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During mergers and acquisitions the customer is seldom at the centre of thinking and decision-making. Consequently, in growth-oriented deals, it is not uncommon for top-line revenue benefits to fall well short of expectations.

In M&A, the opportunity to develop a more customer-centric organisational culture is often overlooked even though it would play a significant factor in protecting and growing revenue, as well as reducing costs.

 

Move from an internal to an external focus

Integration can take on a life of its own. While organisations are focused on bringing everything together internally, deciding on who and what is in and out, and dealing with operational and cultural issues, leaders can take their eye off running the existing businesses and lose sight of their customers. Service takes a back seat while staff are looking after number one, which makes the organisation vulnerable. It doesn’t take long for competitors to flock and grab market share while customers size up what’s in it for them and potentially leave.

It seems obvious that an upfront conscious concern to get it right for customers will pay dividends – but too often this gets bumped off the priority list of well-intentioned but internally focused project teams. Integration always takes longer than anticipated and those making operational decisions may not fully consider or understand their impact on customers.

Sometimes that’s because of the need for speed, with leaders opting for the known solution over what might ultimately be best for customers. Getting things done efficiently is essential and being effective is vital; this entails making customer advocates central to the decision-making process and ensuring they have a loud voice throughout integration.

All too often when the newly merged organisation finally comes up for air, it can find that its external world has changed; customers don’t like what they see and have made a choice to go elsewhere. Don’t forget that the customer may have chosen the target company over the acquiring company for good reasons in the first place and they don’t like feeling like a hostage if they are locked into contracts.

As well as benefiting customers, which ultimately benefits the business, experience also shows that focus on the customer can be the uniting force when staff on both sides are looking for direction.

Of course, customers are considered in due diligence but too often it is through an internal lens. Potential buyers review the sales plan, check out the list of top customers, pour over the revenue and profit numbers by customer, identify key relationships, look at the pipeline of prospective customers, and consider the potential upside to their business. What they tend to do poorly is look at things through the eyes of the customers.

Create more customer value

The M&A endgame is to create more value. Dealmakers know what additional monetary value they expect to accrue to the shareholders but they are a lot less clear on what additional value the new entity will create for customers. They have a theory that is quickly put to the test by internal and external customers who want to know the WIIFM (what’s in it for me).

So what is customer value?

The somewhat vague concept of value can be considered a cost-benefit analysis. When a customer perceives that the benefits of doing business with an organisation outweigh the costs, they will perceive they have gained value and vice-versa.

One of our strategic business partners, Dr Ian Brooks, coined this simple value equation:

Value = Benefits – Costs

The cost is not just the price that customers pay to do business with a particular organisation. The non-financial costs of time, effort, and emotion are often more important to them than the financial costs. Customers will happily pay extra for speed, convenience, ease of use, prestige, comfort, aesthetics, peace of mind, reassurance, and so on. Even if the benefits remain the same, being fast, easy, and reliable adds value.

The opposite is also true. Cultural factors such as excessive cost cutting, bureaucracy, information hoarding, and silo mentality can increase the effort and emotional costs that employees pay, which results in them being slow, unresponsive, unreliable, and difficult for customers to interact with. These, and all the other negatives that can creep in during an M&A, destroy customer value.

To your success,

Linley Watson
Australasia’s Authority on M&A Culture Integration