Solving the 4x Problem in Outsourcing, Re-Orgs & M&As
Solving the 4x Rule or problem (outsourced projects take 4 times as long as projected) with freelancers and independents has a lot to do with what makes acquisitions and re-org’s work, and then again, it ties into what makes or breaks blended families. Have you ever thought of how those all link together? Buckle up and keep reading, the solution involves a elephant in the room and it may surprise you.
In the last blog we noted that outsourcing has a better chance of exceeding your time and cost estimates, than it does of saving time and money. More than 50% of outsourced projects fail.
If you look at integrating mergers and acquisitions, which is related to working with independents, it turns out that mergers have a failure rate of anywhere between 50 and 85 percent. One KPMG study found that 83 percent of these deals hadn’t boosted shareholder returns, while a separate study by A.T. Kearney concluded that total returns on M&A were negative. Re-orgs aren’t necessarily a winning solution either.
Here’s something as equally staggering to me. It’s from the Harvard Business Review, which cites that companies spend more than $2 trillion on acquisitions every year. HBR also points out that acquisitions that have a failure rate somewhere between 70% and 90%. And “The success or failure of an acquisition lies in the nuts and bolts of integration. To foresee how integration will play out, we must be able to describe exactly what we are buying… The best way to do that, we’ve found, is to think of the target in terms of its business model.”
The staggering part for me isn’t the loss of money. Well actually it is some, but what’s really staggering to me is the total blindness to the elephant in the room… on both sides. So what’s the elephant I’m referring to?
Before I spill the beans, take a quick look at mergers and acquisitions at the marriage and family level. How well do you think “blended families” do in terms of successful outcomes? Any better than business M & A’s?
It turns out that blended marriages and business acquisition outcomes have a lot in common. According to Dr. Donald T. Saposnek, a clinical child psychologist and child custody mediator, the rate of divorce in second marriages in which there are kids from a first marriage is about 85 percent in the first year and 60 percent after that. There is also growing evidence that the children actively contribute to these breakups.
So outsourcing fails to deliver faster or cheaper more than half the time. Acquisitions fail more than half the time, and so do blended families. What a pattern, and isn’t it interesting that they all involve working with and including “outsiders?” By-the-way, did you notice that last sentence from the blended family paragraph above? The one about kids actively contributing to breakups of the “merger”.
See here’s the deal about this whole area. Yes there’s absolutely a business and skill fit requirement to making integration of outside labor, resources or entire companies work. But if you step back and look at the elephant in the room, or if you can’t see that, just look at the research on blended families, you quickly realize it’s all about people and moving them from outsiders to engaged and productive. At the end of the day there’s a person who needs to contribute, to be invested, to deliver, to be involved, to make it work… versus hang-back or worse, sabotage the outcome. And most of the time the people side of the equation, the integration of outsiders, gets poorly attended to… and it shows in the results.
And people need just a few things to be successful, but in blended business or family situations the list of what’s needed for success is very critical. And that list gets even more critical, because the person in the blended family, the acquired company, the newly reorganized department, and the outsourced project, doesn’t have a lot of investment in the long term future of the company doing the acquiring… in fact they may hope it fails.
Ok so I’m being long winded again. So what do people need in these situations? The video below captures some of the basics (a plan, a sense of what’s priority, how much time is left and a performance scorecard). It’s short, be sure to watch it before finishing the blog.
But the other thing you need to solve the 4x problem or to ensure a successful merger, is to build a new environment, a new momentum, that hasn’t existed previously. You do that by:
- Directly and factually answering the questions of “Why?” and “What’s in it for me?”
- Building short term tasks, refinements and wins
- By way of clear plans,
- High visibility on the accompanying thought process,
- Tight feedback loops on results with accompanying adjustments,
- Lots of recognition and laying down a baseline of appreciation for the value of current processes, investments and past accomplishments,
- A change process that starts slowly, with low risk and lots of effort extended to listen, understand and include.
Just think of integrating kids into a new family they don’t want to join and you get the picture. And while you’re thinking about that, take a look at ManagePro, it’s the one tool I’ve found that gives me access to all the tools to emphasize what’s good for people, while still handling all the strategy, business and project issues involved in working with everything from outsourced labor to mergers and acquisitions. It is my favorite freelancer and M & A app.
One final thought about this area. The people side also has a dark side. That can range from executives pursuing deals primarily to assuage their power needs, to individuals actively seeking to contribute to the downfall of a merger. Both situations need people around them who are comfortable enough to challenge and confront. Because as Margaret Heffernan asked, “So why do these deals persist? They’re glamorous, high-profile, and make vast amounts of money for intermediaries. They feed CEO vanity and a love of size. They also persist because they are often decided by rank-and-file shareholders, who are those at the furthest remove from the company’s operations. Those with the most power are also those with the least insight.” All of which needs to be guarded against by those balancing both rationality, good business sense and human empathy.” There’s some truth to what she’s writing.
Making outsourcing work requires a tighter connection than provided for internal workers; a higher level of visibility on plans, results, the thinking behind the approach, and attention to the “what’s in it for me?” as well as lots of empathy to ensure outsourcing and acquisitions work, even when all the business alignment and purposing is on target. Want to be more successful at outsourcing, at mergers and acquisitions? You’ve got to address the people side and the “outsider” psychology part of the equation. We help you do exactly that at Executive Co-Pilots, but while we are on the topic, take a look at ManagePro as our favoirte technology vehicle to plan out and manage the outsourcing, re-org and M&A process.