Practitioner articles: The Merger Dividend

The purpose of the article is telling us that there is a wonderful chance to develop both the current leader and the next generation of leader in a merger.

Companies can develop them in three specific leadership areas to maximize the growth opportunities inherent in a merger.

The first thing we can develop is getting everyone on the same page. We want to know what the company would look like one year after the close of the deal into four categories: financial, strategic, operational, and organizational. We want to know what is expected of everyone on both sides of the deal. Therefore, we should create a document which is called "merger intent". The author gives us an example about ING and CitiStreet.

The second thing we can develop is executing with discipline. There are lots of difficult tasks will give rise to an emotionally charged, high-pressure, and time-constrained atmosphere where getting results is an absolute necessity. Teams must quickly mobilize, make work plans, and prioritize tasks and time.

There are two ways to use integration to develop execution capacity. The first one is putting people with high potential into critical short-term roles. The second one is "to set particularly challenging short-term goals with direct accountability for rapid execution, increasing the pressure on teams to try some thing new."

The third thing we can develop is building an A-team. CEOs should conduct an overall assessment of the employees on both sides of the deal and create a team that reflects the best.



Reference: http://hbr.org/2011/07/the-merger-dividend/ar/1
The Merger Dividend by Ron Ashkenas, Suzanne Francis, and Rick Heinick, Harvard Business Review July 2011

Learning from Family Businesses

If you’re like me when you think of family businesses, then the image of a rustic mom and pop shop may spring to mind.  Personally, it just reminds me of a cheap hair salon in the middle of Chinatown that I used to go to.  However, such a view is influenced more by nostalgia than sensibility because there are many large family run businesses.  This article delves into the nature of family businesses and how it figures into their formula for success.  What the researchers discovered was that family run businesses generally don’t perform spectacularly, even in situations ripe with opportunity, but on the flip side they also tend to stay afloat where others sink.  The focus, then, is resilience.  How do these companies integrate this theme into their overall strategy?

The key concept here is being conservative.  As it turns out, perhaps unsurprisingly, the average family business thinks similarly to how an average family might think – frugally.  The concept of spending only as much as you can afford seems strange in general business practice, but is a strong foundation that family businesses build and rely upon.

As a result of conservative spending, capital expenditures are scrutinized closely and debt is seen as a threat to the family control of the company and thus taken with caution.  Acquisitions of other companies are taken in small quantities at a time; large acquisitions are generally completed in dire ‘make or break’ situations that threaten the future of the company.  In fact, family businesses prefer partnerships and joint ventures to acquisitions – there’s less risk to the family business.  On that note, family businesses generally prefer to grow organically and prefer to be self-reliant rather than put the family’s fortunes in outside hands.

With all this talk of conservative family business practices, one might be surprised to find that family businesses are actually more diversified than their ‘normal’ counterparts by a large margin: 46% of family businesses show a high degree of diversification to 20% of normal businesses.  One would assume that if normal businesses are themselves wary of over diversification then it would follow that family businesses would approach it with an even longer stick.  As it turns out, family businesses either approach these ventures organically or with the view that the new additions are part of an investment portfolio to reduce risk.  With recessions becoming more frequent, some expansions may not be as affected as, for example, the core business, and the revenues generated by these expansions help the company weather the storm and invest in the future when rivals are too busy keeping all hands and feet inside the vehicle.

Lastly, an interesting aspect that the research touched upon was how family businesses approach new markets – with patience.  Because of their resilience, family businesses can be as patient (or stubborn) as a mountain that outlasts everything around it.  For this reason one could say when confronting a well run family business that time is the enemy.

Putting this all in perspective, the research concluded that the success of family businesses is due to their frugal and conservative decision making, which lends a natural resilience against forces beyond their control.  With a low cost structure and aversion to debt, these companies can afford to avoid layoffs and invest in their employees, which leads to higher talent retention.  To keep debt levels low, companies are careful with their decisions that may require financing – such as taking small acquisitions.  In short, the greatest strength of these companies is their resilience, and certainly there is a lot to learn from it.

As an aside, I personally feel that the business environment is already becoming too conservative.  I might just be a cynical jerk (which I am), but I feel that music these days is all starting to sound the same, and Hollywood only seems interested in pushing out remakes, re-imaginings, and reboots.  Is this the pinnacle of ‘capitalism’?  It’s fine if commodity industries are for the most part conservative, but when the arts and sciences must obey the bottom line, then everything stagnates and progress plateaus.

Kachaner, N. & Stalk, G. & Bloch, A. (2012, November). What you can learn from family business. Harvard Business Review, pg. 103 – 106.

Mergers & Acquisitions in banking

The study is exploring the relationship between intergrating Information Technology (IT) and banking mergers and acquisitions (M&A), revealing a significance of IT-related elements in banking M&A integration. The purpose of the research is obtaining the knowledge of IT integration process, its driver, dynamics, and theoretical models and frameworks. 

The study is important in contributing to the knowledge on best practice for IT integration within M&A in banking. Blueprint layout and integration model can be used in guiding and supporting banking M&A transactions. It is important because it is widely considered a critical resource and an enabler in the business of modern banking. On the other hand, it is also a very important element of the post-merger integration, oftern underpinning the realization of a significant part of the projected M&A gains.

Not only using different cases to test how IT –related advantage in M&A and collecting reports from sixty four company reports, white papers and other relevant works but also from interviewing four London- base high ranking bank officials who supervised IT integration in a number of M&A transactions (Citigroup, Nomura, UBS, Deutsche Bank, Lloyds, and Royal bank of Scotland) writer found out some important results that would help people who are still consider about IT – related advantage in M&A.

First, IT – related advantage as a frequent element of the M&A gains. This advantage is achievable and properly enforced guidance for IT integration exists. Even though it might be not enough guidance, the integration might still result in significant unplanned gains if the staff in charged are experienced and keen to deliver, the IT – related advantage then follows as a bonus.

Second, there are some issues for banks or even other enterprises have to face with by using IT. It will be:

-         Lake of clear business strategy

-         Aggressive targets that overstretch organizational and technological capabilities

-         Lake of personnel with relevant experience involved in a timely manner

-         Power struggle between management of the merging organizations.

Third, it takes a number of years after the official completion date for the merged IT infrastructure from previous banks or enterprises before merging. Specially for banking industry, IT capability by large equals the business capability raise some serious implications.

This article would help practicing managers distinguish that M&A IT integration in banking from other types of IT integration process will need some tasks to support the business operations post-merger as quickly as possible. According to “portfolio best of breed” mangers have a chance to minimize the business risks associated with the prolonged IT integration and balance in term of the delivery time and quality.

Key success factors of M&A IT integration is create a clear link between the business strategy driving the merger and the priority of the IT integration tasks, enlarge staff experiences, and motivate employees. Moreover, it will complete the right standard as quickly as possible, whilst the main constraining factors are overly aggressive targets and quality of management decisions.

Source: http://libproxy.uhcl.edu:2057/ehost/detail?vid=3&hid=25&sid=fa87d739-ac30-421f-959c-c42c2cc6f748%40sessionmgr12&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=80122565

Starbucks Opens new Community Store in Houston’s East End.

Starbucks has long given the image of a very community supportive and environmentally friendly company.  One glance at the “Responsibilities” section of Starbucks’ website is enough to see a list of “green” commitments and supported community programs.  In keeping with these stated commitments, Starbucks recently opened a new “community store” on the east side of Houston.  These community stores are different from the run of the mill Starbucks in that they are ‘profit sharing’.  Depending on how well the community store performs, profits will be given to AAMA, the Association for Advancement of Mexican Americans.

From a business point of view, a large chunk of Starbucks’ business strategy is being a very friendly and green company.  In that respect, these community outreach programs are a great way of killing two birds with one stone:  Starbucks upholds its claim to stated social responsibilities while gaining exposure to new markets, in Houston’s case the Mexican demographic, without drowning people in ads.  Of course, it may not be the most attractive option in terms of profits, but it could be argued that it is an investment that will help the company’s customer base to grow further on down the line.

This community store program is a recent concept for Starbucks and is in the pilot stage.  There are already two other stores, one in Los Angeles’ Crenshaw neighborhood and the other in New York’s Harlem neighborhood.  These two stores, opened in 2011, have already generated $245,000 between the two of them.  How favorably those results are in the eyes of Starbucks management remains to be seen, but the fact that they opened Houston’s community store implies we may see more pop up later.

It’s programs such as these that enhance Starbucks’ image and sets it apart from other coffee stops.  Whether or not we can forgive Starbucks for its overpriced coffee is another matter entirely.

Kaplan, David, (2012, September 25). Starbucks sweetens the pot. Houston Chronicle.

Raji, Bayan, (2012, September 25). Starbucks designates profit-sharing community store in Houston. Houston Business Journal. Retrieved October 4, 2012, from http://www.bizjournals.com/houston/morning_call/2012/09/starbucks-announces-third-community.html

Merging or dying

This article is about surviving in aerospace industry. Merging or dying? It is important to decide we keep walking alone or get a company. Merging is one of a way to be better or survive. We could say merging company is a takeover. However, it is planned and has a better future.

Aerospace is one of many biggest industry and also really difficult to survive. On the other side, it also is a stop for being losing behind and closer to bankruptcy. By merging to create the largest aerospace company, European Aeronautic, Defence & Space Co. (EAD) and BAE Systems Plc (BA) they want to challenge Boeing Co. (BA).

Merging with EADS would shield BAE’s revenue from defense spending cuts in the U.S. after the nation ended its war in Iraq and the war in Afghanistan winds down, S&P Capital’s mode. On the other hand, EADS is probably looking to take advantage of BAE’s low valuation and even out its exposure to the military and commercial markets

They are trying to improve the industry’s worst operating margin and a near record-low valuation. Growing firm also means merging to be better. The new company would have some positive point for investor and stronger in their own industry.  Their goals are

- Their annual sales could be almost $100 billion.

- Mix of sales from civil and defense operations, as well as a more global reach spanning Europe, the U.S. and Asia.

EAD and BA are going to be one solid and strong company because they are able to see positive features from both sides.

- Low valuation and even out the exposure to the military and commercial markets from BA.

- EADS would shield BAE’s revenue from defense spending cuts in the U.S. after the nation ended its war in Iraq and the war in Afghanistan winds down.

- Buying BAE would also help EADS reduce its vulnerability to swings in the commercial-aircraft cycle.

A new combination will be more competitive with Boing by creating benefits including cost savings and new business opportunities

Reference: http://www.bloomberg.com/news/2012-09-14/eads-bae-doubles-down-on-missed-confidence-real-m-a.html

Introduction

I am a candidate of master of science in accounting. I will graduate in December, 2012. I got my bachelor degree in Economics major. I worked for a forwarder company in 8 months. I can do well with numbers and details so I think I'm suitable for accounting. In my opinion, we can get to know to each other, to share our experience, and to express our own opinion via blog. It is a bridge that connects students and professor in term of knowledge and business wise.