As businesses seek to grow through acquisition, there is a critical need for two things:
A formalized approach for analyzing business process alignment across both enterprises
Support for the intended value proposition by identifying specific critical improvement opportunities
As any acquiring company will want to maintain a level of continuous improvement during the acquisition, following a formal business transformation framework will help support that company’s value-based growth objectives. The inclusion of acquisition due diligence projects in that framework will further augment that approach.
Business Transformation Framework
A transformation life cycle will incorporate the following phases:
Business Process Improvement – An initial phase that should incorporate a business process analysis of the current state of operations and processes, plus an inclusion of education on the best processes in the industry. Proper analysis and education will inform future state mapping, which should include business process mapping, process definition, and the identification of future state requirements.
Technology Selection – An acquiring company will want to identify the enterprise system that provides the best path to continuous improvement. Business process definitions of the current and future states drives technology evaluation and selection. Technology selection steps should assist with vendor and provider agreements and contract negotiations, as well as identifying the best fit of enterprise system and partners.
Implementation – Implementation of enterprise systems should go beyond the metrics of initial expense, ongoing operating or maintenance costs, return on investment, and time to value. The acquiring company should include metrics such as potential and actual disruptions in operations, impact on productivity, and level of enterprise system adoption across the enterprise. Additionally, the management of complexity, risk, and data integration challenges should be mitigated with a proven methodology. The ability of the acquiring company to properly staff and conduct program and project management, and organizational change management should be closely assessed.
Business Transformation – The business case for continuous improvement and the best enterprise system is derived from the previous three phases. The business case will define how the acquiring company feels they can increase information availability, reduce costs, and create an environment that delivers significantly increased revenue and profits and maximizes ROI.
Application to Acquisition Due Diligence Assessment
Companies pursue acquisitions for any number of objectives. Examples can include:
Improve the performance of the target company
Consolidate capacity (remove excess)
Increase sales or market access of the target company
Acquire specialized skills or technologies
In all of these cases and other acquisition assessments, a thorough understanding of the business processes of the buyer and target companies is critical to understanding how the intended value can be unlocked. Employing a business process analysis methodology – one that targets and leads to overall process improvements – accomplishes two things:
It develops a deep process understanding
It provides an acquisition integration plan that directs the buyer and target company to the most critical actions that must be completed for a successful acquisition
The following provides an overview of these phases, including the deliverables specifically intended to strengthen due diligence projects:
To deliver the highest value (low cost, maximum benefits) for clients seeking to engage in an acquisition, a business process improvement methodology should be used to ensure all known best practices being used by either party, and are leveraged for maximum enterprise value-add.
Each phase of the due diligence cycle should build incrementally towards an opportunity roadmap and an integration plan. The scope of work within each of these phase are summarized as follows:
Organize – Document acquisition value proposition, define due diligence milestones, confirm work plan with resourcing from both companies
Current State – Analysis and documentation of the acquisition target’s current state business practices, systems and corporate governance model for process and technology management
An impact analysis should be conducted to document alignment between the acquisition target’s process designs and the future state process designs of the buyer
Where required, an Information Technology assessment study of the target company should be performed. This will allow the development of a technology roadmap, which is required to create the future state enterprise business system.
Level Set / Integration Scenarios – Based on findings from the current state review, the potential integration scenarios should at this point be evaluated. This evaluation should include a risk assessment of each major scenario to ensure clear understanding of “fits” and “gaps” that must be addressed to deliver the business case. The scope of this work should include the best path for leveraging best practices and the implementation of a common business system (including ERP and/or MES) supported by the cultural transformation required to mature the new processes.
Future State Plan – Ideally an “integration workshop” should be designed to finalize the details of the proposed integration plan and ensure all action owners are in alignment with process and technology assumptions. During this workshop, the key decisions made during scenario analysis will be confirmed.
Opportunity Roadmap – This is the validation of the business case targeted by the acquisition:
First, refresh the baseline business case initially developed by the buyer.
Construct a business transformation roadmap to include an initial integration implementation phase along with any subsequent implementation activities required to ultimately deliver the value proposition. In addition, construct a clear view of provided or deferred integration elements that may be defined during the workshop and must be planned for after initial assimilation cycle is completed.
Working the Roadmap
During the due diligence process, legal, financial and governance hurdles must be cleared. However, in every case a strong business process-oriented approach must be utilized to ensure the capture of the intended value proposition. It is likely that, to achieve maximum value-add, a common business system is required, as well as guidance through a complete transformation lifecycle which includes technology selection and ERP implementation.
To learn more on this subject, refer to our whitepaper, “A Roadmap for Business Performance Improvement.”
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