Mergers and Acquisitions as a Strategic Alternative Mergers and acquisitions can be rationalized in three ways. Companies merge to achieve competitive integration, supply chain movement, and diversification. Competitive integration is done to increase revenue and take advantage of synergies. Supply chain ... [full story]

Realization of Benefits This issue is at the heart of managing value in a merger. The central question is: When the integration is completed, will the acquirer attain the benefits they envisioned in the strategy and rationale stage of the M&A ... [full story]

M&A Completion The initial stages of the M&A process are time-consuming and expensive. In most cases, they involve the most talented individuals in the company. As these individuals are pulled away from their day-to-day responsibilities, business operations may suffer. These efforts ... [full story]

Interim Efficiency Loss All mergers and acquisitions require operational change that may temporarily compromise short-term financial performance. However, shareholder demand for short-term results in the form of increased earnings from the business combination does not wane. It is critical that the ... [full story]

Risks of Mergers and Acquisitions There are three distinct risks to mergers and acquisitions: 1) lower interim productivity, 2) completion, and 3) realization of benefits. Each of these risks can be influenced by many factors. [full story]

Diversification Diversification mergers and acquisitions are combinations of businesses in unrelated industries. One example of this type of business combination is a pickle manufacturer buying a software company. These companies do not compete against each other and are not in the ... [full story]

Buyer Acquisitions Buyer acquisitions produce a competitive advantage by enabling a company to sell to its customers at a lower price. The advantages are lower cost (similar to supplier acquisitions) and better access to materials. To illustrate, let's look at what ... [full story]

Supplier Acquisitions Through supplier acquisitions, margins can be improved by reducing the cost of goods sold. To illustrate, let's look at how a supply chain movement acquisition would improve the cost of production of a hypothetical apparel designer, Ann's Enterprises. The ... [full story]

Supply Chain Movement Supply chain movement M&A is a combination of a company and its buyers or suppliers. General Motors buying an auto parts manufacturer would be an example of a supply chain movement merger. This type of merger allows the ... [full story]

Competitive Integration Competitive integration occurs when companies in the same business—offering similar products and services to the same target market—combine. An example of this type was the merger of Daimler-Benz and Chrysler. Competitive integration mergers and acquisitions reduce the number of ... [full story]

Rationale for Mergers and Acquisitions Mergers and acquisitions can become extremely complex. Transactions require expertise from strategic, legal, financial, and operational disciplines to be successful. Each of these groups may have different criteria for success. There are many cases where deals ... [full story]

External Strategic Alternatives OUR OBJECTIVE in this chapter is to get a deeper understanding of external Strategic Alternatives. These are initiatives that involve tapping outside sources to increase value. Our focus will be on mergers and acquisitions (M&A) and outsourcing—two common ... [full story]

Summary: Reengineering as a Strategic Alternative By now you should have a clear picture of reengineering. This Strategic Alternative has many compelling positive and negative features. There are various instances where reengineering is a viable solution to creating shareholder value. This ... [full story]

Technology Performance Failures Many reengineering efforts do not increase value because the technology that was expected to be the linchpin in the effort does not work. This can happen for many of the reasons stated above. Since employees are depending on ... [full story]

Resistance to Change All humans are creatures of habit, and change is not welcome unless it is absolutely necessary. Doing things differently is uncomfortable and inconvenient for most employees. Just because a new process makes logical sense does not mean that ... [full story]

Lack of Sustained Executive Commitment BPR efforts are difficult to execute and often encounter delays in progress. This tends to test the resolve of the executives who have sponsored the SA. As delays occur resulting from resistance to change, short-term operational ... [full story]

Unreasonable Expectations We mentioned that a distinctive feature of BPR is that it involves large-scale change. Politically speaking, big changes require large incremental benefits to be accepted. Many of these efforts are justified by astronomical cost savings. This creates a vicious ... [full story]

Risks of Reengineering We mentioned earlier that the business cases for reengineering are extremely compelling. Any bank CEO would want to dramatically reduce her cost per loan. Yet, why do BPR efforts fail? There are four major risk points in a ... [full story]

Efficient Resource Consumption Firms can optimize the use of resources by reengineering. Resources are anything that costs money, such as people, materials, and computer time. The loan-granting process can be improved through shifting resources in steps four and five from high-cost ... [full story]

Market Share Enhancement Through Cycle Time Reduction Cycle time is the time it takes to perform a certain process. We talked about how time increases efficiency. Reducing process time helps the competitive position of a business. Competitive abilities improve by reducing ... [full story]

Efficiency A major benefit of reengineering is that it drives down costs. Most reengineering business cases are extremely compelling. The improvement in margins and profitability can be dramatic. To illustrate the extent of cost reduction, let us compare the cost of ... [full story]

Rationale for BPR The justification for BPR is normally found in two areas: efficiency and competitive repositioning. Since these efforts involve a large amount of change, it seems that many BPRs tend to have their value proposition change along with the ... [full story]

Enterprise Use of Technology to Create Efficiencies One of the key drivers in reengineering efforts is the use of technology to create efficiencies in the improved process. This is also the "Achilles heel" of reengineering projects. The success of the entire ... [full story]

Dramatic Operational Shifts When a process is redesigned there is a radical difference in how things get done. The following diagram illustrates the magnitude of the change between the current and target (reengineered) process in a loan-granting function. The current process ... [full story]

Top-Down-Driven Initiative BPR efforts that originate from the higher levels of a business will tend to have greater repercussions than those that begin in the middle management ranks. These efforts are not simple modifications to business processes occurring in the normal ... [full story]

Business Process Reengineering Business process reengineering (BPR) involves radically changing a process in order to increase efficiency. The term was first coined by Michael Hammer and James Champy in their book Reengineering the Corporation: A Manifesto for Business Revolution. The radical ... [full story]

Summary: Information Technology as a Strategic Alternative IT is emerging as a critical means of putting strategy into action. IT distributes processes and analyzes information. Information technology can be divided into three components: software, data, and infrastructure. Infrastructure supports the technology ... [full story]

Obsolescence Many would say that the risk of technological obsolescence is overhyped. Systems and hardware function for years well beyond their intended life span. The risk of obsolescence is related to a system's ability to integrate with other systems. As systems ... [full story]

Experience with Technology Risk increases if a firm lacks experience with a specific technology. If business is not familiar with specific hardware, software, or operating systems, it is likely that the SA will experience timing delays and cost overruns and fail ... [full story]

Adoption Rate Value can only be generated from an IT initiative if it is used. If our hypothetical company National cannot get its employees to buy office supplies on the e-procurement system, then it will not cut its purchasing costs by ... [full story]

Channel Cannibalization To understand the risk of channel cannibalization we have to go back to our retailer who is selling brown leather couches. What if existing customers decided to buy through the Internet instead of through the stores? The customer may ... [full story]

Efficiency Improvements IT can improve cash flow through process automation. Many manual components of processes can be performed through automation that is faster and cheaper than the manual alternative. Many ERP software packages issue checks without any human intervention. One example of ... [full story]