Imple --
Virtually all industries go through four stages:
* emerging stage: where the characteristics of the market and
structure become recognized
* growth stage: where substantial investments are made and markets are segmented
* shakeout stage: where consolidation occurs as growth slows and the
market becomes saturated
* decline stage: where other products start to cannibalize the core demand
Mergers & acquisitions (M&A) are active during all but the very
earliest stages of a business, as companies attempt to combine their
existing skills with the skillsets of others in similar businesses.
M&A activity is also easier to measure than waiting for a robust
industry, like motor vehicle manufacturing, to proceed to the end of
its life cycle. With mergers, you can measure most of the relevant
pieces within a 3-5 year time horizon:
* revenues and profitability of the pieces (both before and after)
* market share (both before and after)
* expectations for future synergy
* the plans and activities put in place, often by division or business unit
* the implementation of merger plans
* results
M&A STUDIES
============
The most-recent study by KPMG International, an accounting and
consulting firm, tests the commonly quoted opinion that 40-70% of
mergers fail. It found that, using the criteria of creating value for
the stockholders, 83% of all mergers failed. In more detail, 17%
succeeded, 30% produced no discernable results and 53% actually cost
shareholders money.
The study covered more than 700 deals and involved interviews with
executives at 100 companies. While it doesn't detail examples of
failure, but says that these factors worked to make the implementation
of the business strategy work:
? involvement of U.S. or U.K. firms. Both increased the likelihood of
successful, with a joint U.S. - U.K. merger raising success rates by
45%.
? companies that put emphasis on pre-deal evaluations of synergy were
28% more likely to have a successful outcome. "Due diligence" was a
key factor, but attention to financing details or legal issues
actually decreased the likelihood of success.
? Contributing to the above factors, KPMG's conclusion was that three
"soft" areas contributed to the overall success:
1. selecting the management team
2. resolving cultural differences between the two companies
3. communications, especially to suppliers and customers
The study is summarized here:
NYU Stern School of Business
"Unlocking Shareholder Value: The Keys to Success" (Novvember, 1999)
http://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/KPMGM&A.pdf
---
Wharton's Harbir Singh has done a number of studies of companies in
the financial industry, including banks and insurance companies. Four
of them are linked in this Wharton page:
WhartonFinancial Institutions Center
"Pursuing Value in Financial Services"
http://fic.wharton.upenn.edu/fic/m&a.html
Singh also concentrates on success factors, which of course sheds
light on the failures too. In these companies, strategy
implementation worked best when:
* companies had significant merger experience. That too was a factor
mentioned in the KMPG International report, one that they felt
supported the data for successful U.S. and U.K. experience.
* the management team is key, Singh finding that when the "target's"
management is replaced it is a negative due to disruption of the
business.
* there are no differences between in-market and out-of-market acquisitions.
* systems integration is a positive in reducing costs, with a
stronger effect in insurance companies than in banks.
---
Poor management of people is one of the attributes that the Deputy
Director of the National Bank of Greece, Maria Kouli, says is at work
in merger failures:
Failures
Management Centre Europe
"Why Do Mergers & Acquisitions Fail to Create Synergy?" (Kouli, August, 2001)
http://www.mce.be/knowledge/162/37
---
Prof. Paul C. Godfrey, of the Marriott School of Business at Brigham
Young University, summarizes the results of 21 students on the topic,
including a key Booz Allen study that shows where strategy
implementation fails:
Brigham Young University
"How Mergers Go Wrong," (Godfrey, undated)
http://marriottschool.byu.edu/teacher/mba680/godfrey/Successful_Mergers_&_Acquisitions.ppt
SEVERAL BOOKS
===============
I can't give a list of the "best" books on business implementation
(for your other Google Answers question) but can suggest several:
"Creating Strategic Leverage," Milind Lele
http://www.amazon.com/exec/obidos/tg/detail/-/0471631426/qid=1090866364/sr=1-1/ref=sr_1_1/104-0805329-1735916?v=glance&s=books#product-details
Lele, who is both the managing director of a Chicago strategy
consulting firm and a senior lecturer at the University of Chicago's
Graduate School of Business, goes through strategic issues in industry
after industry and explains how companies succeeded or failed in
telecommunications, personal computers, airlines and other industries.
It does an interesting job of contrasting strategies of competitors.
"Competitive Advantage : Creating and Sustaining Superior
Performance," Michael E. Porter
http://www.amazon.com/exec/obidos/tg/detail/-/0684841460/ref=pd_sim_books_1/104-0805329-1735916?v=glance&s=books#product-details
No reference to business strategy would be complete without Michael
Porter, whose 5 forces model has become a commonly accepted tool for
analyzing business. Porter's work on strategy is almost undoubtedly
the most-broadly taught in business schools worldwide and would show
up on the "best" list.
"Competing Against Time," George Stalk, Jr. and Thomas H. Hout
http://www.amazon.com/exec/obidos/ASIN/0029152917/qid=1090866781/sr=ka-2/ref=pd_ka_2/104-0805329-1735916#product-details
A different way of looking at competitive strategies, with lots of
data from the automotive industry to show that strategy implementation
can be measured task by task and isn't relegated only to a whiteboard
look at the firm.
Marcia Kouli, the National Bank of Greece director, references a book
by Mark Sirower on failures of mergers that may be interesting too:
Amazon.com
"The Synergy Trap"
http://www.amazon.com/exec/obidos/ASIN/0684832550/qid=1090874524/sr=ka-1/ref=pd_ka_1/104-0805329-1735916#product-details
SOME INDUSTRY HISTORIES
========================
Good, creative looks at an industry in change come along every few
years. The problem is that they are soon dated.
David Halberstam's "The Reckoning" profiled the rise of Nissan and the
decline of Ford in 1986. It is really the story of the rise of
Japanese lean production systems and has been supplanted by several
books during the 1990s on Toyota or worldwide automotive production.
Thomas Petzinger, Jr., a former Wall Street Journal reporter, wrote an
excellent book in 1995 on the airline industry called "Hard Landing."
In it you see the decline and fall of Pan Am, People Express, TWA and
Eastern Airlines.
Burrough and Helyar's book, "Barbarians at the Gate" tells the story
of the breakup of RJR Nabisco. In the process it tells the tale of a
failed business strategy (the LBO), though its clear that the authors
think that the authors think that both RJR and Nabisco were failing.
A great read, even if the original version of the book came out in
1990.
"Competing on Internet Time: Lessons from Netscape and its Battle with
Microsoft," Michael Cusumano and David Yoffie
And finally, a little more up-to-date is Cusumano & Yoffie's book
about the Netscape battle with Microsoft over Internet browser market
share. Of course there's a loser in that battle: Netscape. But the
book was controversial enough to have found its way into the Microsoft
antitrust trial:
InfoWorld
"Microsoft pushes court for access to professors' Netscape research,"
(Haney, Oct. 2, 1998)
http://www.infoworld.com/cgi-bin/displayStory.pl?98102.ehmsmotion.htm
Google search strategy:
Microsoft + Netscape
"performance measures" + strategy
mergers + acquisitions + "performance measures"
Best regards,
Omnivorous-GA |
Clarification of Answer by
omnivorous-ga
on
27 Jul 2004 15:25 PDT
Imple --
The U.S. Small Business Administration (SBA) is an excellent resource
for a wide range of business information, offering step-by-step
guides, strategy and planning information for specific industries and
academic studies.
One of my favorite places to start is here:
Small Business Administration
Publications
http://www.sba.gov/library/pubs.html
The Small Business Success Series is a good example, with 14 tips for
ensuring business survival, which focuses on what to do when facing an
economic downturn:
1. optimize inventory
2. watch cash flow first and work with suppliers, contractors and
landlords to minimize cash expenses
3. eliminate the "nice to do" from the "have to do"
4. build up cash reserves for weak times
5. make sure you're aggressive with collectioins
6. delay capital spending where necessary
7. strengthen your banking relationships
8. look for opportunities to reduce rented space
9. seek out new businesses
10. don't skimp on service or quality. Consider part-time or
freelance help to support it.
11. key on waiting time to order service; the time it takes for a
customer to have the service delivered; and length of the service
itself
12. find a way to boost advertising or marketing in a slump, as you'll
take share from competitors
13. use training during slow periods to boost the company's skills
14. get employees involved in ways to control costs
SBA.gov
"Business Survival"
http://www.sba.gov/gopher/Business-Development/Success-Series/Vol4/tips.txt
Similarly, there is a list of a dozen reasons that small businesses
fail here, though the attribution to a pair of authors:
1: Lack of experience
2: Insufficient capital (money)
3: Poor location
4: Poor inventory management
5: Over-investment in fixed assets
6: Poor credit arrangements
7: Personal use of business funds
8: Unexpected growth
9:C ompetition
10: Low sales
SBA
"Why Small Businesses Fail"
http://www.sba.gov/starting_business/startup/areyouready.html
You'll also find more academic studies, which analyze success/failure
factors in businesses. I'd suggest conducting a search on the SBA's
site with the term "business failures" to get a flavor of the wide
variety of coverage the topic gets.
One good example is this 2002 article from "Small Business Economics,"
written by Brian Headd, notes that the myth is that failure rates are
very high for new businesses but that 76 percent are still in business
2 years after startup.
Headd tries to quantify "success" and notes that 17% of businesses are
successful at closure. He also notes that having at least $50,000;
having previous experience starting a business; and having a college
degree. It also found that retail businesses most-often were failures
at closure, along with several other "failure" characteristics.
SBA
"Redefining Business Success: Distinguishing Between Closure and
Failure," (Headd, March 20, 2002)
http://www.sba.gov/advo/stats/bh_sbe03.pdf
---
In about the mid-1980's governments became aware that attracting major
industries with large factories was not the key to overall job growth.
Indeed, it was learned that small businesses were the engines of job
growth. Not just U.S. government agencies began to look at the issue
in detail: so too did other agencies.
The U.K. government commissioned a study, done in 2002, on the North
East of England. The report, done by Trends Business Research, a
consulting firm, found some specific regional issues but also
concluded that most businesses failed due to lack of marketing
sophistication and weak financial management. Specifically:
* Financial issues such as under-capitalization, lack of financial
planning and control, weak banking relationships and bad debt
* Marketing: reliance on one customer, lack of market knowledge, competition
* Lack of preparation for business ownership
* Managerial competence
* Property and location
* Regulation
* Poor research-industry support
* Access to business support
Northeast U.K. Government
"Why North East Businesses Fail," (Trend Business Research, January 2002)
http://www.go-ne.gov.uk/corporate/europe/obj2/why_ne_businesses_fail.doc
----
A study done jointly by turn-around specialists Buccino & Associates
with Seton Hall University's Stillmann School of Business received
some prominence in Business Week magazine in Aug. 25, 2003 issue. The
study, which relied on survey responses from 1,900 business people,
attributed the following reasons to business failure:
Too much debt 28%
Inadequate leadership 17%
Poor planning 14%
Failure to change 11%
Inexperienced management 9%
Not enough revenue 8%
There's a very interesting interpretation of the study in an article
by Mike Ukema in Screen Web, in which he details issues with his own
screen printing business. Ukema advocates the old technique of
"managing by walking around":
Screen Web
"Taking a Stroll to Keep Your Company Whole," (Ukema, undated)
http://www.screenweb.com/business/cont/companywhole.html
---
The Center for Profitable Agriculture at the University of Tennessee
aggregates several studies from state and Dun & Bradstreet in the 1998
report, "Planning Against a Business Failure." It uses D&B data to
say that the major causes of failure are:
1. Incompetence (46%): emotional pricing, living too well, nonpayment
of taxes, lack of planning, no knowledge of financing, inadequate
record-keeping
2. 'Unbalanced' experience or management experience (30%): poor credit
policies; expanding too rapidly; inadequate borrowing practices
3. Lack of experience (11%): wrong inventory; no knowledge of
suppliers; wasted advertising
4. Neglect, fraud, disaster (1%)
The following Google search strategy is pretty helpful. It even
highlights some results for project-type failures:
Reasons for business failure
Best regards,
Omnivorous-GA
|
