Management of the acquired firm sees the transaction as a way to monetize or cash in on the hard work of many years. If integration is successful, key senior executives may join the C Suite of the parent—significant potential value for some key individuals.
The transaction is dilutive, defined as “causing a reduction in the value of a shareholding due to the issue of additional shares in a company without an increase in assets.”
The parent has acquired several firms over the years and has assembled a long-standing team to work with acquired firms to ‘smooth’ the integration into the organization. The (Established) team has managed over 10 transactions of this nature. On the contrary, the acquired firm has no experience in this area. An ‘ad hoc’ (New) team has been assembled to develop a go forward plan.
Members of the parent’s team are senior executives and compensated with a salary, bonus and equity participation. Member of the other team have signed multi-year non-compete agreements upon expiration equity will vest. Management believes that both parties are incented for this to transaction to be successful; however, it is not clear to members of both teams how important success is.
Keep in mind that according to some pundits, most deals ultimately fail. “According to Harvard Business Review, between 70% and 90% of mergers and acquisitions fail. It’s a shocking number, and the one thing all have in common is people. Mergers and acquisitions fail more often than not because key people leave, teams don’t get along or demotivation sets into the company being acquired.”
A major consulting firm has held workshops for both teams in an attempt to mitigate the above statistics.
Finally, both organizations have global operations and both teams are composed of a diverse set of individuals representing the breadth of operations and social interest of their divisions.
Over the past five years, the industry has been consolidating. Direct competitors include the sector leader who is dominate in most areas and the number three player who is increasingly aggressive. Everyone in the organization feels that as the number two player in the daily pressure is immense.
Moreover, product/service price points continuously fall and the competition for deals is intense. There is no indication of this changing and buyers will chase the lowest price. Customer loyalty is low.
Finally, automation is decreasing the need for employees. While sector revenue has grown substantially, its employee base is down by 18 percent in the last five years.
Rules of the Game
Both teams should reach agreement in each of the three categories; however, each can have a different value. Moreover, the team is required reach agreement and offer all three metrics at the same time.
You can use any or all of the information in this scenario position paper during your interaction with the other player. Moreover, you can use your personal experience as well as other thoughts to craft your strategy.
Finally, you can exchange any information during this process, including ‘miss-information’ and even lie although you cannot reveal your sheet of performance metrics.
Don’t forget to keep in mind the Organizational Traits and the Team Key Performance Indicators Your Team Selected in the Pre-Game Survey.
Definition of Performance Metrics
The definition of the Performance Metrics is the same for both Players.
- Performance—the extent to which the team meets it success goals, measured by the Key Performance Indicators (KPIs) each team has given
- Cost—this is the cost to the new (merged) company for completing the successful merger. It is measured not just in monetary costs but other metrics such as revenue grow/lost, turnover in the acquired firm, social impact and other KPIs each team has been given·
- Trust—the willingness of each organization to work together going forward as the new company and not the old one with a new division. It is measured by KPIs and other metrics in the game at the personal level
Each Team’s Goal is to Maximize Its Set of Performance Metrics.
The term, “Maximize their Set or Portfolio of Performance Metrics” means to obtain the Best Overall. It does NOT mean that the Team is to necessarily attain the highest number in all categories but that the Sum of the three is the highest.
Economists call this the Efficiency Frontier because the set of optimal portfolios (three in this case) with the highest expected return for a defined level of risk. Other portfolios are sub-optimal where the risk-reward curve is higher. In other words, the risk is too high for the rate of return expected.
Note: this is generally not available until and number of teams have played this game and their results reported.
As stated, the goal of each team is Maximize Its Set or Portfolio of Performance Metrics. Accomplishing this will lead to greater organizational performance and individual rewards such as bonuses and promotions, not to mention job satisfaction and overall employee morale.
Do Not Forget to Complete Your Organization and Team Traits as well as KPI’s in Accordance with the Role You/Team are Playing in the Game.
Organizational Safety Culture
Many view organizational safety from an OSHA (US Department of Labor, Occupational Safety and Health Administration) perspective. On the job ssafety is critically important and not just for those working around heavy equipment, warehouse, transportation etc. An individual can fall down stairs or even find themselves in ‘active intruder’ situation.
However, a more robust Organizational Safety Culture model originated in the nuclear power, health care and more recently in the oil and gas sector is available. Today, a Safety Culture is widely recognized to meet the following criteria far beyond, Slips, Trips, and Falls.
It really is about respect for all individuals regardless of their role in the ecosystem. In other words, providing a safe (in all aspects) workplace.
For purposes of this game, the following definition of Safety Culture, aka Culture of Safety is taken from The Bureau of Safety and Environmental Enforcement (BSEE), an agency under the United States Department of the Interior established in 2011 after the Deepwater Horizon incident.
“The core values and behaviors of all members of an organization that reflect a commitment to conduct business in a manner that protects people and the environment.” Nine safety culture characteristics are associated with this definition, and outlined below,
Leadership Commitment to Safety Values and Actions. Leaders demonstrate a commitment to safety and environmental stewardship in their decisions and behaviors;
Hazard Identification and Risk Management. Issues potentially impacting safety and environmental stewardship are promptly identified, fully evaluated, and promptly addressed or corrected commensurate with their significance;
Personal Accountability. All individuals take personal responsibility for process and personal safety, as well as environmental stewardship;
Work Processes. The process of planning and controlling work activities is implemented so that safety and environmental stewardship are maintained while ensuring the correct equipment for the correct work;
Continuous Improvement. Opportunities to learn about ways to ensure safety and environmental stewardship are sought out and implemented; Environment for Raising Concerns. A work environment is maintained where personnel feel free to raise safety and environmental concerns without fear of retaliation, intimidation, harassment, or discrimination;
Effective Safety and Environmental Communication. Communications maintain a focus on safety and environmental stewardship;
Respectful Work Environment. Trust and respect permeate the organization with a focus on teamwork and collaboration; and
Inquiring Attitude. Individuals avoid complacency and continuously consider and review existing conditions and activities in order to identify discrepancies that might result in error or inappropriate action.
The Goal of the Game is to arrive at an Implementable Strategy for the Integration of the new organization into the parent firm.