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CAP: Talent Development

One of the important findings of the research we conducted in the Caribbean Acquisition Project (CAP) is how little was done prior to each of the acquisitions to develop managerial talent.

The reason that there were no more than only one or two companies in the project came from an unfortunate series of failures in the Jamaican financial sector in the early 1990’s. Several companies were taken over by Barbadian and Trinidadian companies in response to tenders that were put out by the government of Jamaica.

At some level, each of the companies was responding to a once-in-a-lifetime opportunity to purchase assets and increase their customer base in a new territory in the region. For each company in the study, there was no well-developed acquisition strategy that they were executing. Instead, they were invited to submit bids, against a particular deadline.

None of the companies involved had a reputation for being facile at executing acquisitions.

Instead, they scrambled to put together their bids and to secure the financial funding and background information to make the deal a reality. This they did successfully, but there were several casualties of this situation that were seen in all the companies studied.

Once the companies were awarded the right to execute the acquisition, they had to face the difficult question of who would lead the new entity. It was as if it was a case of “be careful of what you ask for, because you might just get it.

Obviously, continuing with the prior management had its risks, even if the company was one of the few successful ones.

The problem was that there were no “spare” executives to lead the newly acquired company, and bringing in a new executive to lead the entity seemed to be a recipe for failure. The responses showed this grim reality. In response to the following questions, the responses received were as follows (on a scale of 0/disagree to definitely agree).

  • There is a process that will reliably develop managerial talent to ensure the success of future acquisitions — 50%
  • There are sufficient policies to allow easy movement of personnel between current and future subsidiaries — 47%
  • There is sufficient talent for the company to undertake another acquisition successfully — 59%

(Due to the small size of the sample, and a promise to protect the confidentiality of the companies in the study, I cannot go into the details of specific examples. )

Suffice it to say, each of the companies, upon further investigation, was found to have neither a succession plan nor a management development program when the acquisition was executed.

Furthermore, there was a considerable difference of opinion within some of the companies studied as to the philosophy to be employed in the post-acquisition on the following questions:

  • Should the new company be left to develop its own culture, or adopt the culture of the new parent company, which presumably is a more effective one?
  • Should the new leadership of the company be from the new country?
  • If a temporary executive is used, who should that person be and who should be the replacement?

There were divergent views on the above, the results being that most companies did nothing at all. In many of the cases studied, this misstep has ramifications even several years later.

The truth is, each company was experiencing the consequences of an underinvestment in its senior management development. This effectively prevented the company from undertaking even a single acquisition properly, from the point of view of its leadership.

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On Caribbean Acquisitions

In 2001-2002 Framework Consulting conceived and executed the Caribbean Acquisition Project, a survey of 7 Jamaican companies that had been acquired by foreign entities. Given the historical failure of mergers and acquisitions to create new value (estimated at between 60-80% of cases), we felt that there was a unique opportunity to take advantage of the number of acquisitions taking place to learn some valuable lessons. Hopefully, the lessons learned could be shared with other companies.

Specifically, we were interested in finding out how companies were planning for the hardest phase of M&A’s — post-acquisition/integration. Many prior studies have shown that the cultural and organizational issues are the most difficult, and the ones that make or break acquisitions. Therefore, the Human Resource function has an important role to play, and our hypothesis was that the way the HR function was used or not used had something to do with the future success of the acquisition.

Several companies were approached — there were ten companies that were thought to be possible candidates at first. Five consented to be surveyed for the empirical part of the study, while informal and public data was gathered on the others. Each of them were outright acquisitions, rather than mergers. (Incidentally, there is a paper from our website entitled ‘Equal/Shmequal: It’s never a Merger of Equals” in which Amie Devero argues that Mergers always turn into Acquisitions.)

Now that I am in the process of writing up the results for publication, I am faced with a mountain of data, and no easy way to classify the findings that were discovered. It’s easily a case of having too many options to choose from, yet the complicating factors do make the choice that much more difficult.

The greatest complicating factor is that it is devilishly difficult, even years later, to prove that a company was successful or not successful based on the practices they used. The number of companies in the study is so small that statistically valid comparisons cannot be made to draw general conclusions. Also, the variety of companies in the study is so broad that direct comparisons are not possible.

While it is true that certain companies are enjoying greater success than others, even the successes have been uneven, and tend to depend on when the line is drawn to determine success. In a small data set such as the one I am working with, it makes things difficult.

Furthermore, the fact that different executives were interviewed for the study meant that while a good deal of useful information was gathered, in several companies there was no consensus view. In other words, the opinions were wide and varied and there is no way to reliably create something like a statistically “average” response for each company.

So, how best to proceed?

At one level there are the basic questions that the study set out to answer, and there is a mix of empirical and anecdotal information to back up the answers derived.

At another level there are the surprises — the discoveries that we didn’t expect. To be rigorous, this means going back and adding the questions in the form of new hypotheses and testing them against any empirical and anecdotal date we can find.

As I go through the process, I’ll share the early results — after all, in the age of blogging, information shared early will help fulfill the goals of the project long before the book for which it is intended is published (in 2007, hopefully).