Manufacturers with strong cash reserves or share values have a unique opportunity in today's otherwise challenging market environment. The depressed equity valuation of competitors and complimentary companies has led to a low-cost buying opportunity that comes around only once every 20-30 years. And while overall 2008 M&A activity in most industries is down significantly and is expected to fall lower in 2009, corporate-led deal making has continued at its strong 2007 pace.
While the forward-thinking manufacturer's buying opportunity in today's troubled markets is a rare bright spot, mergers and acquisitions are by no means synonymous with greater business return. Recent studies show that between 40% and 70% of mergers -- regardless of the industry -- fail to achieve their objectives. This is true even during "normal" times.
A powerful driver underlying B2B M&A outcomes is the degree to which sales forces are successfully integrated. The majority of corporate mergers and acquisitions are sold to shareholders and to the board based on expected revenue synergies where 1+1> 2. Assuming these synergies are real, the integrated sales force's ability to realize them is then paramount to merger results. The new selling organization must be able to capitalize on the combined offerings, customer bases and sales talent to net greater cross-selling, up-selling, acquisition, and penetration than either company could have independently.
Sales forces are complex entities. Sales effectiveness derives from a tightly integrated and reinforcing system of manufacturing, marketing and sales processes, of people organization, knowledge, skills, and capacity, of systems and tools, and of motivational systems. The sophisticated combinations of sales channels and segment specific value propositions employed by today's sales forces adds to the degree of complexity. Even the world's best sales leaders understandably struggle to achieve effectiveness with just their own sales force. When two are brought together the degree of difficulty increases dramatically.
Appreciate the Degree of Difficulty
What this means for manufacturing executives engaged in an M&A deal is the following. First, they must understand the degree of importance that the sales force integration will play in their overall merger success. Second, they must understand and appreciate the degree of difficulty that will accompany successful integration of their sales forces. Third, they must ensure an integration process that cost-effectively results in the sales model and execution capability that can achieve the revenue synergies promised by the deal.
Results derived from a study conducted by ZS Associates of more than 200 sales force integrations during the last 25 years provides valuable insights for executives and sales leaders engaged in sales force integrations. The sample set of companies included in the study spans 10 industries and 60 countries, with a large portion of manufacturers falling within the Fortune 500. Information about the integrations was provided by ZS partners who directly supported each.
A number of sales force integration risks that frequently undermine the degree of merger success were identified by the study. A brief summary includes the following:
- Too much or premature downsizing: leadership cuts too much sales capacity in the spirit of contributing "Sales' fair share" to cost synergies. Resulting market coverage gaps and relationship disruptions reduce sales for years to come.
- Excessive or poorly managed customer relationship disruption: customer value, experience and relationships are damaged opening the door to competitors. Sales force effectiveness suffers while sales representatives learn details on new customer businesses and develop credibility with key decision influencers.
- Loss of too many high performers: highly scarce top talent defects to competitors because of too much uncertainty or aggressive competitor headhunting. New top performers take years to build.
- Loss of focus on business today: the sales force becomes distracted and demotivated by impending change. The business losses share during the transition period.
- Destructive "us" versus "them" sales culture: the integration process fails to generate a shared sense of mission, culture and teamwork. Finger pointing and destructive conflict persists for years to come.
- Failure to get to the required sales model: the final sales force design is incapable of cost-effectively achieving the revenue synergies sought by the merger.
- Incomplete and/or sub-optimal implementation: leadership loses focus and momentum during detailed and more drawn-out stages of implementation. The execution capability of the integrated sales force falls short of that required to achieve merger benefits.
Keys to Success
Any one of these risks has the potential to significantly reduce merger success both short-term and long-term. In combinations, the threat of merger failure obviously increases.
The study also identified a range of key success factors that together maximize sales force integration success. A brief summary of these factors is presented below:
- Enlightened executive and sales leadership: the leadership team understands the criticality of the sales force integration and has a realistic understanding of the challenges and effort required.
- Comprehensive design and implementation plan: all critical issues from the strategic to the tactical are addressed. Ensures effective timing, sequencing, and ownership of all workstreams required for success.
- Effective governance model: review and sign-off processes drive transparency and accountability relative to key milestones and metrics of success.
- Fact-based decision making: objective, rapid and high-quality decisions are based on facts derived from best-in-class sales force design & implementation frameworks and analytical methodologies.
- Required expertise and capacity: flexibility exists to recruit external support to provide expertise, capacity and integration tools, and to help ensure objective, optimal decisions.
- Best from both paradigm: leadership commits to learn and adopt best practices from both organizations (or external sources), not just force-fit one organization to another.
- Right timing: the best speed with which sales force integration should be achieved is based on complexity, opportunity costs, customer and top talent risks, distraction risks, and acclimation requirements.
- High performer reassurance: tactics exist to reassure top performers of their future role and earning opportunities.
- Business today focus: tactics exist to ensure sales persons remain focused on current business during the transition period.
- Effective rollout-sequencing: timing, sequencing and process to manage rollout of the new sales model & supporting elements is based on degree of change relative to current capabilities.
- Proactive account hand-offs: a rigorous and proactive process, tools and motivators are applied to minimize transition costs for customers.
Together these success factors result in the sales model required to maximize profitable revenue from the combined company's offerings, customers, and talent. They result in cost-effective implementation of that model as evidenced by the new sales organization's execution capability. And finally, they minimize the transition costs required to move to this new state.
The following case exemplifies some of the common sales force integration missteps as well as some of the best practices.
In early 2000 this multi-billion dollar global paper products manufacturer acquired a specialty paper products maker to expand its ability to provide broader customer solutions. Enthusiasm for the integration of the two companies was high across both organizations.
During the integration process, leadership made the decision to leave the sales forces of each company relatively separate. While both would now report up to single regional VPs, the basic structure, sizing and deployment of each would remain essentially the same. Leadership from both companies believed that this approach would minimize transition costs and ensure continuity of current business. They felt that they could drive synergies by soliciting the two sales forces to hand-off relevant leads to each other and bring each other into situations where the customer was requesting solutions that reached across the broader product/service portfolio.
Eighteen months later few synergies had been realized. Confused customers were complaining about both the lack of coordination between the sales forces and the multiple points of contact. Revenue targets reflecting anticipated synergies were being missed. Tension between the two sales forces was high, with each pointing the finger at the other as the source of the problem. Enthusiasm across the organization about the merger had all but vanished. Most felt the decision to merge the companies had been a bad one. Furthermore, competitors were starting to significantly threaten key relationships. The company had moved to a price premium strategy in anticipation of greater customer value creation. While many customers were on board with the idea, they were not seeing any new solutions or additional value from the merged organization.
Senior leadership recognized that they had gotten the sales force integration wrong. As a first step to recovery, they invested three months designing a completely new sales and customer service structure capable of capitalizing on the product/offering portfolio of the combined company. They then systematically executed a detailed implementation plan that addressed all key elements of implementation. While the company incurred high costs resulting from poor sales force integration, they are back on track to achieve the revenue synergies initially envisioned.
B2B manufacturing executives and sales leaders engaged in revenue-synergy driven mergers and acquisitions must place significant emphasis on their sales force integrations. For most companies, the sales force is the primary revenue-generating engine for the company. The merger will only succeed if the integration of the sales forces results in the capabilities required to actually capitalize on the synergies possible.
Michael B. Moorman is the Managing Principal for the B2B Sales & Marketing practice at ZS Associates, a global management consulting firm specializing in sales and marketing consulting, capability building and outsourcing. http://www.zsassociates.com/
