Spring time is here and Easter is just around the corner. The sight of an Easter Bunny around town is sure to get children excited about the basket of goodies that he’s bringing, but that same bunny reminded us about a recent project. As we looked at the bunny’s “hopping,” we thought back to a carve-out and merger project when we were continuously faced with the question, “How many hops should we take?”
Situation: We were advising our client on a potential acquisition of two companies—we’ll refer to them as Company A and Company B. Due diligence had been completed on both organizations, evaluating the cultures, missions, business strategies, and management capacity to execute the complex integration process. Our client had decided to proceed with the acquisitions, and Company A was to be combined with Company B to form NewCo.
The Kicker: Company A was part of a larger organization. Its Parent company was divesting or selling the business unit, Company A, which needed to occur prior to Company A merging with Company B.
We were quickly reminded of additional complexities that arise from having a Parent involved, a third key stakeholder. After reviewing the situation, it was decided that the integration would be broken out into 3 distinct phases or “hops:”
- Separation – the activities or projects required to separate a business unit or division from its parent company and enable it to function on its own (separating Company A from Parent)
- Integration – the activities or projects required to combine the two merging organizations so that they operate as one (combining Company A with Company B to form NewCo)
- Optimization – the activities or projects that streamline the merged entity’s processes (making NewCo operate even better by leveraging synergies and efficiencies that likely motivated the original transaction)
As members of the IMO (Integration Management Office), we were charged with evaluating the current and future state of all processes and technology that needed to be integrated. While the goal was to integrate and optimize all aspects of the business, the challenge was determining how many distinct phases or “hops” were required.
Let’s say one of Company A’s processes was previously carried out by resources at Parent. In replicating this process for NewCo, how many hops should be taken? Should we take 2?
- Stand this process up for Company A to operate on its own
- Integrate the Company A process with the Company B process to create the NewCo process
Or, does the IMO recommend integration in 1 hop?
- Set up a NewCo process that Company A and Company B can both begin to use immediately
There are many variables to consider when evaluating both options:
- Timeframe – how fast do we need to be on a single process?
- Integration budget – how much will the two options cost?
- Resource capacity/bandwidth – what is the effort required by the two options?
- Total hops being taken across the organization – additional steps may contribute towards “integration fatigue” (similar to the fatigue a child might feel after too much Easter candy)
The Outcome: In the example above, Company A’s HR Helpdesk was operated by Parent. As these employees remained with Parent post-transaction, a lack of these resources drove the business decision to hop immediately to optimization. NewCo defined its ideal state HR helpdesk from a people and process perspective, and when the two companies integrated, it was immediately set up with Company B’s employees in this fashion. All three integration phases were combined into one hop, resulting in a quicker, more efficient transition.
As a general rule of thumb, the IMO should be pushing for fewer hops where it makes sense while considering the above variables. Usually, fewer hops will mean a quicker and less expensive transition that puts fewer burdens on the employees. On the other hand, the IMO must consider the projects across all functions in the company, and they may have to advise the team to slow down. Unlike the Easter Bunny, employees have other ongoing responsibilities and can’t spend all of their time “hopping around.”