June 2006
Management

By Sujit Mundul

Sujit Mundul

Studies of the case histories of failed acquisitions uncovers the window to a process often more opaque than transparent. Quaker (or, rather, Smithburg et al.) made a mistake; Snapple lost three-quarters of its value under Quaker. Sony made mistakes; Sony took a $3.2 billion write-off from its acquisition of Columbia Pictures. And the Saatchi brothers, brilliant in the business of advertising but bereft of logic and intuition in the business of acquisitions, made mistakes. Examination of these mistakes can give us a good insight on mergers and acquisitions.

Why is it so difficult to realise synergies and create value? Jean-Marie Messier used to run a utility service in France. That was before he stepped into the entertainment business by snapping up companies such as Seagram (bringing universal Studios and Universal Music), pay-TV group Canal Plus, mobile phone group Cegetel, USA Networks, Houghton Mifflin, and an assortment of phone companies, software developers, and other multimedia properties. The master plan: combining entertainment content and wireless distribution to create a powerful vertically integrated multimedia giant. Unfortunately, the vision was grander than reality, and the merged entity could never generate the synergies behind the deal, leading to billions of dollars in shareholder value being destroyed.

Synergies - a combination of assets that create more value when together than separate - come from cost savings or revenue enhancements. For example, Boeing using McDonnell's underutilised lines and tool-making capacity when those companies merged in 1997 to Eaton's consolidation of plans and products following its acquisition of Westinghouse's Distribution and Controls business in 1994, cost synergies are often essential to the strategic logic of a deal.

Executives sometimes try to active revenue enhancements in an acquisition by combining complementary assets. For example, when Unilever acquired Ben & Jerry's Ice cream, it brought a worldwide distribution network, expanding the markets open to Ben & Jerry's.

All synergies are not created equally. The first thing one must remember about synergies is that they are almost always much more difficult to realise than they appear. The more significant is the synergy potential, the more difficult is the challenge. When the synergy potential is modest, as it might be if two companies share few activities or customers, achieving these benefits will be relatively straightforward. As synergy potential becomes progressively more encompassing, the complexity of reaching the pot of gold increases.

Executives sometimes seem to forget that cost savings materialising three years after an acquisition are not the same as immediate savings. Synergies that are difficult to attain, and hence will take longer to realise, are not worth as much as those that are more immediate. Synergies do not happen without cost - downsizing expenses, time spent on coordination and interaction to realise synergies, additional training and relocation costs, and higher overhead during integration. These are not the only costs associated with mergers, but are the ones most directly related to achieving synergies.

Synergies sometimes may become negative. Sony's acquisition of Columbia Pictures was expected to yield synergies, but it didn't. The reason behind it: the hardware and software sides of the business had different motives and cultures. The real issue was who would compromise for the other? For example, despite having a huge catalog of titles, Sony was unsuccessful in making its digital audio tape (DAT) and minidisc formats stick in the U.S. This failure was reportedly due in part to the fact that Sony's software division was afraid of the potential for piracy that digital recording technology presented. Coordination problems between the hardware and software sides of Sony were exacerbated by fundamental differences in pay, perceived work ethic, and even location (hardware was handled in Japan while the software in New York). Even in 1998, Sony Music Entertainment resisted Sony Electronics' desire to manufacture portable MP3 playback devices. This hesitation allowed new competitors to emerge both in the MP3 playback device market and in the digital content market.

How does one know if an acquisition is wise? Let us look at this first principle: acquisitions should only take place when they advance the overall strategy of the company in compelling ways. CEOs must be able to convincingly say, "By making this deal we will improve our competitive position in the marketplace." The second test is whether the combination of assets will create more value than it destroys.

Given that negative synergies are common, how will an acquisition overcome its drawbacks to generate positive benefits for your company? In essence, passing the value creation test requires the realisation of cost saving and revenue enhancements in excess of all the costs involved in the deal. Key questions to ask are: how will you as a corporate parent generate the expected synergy benefits, and in what ways might you destroy value? How would you minimise those costs? The value creation test provides a rationale for demerging as much as it does for merging.

Is the acquisition justified? There should be absolute clarity within the organisation on the purpose of the acquisition and why it's important.

Successful companies develop critical core competencies that drive their competitive strategy. In a similar way, successful M&A companies must develop core competencies that make them superior acquirers, something that is difficult to do when each acquisition is considered a unique event.

The appropriate strategy for any company is one that is tailored to its own capabilities, people, and overall competitive strategy.

(Mundul is CEO of Standard Chartered Bank Nepal Ltd.)

Don’t bother to Motivate Others: Motivate yourself

By Jwolit Budhathoki

Motivation is the most common term heard in management world. Most managers today are equipped with different groundbreaking ideas of motivation. The main focus of every organisation today, is to maintain highly motivated workforce who are committed to the vision of the organization. Managers, mostly HR managers, spend more than 70 per cent of their time in understanding others and developing different policies and strategies to overcome various potential HR problems. They conduct different motivation surveys, analyse data, draw different conclusions and develop policies and strategies accordingly. But in this process of maintaining motivated workforce, managers should not need to bother to motivate others; instead they should try to motivate themselves.

There are different motivation theories and models developed by different scholars around the globe. These theories are proven to be of immense importance to the managers. Different theories are applied by different managers in different organisations, on the basis of their preference for particular theories. Some mangers have moved one step ahead and developed their own theories and models according to their organisational context. But, whatever may be the theory, we always think of applying them to subordinates or fellow workers i.e. the ‘others’ aspect is always attached with it. There are very few people who think of applying these theories and models to themselves. But, the main idea of these theories is not to adopt them exactly as they are and apply them to others. We can take example of one of the all time popular theories of motivation, ‘Maslow’s Hierarchy of Needs Theory’. It explains that people have needs that appear in hierarchy, and people move towards fulfillment of higher needs once lower needs are satisfied. If we adopt the ‘Maslow’s Hierarchy of Needs Theory’ as it is and try to apply them to others, we will spend our whole life trying to understanding others, identifying the level of hierarchy the person belongs to and may end up being a psychologist. If the workforce is too large, simply forget it. And we will remain trapped inside the pyramid of Maslow. If we practice this on ourselves what will be the theory’s effectiveness? In fact, this is the easiest solution and the certainly the most effective. If we try hard we will be able to know ourselves better than anybody else. So, by an extreme self-assessment we will be able to create our own hierarchy on the basis of what we value most and construct our own pyramid, which we can even rotate if necessary. This will also enable us to think outside some pre-set boundaries. We will easily be able to know what needs are satisfied, what are yet to be satisfied and can set our target accordingly. Whatever may be the theories, whether it is ‘David McClelland’s motivational needs theory’ or ‘McGregor XY Theory’ or ‘Herzberg motivators and hygiene factors theory’, the notion remains the same. If these theories are applied to ourselves, we will find that motivation is not as complex as it sounds.

Every motivation theorist and behavioral specialist agrees that motivation is driven by needs. So, instead of identifying the needs of hundreds and thousands employees and giving them an external dose of motivation, why not leave this job to them when they can create their own fuel and drive their life forward. And this is possible only through self-motivation. The crux of self-motivation lies in four factors: Target, Self-Assessment, Effort and Positive Attitude. The first step in self-motivation is to have an objective or target, which gives direction to our actions. It is the target, which tells us what we want to become and where we want to go. Another factor, which is very crucial is to have self-assessment. Self-assessment helps to identify the fuel that drives us, so that we can keep on moving. It includes identification of different needs, arranging them in order and maintaining the alliance of needs with overall target. Extreme Self-Assessment helps us to discover the unexplored part of self and might give an entirely new dimension to our life. Effort is the factor that makes everything we discuss possible because effort initialises actions. Without effort, target and self-assessment become ineffective. At the same time, the most important thing is to have a positive attitude. And to maintain positive attitude it is necessary to develop the capacity to accept failure as the part of the process. The main enemy, which thwarts self-motivation, is when there is lack of a positive attitude. We should be capable of starting afresh from any point in life. That’s why attitude is labeled as ‘everything’.

The main idea here is not to underemine the importance of any motivational practices, which are proven to be quite successful in the present corporate world, but to shift the focus from others to self. Understanding others has always remained the most complex aspect of every organisation. But when it is about us, it immediately turns easier as it avoids guessing games. Every person knows what motivates him by slight self-assessment. And by aligning the self-target and organisational goal it creates a win-win situation for both. It is a fact that an unmotivated person can never motivate others. To be an effective leader, one should be able to pull people rather than push them. External motivation will be like pushing people to perform towards achievement of some goals whereas self-motivated leader will be able to pull people by acting as a role model. Organisations today are spending huge amounts of resources in terms of time and money to conduct various motivation surveys and research. The practice of self-motivation at every level of organisation will trim down these costs drastically. The job of the managers will then only be to initiate the need of self-motivation for each individual and make it a part of their organisation culture. So why bother to motivate others? Motivate yourself.

(Budhathoki is doing his MBA in Ace Institute of Management)

"Emerging TRENDS in Tourism"

By Sunil Tandon

Sujit Mundul

The good thing about tourism in Nepal’s that it rises from its ashes like the Phoenix. Mention Nepal and images of the Himalayas come to mind, besides it offering a unique cultural heritage, artistic monuments and exotic wildlife. Nepal was the media highlight with tourism having seen the lowest ebb recently with most hotels/industry writhing under its impact.

Tourism is now showing signs of revival and the perception of people is changing with the positive word-of-mouth spreads underlining the commitment and effort of the people to recover from the tarnished image.

The marketing possibilities are innumerable with the core of the issue being true to yourself, true to your customer and focusing on the essentials without being impractical.

This radical change can be brought about by taking the right initiatives in the right direction .Where we are and where do we want to be? In my opinion we need to focus on TRENDS.

TRADITIONALLY, Nepal has seen the swift revival of business as quickly as the Phoenix. The country has lots to offer for people with varied interests, with its natural, cultural, and religious diversity.

RELATIONSHIPS are already in place with the world’s two greatest emerging economies flanking it, by the sides. A little effort by the global powers (FDI), stepping on the travel advisories shall pave the way to recovery. Now is also the opportunity to show the world that Nepal and its people value relationships and despite being at odds internally, the country has always given comfort to its visitors. (Not a single tourist has ever been affected.)

EXPECTATIONS of the traveller needs to be understood and offered a package that provides value for money, capitalising not on the guest, but on the new opportunities. We usually falter when it comes to knowing the NEEDS of the customer. There is a NEED to understand that the perceived value to a guest, may not be what we have understood it to be and we may end up – flogging a dead horse.

This understanding can be achieved through DETAILED analysis and evaluation of the market-segmentation, simply being practical, putting ourselves in the guest’s shoes and thus satisfying the desire of the guest. This shall benefit us and we shall be able to achieve the desired results.

Now lies the question of offering a SOLUTION. Once we have scientifically answered the questions of who, when, what , where and how , we through a conscientious effort, can sustain our business, thereby offering SERVICE with a SMILE.

If we are serious and ponder over our role of the government, (the policies and concessions to the industry), the tourism associations, civil society’s role, our marketing strategies, and addressing branding issues , without "Much ado about nothing", there shall be no looking back and we shall glide like the Phoenix, leaving behind no trace of even the ashes.

(Tandon is Director-Sales & Marketing, Soaltee Crowne Plaza)