Understand the Role of a Merger in the Operating Model

Mergers allow companies to reflect on their operating model. Executives can assess their organisational structures and the people adding value.

According to Harvard Business Review, 70 % and 90 % of acquisitions and mergers fail. It is a startling sum, and the common denominator is poor administration. Most acquisitions and mergers fail because critical employees depart, teams cannot work together, or morale in the acquired firm plummets.

Therefore, we at GrowthJockey believe that to ensure a sustainable future after the merger, every company needs to make substantial changes in the company's workings. These changes are crucial for the company's future as they help meet the merger value for the business. Thus, the top executives must oversee these changes and refrain from delegating the process.

What is a Merger?

A Merger brings existing companies together to form a new company. There can be many reasons for a merger, such as expanding a company's reach in other regions and sectors or gaining a higher market share.

For most companies, a merger in business entails profits and gains for all shareholders. One of the cardinal rules of a merger is that companies are required to prevent themselves from additional acquisitions or mergers under the "no-shop clause."

Although mergers prove beneficial for businesses, they come with constraints and risks. The following section explores some troubles that a coalition in an operating model incurs.

Challenges in Implementing a New Business Model After a Merger

When two or more companies merge, some differences are bound to exist. Anxiety and rallying for top executive positions in the new company can cause stress on the CEO to prepare, align, and direct a capable team to oversee the entire venture.

Aon Hewitt data reveals that the percentage of "actively disconnected employees" rises after a merger event, even if their position remains the same. It takes a typical organisation roughly three years to regain employee participation rates seen before a merger. This happens due to the uncertainty of the direction their company is taking.

When two companies with different internal processes merge into one, there is a need to design an operating model that can factor in the working style of both companies. Using a merger in operating model requires thorough planning by the management staff and accommodating both companies according to their area of expertise.

There needs to be an interim operational model that would test the merger performance before transitioning into the final model. This temporary model needs to be functional enough to reflect the rationale behind the deal.

Let us now delve into the importance of mergers in operating model designing, its process, and implementation.

What is an Operating Model?

The operating model describes the organisation's functional structure. It specifies what the company must perform and do well to implement the strategy effectively.

However, as a team, you must first determine the merger's direction, how you're going to compete against the market, what success means (strategic goals), how you will offer your product to the client (experience), and what skills are required to execute your plan. We recognise that a sequential process may rapidly define the route from concept to functionalities.

Operating models constitute three elements- Structure, Processes, and People. More often than not, organisations focus only on the structure.

However, there needs to be a focus on all aspects of an operating model instead of just organisational structures. Doing so can help deliver the merger value promised to the investors.

We at GrowthJockey keep in mind all the aspects of your merger to help you create an operational model that perfectly balances structure, application and people.

Structure

Redesigning the structure to accommodate both merging companies involves ensuring that the post-merger scenario has clarity on hierarchical organisation, the corporate governance structure, the decision-making process, essential roles and scopes, how functions are meant to support the business, and regions where the company will conduct operations.

Process

Companies usually grow organically and have their unique ways of conducting business. It's crucial to learn from existing methods of all merging entities as they can benefit each other in the post-merger era.

The new organisation needs a transparent and robust process to help you deliver according to the value of merger. However, this part is often ignored and left for contemplation in the later stages.

People

People are an integral part of the operating model and are vital to building any company. They create value, and hence they need to be managed effectively. Accommodating the workforce from another company can be challenging, but managing them through channelised workstreams would be best.

Steps in creating an operating model : Role of Merger

Merging two companies requires significant time and energy to be invested. The integration process can encounter problems that the top management should be prepared to address. Thus, they need an end model and an interim one to align the operations.

Some steps need to be followed to achieve a successful integration. They are as follows:

1. Establish a Baseline after Aligning on Design Principles

An operational model is a leader's most valuable and effective tool for ensuring the smooth running of the firm. Top-level executives must coordinate outputs while considering the company's overall aims and purposes. The team will be able to develop the operational model better to combine these business operations with the aid of these preliminary considerations.

The newly formed company's chief executive officer (CEO) should lead the team in developing design concepts that align with its goals. The value, setting, and capacity of the merger should be mapped out so that your business can arrive at a common ground for the operating model's guiding principles.

Since there is often a deadline for completing the transition procedures of mergers, you will need to be prepared to work with precise data and evaluate the transaction to fill in any gaps in knowledge.

2. Develop a Preliminary End-state Design

Once you have established the principles of the operating model for the new company and assessed the regulations governing the existing model, it is vital to define the end-state operating model for the merged company.

Executives of the new company must be open to changes, as the emerging company is bound to be different from both parent companies.

3. Design an interim operational model

An organisation requires considerable time to settle into the new operational model.

The integration team needs to design an interim model keeping in mind the pace of the different units of the organisation.

This testing phase helps your organisation test the governance design's structures and effectiveness.

4. Achieving Stability

The role of merger in model changes the company's business operations altogether. And it takes time to set up new operations. The integration is a gradual process that requires patience, good governance, and effective communication to achieve the shared goal.

Four kinds of operational models

At GrowthJockey, we acknowledge that there are four operational models for how an organisation approaches business process integration and standardisation.

• Diversification (minimal standardisation, minimal integration)

• Coordination (minimal standardisation, great integration)

• Replication (high standardisation, low integration)

• Unification (high standardisation, high integration)

How GrowthJockey Helps

Here is how we help you determine a structure for a model:

Implementing Design Principle

Growth Jockey's design principles are high-level descriptions of how an enterprise should function. They outline the company and consumer priorities and the experiences they want. Less is left to chance the more you apply your design guidelines.

Identify the intended consumer's journeys.

Customer experience maps are graphical representations of a company's customers' engagements. They illustrate clients' processes while interacting with a firm and the stress associated with each step.

We start by mapping your consumers' processes and highlighting any "pain spots." Next, we map the processes they would ideally take and intentionally "design out" those pain points.

Gauging the Skills Needed

By looking through each flow diagram and asking, "what does the organisation require to be able to accomplish to provide this step?" we put together a list of the competencies necessary to achieve your desired customer experiences.

To build a strategy, we characterise the existing and future conditions of each capacity in terms of outlets, people, systems, and technology.

Calculate the Required Changes

Observe and contrast each capacity's present and future statuses and identify the resulting gap. This can help determine the modifications required to realise the desired customer journeys.

You may not always be able to move straight from the present state to the preferred future; we help you include some intermediary phases and implement modifications in stages. After identifying all necessary changes, we evaluate them and place them on a "change roadmap," which should serve as the foundation for your transformation strategy.

Wrapping Up

With GrowthJockey, you may choose a distinct operational model. Select the proper degrees of integration and standardisation that will assist you in establishing a solid basis for execution and enhancing your strategic agility.

At GrowthJockey, we are fully committed to developing customised operating models that effectively address the critical challenges faced by our clients across various industries. Irrespective of your company's size, whether it's a small-scale enterprise or a large corporation, you can now benefit from our tailored solutions. Take the decisive step towards unlocking the next level of growth for your brand by reaching out to us today!