Top Five Ways to Help Optimize Operations and Outsourcing During Mergers, Acquisitions, Divestitures, or Downsizing
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Common Contributors to
Back-office Turmoil
» Mergers and Acquisitions
» Divestitures, Spin-offs
» Downsizing, RIFs (Reductions in Force)
» Reorganization
» TARP funding/restructuring
EquaTerra offers services to help optimize the back office for organizations experiencing these types of disruptions. For further information, click here to see our Business in Transition Services brochure.
| by Lee Ann Moore
The economy is forcing organizations to evaluate their businesses in a critical light. While the capital and debt markets are presenting challenges for sellers, the expected balance sheet cleansing is likely to open up opportunities for buyers. Additionally, organizations facing sizeable layoffs are likely experiencing internal chaos similar in scale to a divestiture.
Organizational changes of this magnitude involve significant opportunity for improving profitability and cash flow through the effective delivery of internal operations. Yet many organizations become overwhelmed with the amount of data, decisions, and deadlines they face during mergers, divestitures, or layoffs.
How can operations be optimized in times of organizational turmoil? Start with these five critical steps:
1. Frame the Future Value of Consolidating Internal Operations At the earliest stages, frame the value of a business combination. It may mean a high-level estimate on projected savings from consolidating financial systems; migrating all of the new data centers to an outsourcing provider; or renegotiating and consolidating application, design and management contracts, to name a few. The integration team needs to scan both organizations and quickly assess whether current operating models are delivering the appropriate value to an organization, the future operating model, and the time frame to consolidate.
2. Get Educated and Ask for Help Where Needed
If you don’t have the skills in-house, seek help from a consulting firm that offers programs to meet your needs. Many offer M&A (mergers and acquisitions) workshops, checklists, or training sessions on how to scope, strategize, and manage mergers or acquisitions. These sessions can be designed to help you understand the process, workload, and the skills you will need to operationalize your strategy.
The hard part begins after the strategies have been set. Perhaps the executive team used a strategy firm to identify a broader acquisition plan and the corporate development team sources the candidates. Converting this strategy to an operating reality can be the trickiest part.
If an organization plans a string of business combinations, it likely makes sense to develop a standard approach, perhaps even a committed team, to optimizing internal operations. Whether shared services, outsourcing, or a combination is the desired operating model, developing a solution that can be replicated will help ensure the success of future business combinations or divestures.
Taking the standardization recommendation further, many companies involved in a succession of business acquisitions or divestures develop a handbook to help their organization transition. This tool can be an effective starting point for transition teams that are facing immense time and cost savings pressures.
3. Assess and Mitigate Operational Risks During Transition
Not properly planning for the risks in combining or divesting businesses can result in setbacks and challenges in the implementation process. Alternatively, a risk assessment exercise can help ensure business continuity and a smooth transition. Use the following steps as a guide in assessing risk:
a. Identify failure modes (risks) by key business areas
b. Assign probabilities to the failure modes (risks)
c. Assign a severity rating to each risk based on its monetary impact or non-monetary impact (effect criticality)
d. Calculate the Item Criticality Rating by summing the average probability scores and average severity ratings of all the assessors By using probability and severity ratings and comparing risk criticalities via a criticality matrix (criticality scores), a firm should have a road map of weighted risks so that the focus is on the areas of greatest monetary impact.
4. Search for Hidden Costs – Redundancies, Shadow Organizations and Other One-off Processes
Don’t assume that because a firm has recently outsourced an IT (information technology) or business function, or created a shared services center, that it is operating at optimum performance. A looming merger may provide an excellent backdrop to root out redundancies that may be placing a drag on profitability. Integrating multiple finance organizations within one company into a single finance organization of another company presents an added set of challenges. The company with multiple finance organizations, for example, may want to streamline these organizations before integrating or outsourcing portions of the two departments.
5. Consider Monetizing Internal Organizations
We are operating in a dynamic business environment and many organizations are looking at nontraditional ways to monetize their business support functions. Observe the recent sale of Citi’s technology offshore operations to Wipro and the subsequent agreement for Wipro to provide infrastructure and application support back to Citi. This may not be an option for many organizations, but it offers service providers a chance to grow their business and buy a successful support organization. More importantly, it provides the selling organization with necessary capital to invest in other areas of their business. And don’t overlook the significant career opportunities provided to employees who have now moved from the back office to the front office.
There are many operational factors that should be evaluated prior to and during a merger, divesture, or significant downsizing. This paper highlights a few key components that can help you to jump start the process. |
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