack of vacation means two things: They are truly unwilling to train back-up employees and really have no back-up plan. This is not unusual in small companies, but be aware that human assets can walk. Be sure to have a plan to deal with human assets, or discount said company on this aspect of the valuation.

Market Position
Okay, everyone has heard the requirement of being #1 or #2 in a market in order to maintain significant profits. Well, the same is true as you evaluate your target company. Look and see how they stack up in their markets. If at first glance they do not do well; ask if it is because of a different segmentation or if they actually dominate specific niches. If they are not profitable in certain segments, ask questions.

Return to the agriculture services company mentioned earlier. Yes, they purchased a fertilizer company. Unfortunately, it was only ranked number 4 or higher (5 or 6) in its market segments. Talk about pushing a string uphill! Did the acquiring team have a strategy for moving up the market position? No, and for several years the company struggled. Finally, the team assessed their strategic competencies and how these competencies could be leveraged to gain shares in their market. They also redefined the markets to target winning growers. Good news — the strategy worked — but it took five years to come to fruition. Next time, they will look harder at the target company’s market position.

Industry Dynamics
If this targeted acquisition allows you to enter a new market, you need to understand the market dynamics. Who are the competitors? Is there a new technology coming? In order to assess this, you must talk to people who watch this industry, i.e., investment analysts, regulators, and customers. Customers can often identify upcoming changes others in the industry do not see; e.g. new entrants may be presenting their concepts to the company’s core customer base. Other external forces may impact the industry dynamics. For example, there are changes in energy-efficiency regulatory requirements, you must ensure the acquisition target has plans in place and/or under development to meet these new requirements. Look to see if prototypes are available.

Anticipate the reaction of customers and potential customers’ to the acquisition. When Pepsi bought Burger King, did they anticipate Pepsi would no longer be a candidate for McDonald’s and other fast food chains competing with Burger King? Did this acquisition make sense?

As you consider purchasing another company, it is important to consider these eight criteria as you develop specific targets for your acquisition search. With your criteria in place before you begin your search, you will be more objective as you evaluate the candidate acquisitions. Good luck!

For more information on strategic planning please visit us at:

Denise Harrison is Vice President of Center for Simplified Strategic Planning, Inc. She can be reached by email at:
© Copyright 2008 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI -- Reprint permission granted with full attribution.

Thursday, March 13, 2008


1. As CEO are you tired of acting as a referee caused by turf battles between businesses or functional areas? Developing a strategic plan allows team members to develop a shared base of knowledge which allows the team to come to consensus on key company priorities and allocates resources based on these priorities. After a strategic planning process often CEOs can put away their striped jerseys and quiet their whistles.

2. Do you find your team does not get key projects accomplished throughout the year? Do you constantly give your team new assignments? Strategic planning forces a team to select 8-10 key objectives to accomplish during the next 12-18 months. Once selected new opportunities or projects must be brought to the team for evaluation. If the project needs to move forward, then one of the other objectives must come off the list. If the list needs to stay the same this project can be evaluated during the next cycle of strategic planning. Adding projects without evaluating what is already on the plate causes the team to suffer under the weight of too many initiatives.

3. Your team is not executing your vision. A strategic planning process allows all team members to analyze market trends and competitor movement along with your company's strengths and weaknesses. In this way the team develops a shared vision of the future and develops plans in order to achieve that vision. The strategic planning process develops buy-in from the total team.

4. Your management team needs professional development in order for the company to move to the next level. Strategic planning allows team members to see the big picture and enables them to lead given company priorities rather than specific functional requirements. It is a great way to develop your team member management capability.

5. Your company is stagnant and you need to find new avenues for growth. Strategic planning addresses opportunities for growth by looking at new markets, new products and services for existing markets and new ways to leverage existing strategic competencies. As a team you develop a large number of possible opportunities and cull the list down to the few that have high return and, ideally, lower risk, in order to get back on the desired growth path.

6. Your team is repeatedly stymied by unexpected events. During the strategic planning process you evaluate risk in two areas: first, Threats--outside forces that may significantly impact your business, but you have little or no control over; and second, How can we shoot ourselves in the foot? This exercise has the team look at ways it might be sabotaging (unknowingly) itself. The two exercises allow the team to understand key risk areas and develop plans to mitigate the risk.

7. Your team is striving for perfection and not focusing on the key areas of the business. During the strategic planning process you constantly rank strengths and weaknesses so that you focus on making the strengths that have made you successful better and only focus on improving or eliminating the weaknesses that are critical to your future success.

8. Competitors are outwitting you in the marketplace. Key to strategic planning is understanding your competitors: where they are today and what they are planning to do in the future. This information allows the team to make informed decisions as to where your company has a competitive advantage in the marketplace.

9. Your team does not see a significant shift in technology or a supplier goes out of business. Strategic planning provides the discipline for your team to look at all external forces--markets, competition, technology, suppliers, economic and regulatory--which allows issues to be brought up and analyzed in each area lowering the possibility of a surprise.

10. You miss a significant industry shift and you are now competing against different competitors for different customers. The purpose of the 10 year Industry Scenario and Winner's Profile is to force the team to develop possible industry shifts so that your company does not get caught flat footed.

Do you have other reasons why a CEO should consider strategic planning? If so put your thoughts and ideas on this blog.

To thank you for your comments please click on free Strategic Planning Tune-Up Book and get a complimentary copy of Strategic Planning Tune-Up -- Ten Great Strategy Tips (a $14.97 value) PLUS a no-cost subscription to Course and Direction, Center for Simplified Strategic Planning's bimonthly newsletter containing more great tips and articles.

For more information on strategic planning please visit us at:

Denise Harrison is Vice President of Center for Simplified Strategic Planning, Inc. She can be reached at

© Copyright 2008 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI -- Reprint permission granted with full attribution.

Wednesday, January 09, 2008

WD-40 Finds Growth for 50 Year-old Product
How to Find New Customers for Existing Products
By Denise Harrison, Vice President
WD-40 Faces a Growth ChallengeWD-40, a well-recognized brand faced the growth dilemma -- the chairman put out a goal to grow the business by $100 million from new products (or product innovations) introduced during the next three years (Gary Ridge, Wall Street Journal, May 23, 2006). This would be difficult for a product like WD-40, which has been in existence for over 50 years. What could be new? In order to meet the challenge the WD-40 Team Tomorrow looked for new and/or underserved customers. They knew that WD-40 was present in many households, but primarily a mainstay of the garage -- where it is used to solve a variety of problems. According to the web site WD-40 fulfills five basic functions:

1. CLEANS: WD-40 gets under dirt, grime and grease to clean. It also dissolves adhesives, allowing easy removal of labels, tape and excess bonding material.
2. DISPLACES MOISTURE: WD-40 displaces moisture, it quickly dries out electrical systems to eliminate moisture-induced short circuits.
3. PENETRATES: WD-40 loosens rust-to-metal bonds and frees stuck, frozen or rusted metal parts.
4. LUBRICATES: WD-40's lubricating ingredients are widely dispersed and tenaciously held to all moving parts.
5. PROTECTS: WD-40 protects metal surfaces with corrosion-resistant ingredients to shield against moisture and other corrosive elements.

But what about inside the house -- were there no applications inside the house? Are there no cleaning issues in the house? Is nothing stuck inside the house? Are there no squeaks in the house?The Team Tomorrow set out to find the answer. Yes, they found that inside the house there were many potential uses -- oven doors that were stuck, ceiling fans squeaking and crayon marks on the walls. But why was the product not used inside? Research showed there were several issues:

1. The WD-40 was in the garage -- the can was not convenient to store in the house.
2. WD-40 didn't smell very good.
3. The WD-40 can sprayed too much for the indoor application -- it got all over everything when a spot application was required.

The team was happy to hear that the product was needed inside the house and set about making the product indoor-friendly. They developed the pen application idea -- actually before Tide perfected it with its Tide to Go™ product. But the idea was the same -- a pen-like product that could deliver WD-40 in a small dose at a specific point. According to the web-site: "The WD-40 No-Mess Pen delivers the same trusted, multi-purpose product users know and love, with the precision of a pen-shaped applicator. It is pocket-sized, fitting everywhere from glove boxes and desk drawers to backpacks and purses. The WD-40 No-Mess Pen can lubricate hinges, doors, and drawers, remove sticky labels, remove gum and can do everything a regular can does without messy overspray and with minimal odor!" Since it was not an aerosol it did not have the smell associated with WD-40. It did not drip if you were using it to take crayon off the wall. It worked upside down if you were trying to take the squeak out of a ceiling fan.The No-Mess Pen™ is now a global product for WD-40 with many years of growth expected. The new pen delivery mechanism enabled increased product acceptance -- what can you do to re-invigorate one of your 50 year-old products or services? Look for potential applications in a different environment and see what needs to change to make your product work for that specific environment.

© Copyright 2008 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI
-- Reprint permission granted with full attribution.

Denise Harrison is Vice President of Center for Simplified Strategic Planning, Inc. She can be reached by email at