Your three-pronged strategic plan

Rick Dillon

By now, most middle market companies have been through some type of formal strategic planning or strategic thinking process. After tremendous research, I have yet to find a strategic plan that fully integrates a financial plan. And rarely does a financial plan (merger or acquisition) integrate people and processes to fulfill the projected outcomes.

This article is intended to enlighten business leaders of the omissions made in traditional merger and acquisition planning. Expect four separate follow-up articles that will provide detail of a fully integrated strategic plan. Those elements include:

• People
• Process
• Financial Management
• Employee Compensation

Each of these elements begins with effective goal setting. Effective goal setting should be completed as part of the plan from top management to the simplest of laborers. This process should start with each employee’s personal goals and work there way up through the company’s philosophies, culture, direction and overall five-year financial strategy. As an introduction to this concept, a goal setting format follows:

Goal
What do you want?
Example: "I would like to earn $100,000 per year for the next 10 years."

Objective
When you reach the goal, what will you have accomplished?
Example: "Create financial stability" bigger house, new car, etc.

Commitment
What steps need to be taken?
Convert to daily activity, commitments and deadlines.

Accountability
How and when will you measure progress?
Daily? Weekly? Monthly? Annually?

When a financial analyst plans an acquisition or merger, he or she begins by creating a set of goals. Typically, goals are strictly financially orientated. The most common goals address cutting cost, consolidating departments, eliminating people and dropping more profit to the bottom line. Right, wrong or indifferent, the employee’s goals usually don’t line up too well with this strategy, thus creating the employee’s terrible "C" word … "change." What is the first thing that pops into your head when you hear the words "merger" and "change?" If you’re an employee, you hear out-placement (layoffs), which can be the most fearful thought to employees and, if truly executed, the biggest mistake management can make.

The most valuable asset of any company is its people. The ownership group that ignores this fact in lieu of increasing profits will financially stumble and very possibly fall. This begins to answer the question, "Why do most mergers and acquisitions fail to meet their intended outcomes?" Granted, a company does not need, nor will it function well with two CEO’s, two general managers, two production managers or two sales managers. Right? Why not co-managers? Why wouldn’t it work? The questions are not to suggest every merger should retain all the pre-merger positions, but rather to suggest that all possibilities should be considered in the strategic planning process. We can look at big companies as well as small where top executives are "out-placed" after an acquisition, and competitors snatch them up not only for their talent but also for their competitive insights.

The first key element of the strategic "merger" plan should be the integration and homogenization of the people including cultures, core values and philosophy. With this alignment, people will become open to change thereby making the next step of consolidating systems and processes an obvious objective. This is when strategic planning traditionally starts and stops. In and around this process, companies "redefine themselves, develop new and better marketing and sales plans, and strategies." But, the best management-consulting firms stop short with only the people and processes integrated.

Two major elements are missing … the communications and integration of the financial plan and the radio station playing in the employee’s head WIIFM (What’s In It For Me?). Yes, most plans will use revenue as a measurement to motivate the sales and marketing departments, and throughput may be part of the operational plan, but the critical factors of the business rarely are intertwined with the strategy and the employees’ paychecks. This leaves the employees with and unrealistic measuring method. If constructed correctly the critical elements of the business will be defined, measured, and converted into profit in the minds of every employee every day. The employee need not understand the complete impact he or she has on the company’s performance, but the elements that put money in his or her pocket also falls to the bottom line profits of the company. With this approach, the reports used for financial management of the business will change dramatically from the traditional "tax filing" style financial statements used by 95 percent of businesses.

Typical mergers integrating financial performance without dealing with the people or processes is normal. There is a better way. Beat the odds of mediocrity and integrate a three-pronged strategic plan: people, process and financial management with incentive pay. Without a strategy plan and a process to bring the three elements together, the financial gains that were projected on paper by the analysis will not be realized.

This article was written by Richard L. Dillon. Rick is a VERCOR partner, M&A Consultant, business owner, and president of a small consortium of manufacturing and service businesses. Rick can be contacted with your comments at rick@vercoradvisor.com