Could it really be that simple?
That's the second question I asked Tom FitzGerald, resident expert in corporate transformation. Tom's one of those guys you'd love to hang out with, just for the opportunity to tap into his gray matter over a couple of Guinness Extra Stouts at a local pub.
His personal elevator speech is simple: "By education, a physicist. By birth, Irish. By instinct and experience, a business catalyst."
His advice... the equivalent of a 2x4 between the eyes.
Just when you think you've got your strategy nailed and you've eked out all the profitability you can, Tom walks in and shows you all the easy money you left on the table (or inconveniently hidden away inside one of your business silos).
Now that you know Tom, here's the synopsis of my recent interview:
John Fox: With all the focus today on exit strategies and corporate M&A, why do 60 to 80 percent of acquisitions fail? That's quite an indictment on all the players. What did they miss in their due diligence?
Tom FitzGerald: In better times, McKinsey calculated that only 23 percent of acquisitions have a positive return on investment. Unfortunately, things are much worse now.
The cause is not poor due-diligence work; the audit of past results is usually done well. Rather, the abysmal failure rate is caused by what the due-diligence does not address at all.
JF: What did the M&A/Corp. Dev. people miss, then?
TF: It's not that they missed it; they just didn't have a way to measure it.
The "it" I'm referring to is the "people" end of the business, the soft organizational stuff, the stuff that is not supposed to be measurable, the stuff that only inspired leaders can deal with.
JF: But even if I am an "inspired leader," I still need a roadmap. What does it look like?
TF: To understand that you have to scratch through all the layers, all the way to the core.
When one looks at the root causes of corporate performance, the eye is drawn first to strategies, processes, procedures, machinery and such. However, a moment's thought shows that the effectiveness of all of these is driven by something else: the management systems the company uses. If we look even deeper, we see that the effectiveness of these is caused, in turn, by something else again, something that might be termed the "operating dynamic" of the organization.
Or, its "will to compete."
JF: I love that term. I can get my head around "will to compete."
TF: This will to compete is the ground and root cause of all corporate performance. Its effect can be great or small, positive or negative. It drives success, or stagnation or failure.
In well-functioning businesses it is, of course, positive. But almost always, it is much less, much weaker, than its potential. However, in some instances it can be great, vastly more powerful than the sum of the leaderships of its managers; a powerful synergy is evoked.
When that happens, you have a world-class company, one that succeeds in hard times and flourishes in good. In such a company managers perform beyond anything they could be expected to do elsewhere.
But when the will to compete turns negative and stays that way, it destroys the company.
JF: Knowing you and your team, Tom, I'm assuming you must have discovered a way to measure this soft stuff.
TF: One way, of course, is to interview extensively in terms of the 15 drivers that comprise the will to compete. This was our initial process begun in 1980. But it is cumbersome and fraught with error and unconscious spin.
Since 1985 we have used a survey called "The Corporate 360o" (this is now on the Web). It asks managers and supervisors (it is not designed for workers), in 50 different ways, for their perceptions of the organizational forces that are at work within the company, driving performance. It takes only about five or 10 minutes.
Because perception is reality when it comes to organizational forces and human behaviors, managers will act and react as they perceive these forces to be. They respond to the survey in the same way. Their opinions are de facto accurate. (It is our experience that managers seldom lie. Certainly, front-line supervisors -- caught between the rock of senior management and the hard place of reality -- want their perceptions known and their opinions heard. They answer truthfully.)
The individual responses are passed through a model that generates a report of about 30 pages that surrounds a Balance Sheet and a P&L statement. Each line item is scored in numeric and, for simplicity, in alpha terms. Each line item is then expanded with definitions and expressed in ways that essentially elicit statements of corrective action when that is needed.
JF: And the net result upon acquisitions?
TF: Once detailed measures are available, the elephant becomes visible in all its parts. Once it is visible, it can be changed and harnessed. Improving it by even 20 percent has been shown in large scale studies to trigger profit improvements of over 40 percent.
© 2011 John M. Fox. All Rights Reserved.
John Fox is the Founder and President of Venture Marketing, a B2B consulting firm that helps business owners get their sales and marketing un-stuck. For more, follow John on LinkedIn.