Acquiring Capabilities Through Acquisition: An M&A Case Study in Retail Industry

Introduction

In the rapidly evolving retail landscape, traditional giants like Roo-Tail must adapt and innovate to stay competitive in the digital age. One strategy to achieve this is through mergers and acquisitions (M&A). In this case study, we explore how Roo-Tail, an Australian retail giant, can acquire KiwiklyComm, a New Zealand-based e-commerce platform specializing in advanced data analytics and personalized shopping experiences, to enhance its omnichannel strategy and drive growth.

Roo-Tail: Company Overview

Roo-Tail is an Australian retail giant with operations across the Asia-Pacific region, operating a mix of department stores, supermarkets, and specialty stores. With 12,000 employees and annual revenue of $2.5 billion, Roo-Tail has a strong presence in the market. However, the rise of e-commerce and changing consumer preferences have prompted Roo-Tail to modernize its retail strategy and remain competitive.

KiwiklyComm: Target Company Overview

KiwiklyComm, headquartered in New Zealand, is an e-commerce platform specializing in advanced data analytics and personalized shopping experiences. With 100 employees and annual revenue of $15 million, KiwiklyComm has a strong presence in the New Zealand market.

The company's expertise in e-commerce and advanced analytics makes it an attractive acquisition target for Roo-Tail.

M&A Strategy: Rationale for the Acquisition

The acquisition of KiwiklyComm can offer Roo-Tail several benefits, including

• Enhanced Omnichannel Strategy: KiwiklyComm's expertise in e-commerce and data analytics will enable Roo-Tail to integrate its brick-and-mortar stores with digital platforms, creating a seamless and personalized shopping experience for customers.
• Increased Online Sales: Acquiring KiwiklyComm will provide Roo-Tail with access to an established e-commerce platform and customer base, driving growth in online sales.?
• Technological Innovation: Roo-Tail can leverage KiwiklyComm's advanced analytics and retail technologies to gain insights into customer preferences and behavior, enabling more targeted marketing campaigns and product offerings.?
• Cross-Pollination of Ideas: Integrating KiwiklyComm's innovative culture with Roo-Tail's traditional retail expertise can foster creativity and the development of new business models.

Post-Acquisition Integration Plan

To ensure a successful acquisition and integration, Roo-Tail must carefully plan and execute a post-acquisition integration strategy that covers key aspects such as:

• Culture Integration: Utilize the PROMISE framework to address cultural differences and create a unified organizational culture that supports collaboration, innovation, and growth.?
• Organizational Restructuring: Align organizational structures and decision-making processes to promote efficiency, collaboration, and adaptability.?
• Talent Management: Retain and develop talent from both organizations, leveraging each team's unique strengths and capabilities.?
• Technology Adoption: Implement KiwiklyComm's technology and digital tools across Roo-Tail's operations, driving efficiency and innovation in retail processes.?
• Synergy Realization: Identify and capitalize on cost-saving opportunities and revenue-generating synergies, such as cross-selling, shared resources, and streamlined processes.

Building Capabilities during Post-Acquisition

The success of merging and growing a combined entity depends on effectively developing and managing organizational capabilities. These capabilities can be grouped into four categories using the Capabilities-Quadrant framework. One dimension considers the balance between revenue generation (external focus) and cost optimization (internal focus). The other dimension weighs the need for control against the value of flexibility. By examining both agility-control and internal-external aspects, we can better understand and categorize the various capabilities needed for success in mergers and acquisitions.

Here is the description of each of the capabilities that Roo-Tail may look to develop:

• Cost Optimization Capabilities: Streamline supply chain management, identify redundancies, and optimize resource allocation to improve efficiency and reduce costs.?
• Market Access Capabilities: Develop targeted marketing campaigns to promote both Roo-Tail and KiwiklyComm's offerings, strengthen relationships with existing customers, and tap into new market opportunities.?
• Innovation Capabilities: Encourage a culture of experimentation and learning, leveraging the innovative spirit of KiwiklyComm and the experience of Roo-Tail to develop new products and business models.?
• Functional Augmentation Capabilities: Enhance the capabilities and specific functional expertise of the merged organization by augmenting specialized functional capabilities. Roo-Tail can augment its conventional marketing with Digital Marketing, customer services, and product management with the User Experience (UX) function of KiwiklyComm.

Unlocking New Culture

Creating a suitable environment and culture is essential to enable the development, growth, and sustainability of specific capabilities resulting from an M&A transaction.

To achieve this, the PROMISE framework is utilized, which comprehensively manages the underlying factors that shape an organization's culture during M&A. PROMISE is an acronym for People and professional development, Rewards, recognition, and consequence management, Organizational hierarchy and leadership styles, Management System, Innovation and critical thinking, Strategic Future, and Employee Experience. By using this framework, we can create the right culture and structures needed to support capability development over a long period.

The PROMISE framework allows Roo-Tail to identify constraints and outline necessary actions across seven key elements to building the right culture of growth through M&A:

People and Professional Development:

• Constraints: Limited digital skills in Roo-Tail, leaders in KiwiklyComm do not have large-company experience, traditional vs agile approach differences, strategic thinking vs immediate actions requirements differences
• Actions: Implement training programs to upskill employees and in some cases, augment skills with new or external resources, create programs for senior managers of KiwiklyComm on large-company practices and processes, coach senior managers of Roo-Tail on awareness of how small and mid-size companies are run. Explore possibilities of expanding agile thinking to the Roo-Tail way of working

Rewards, Recognition, and Consequence Management:

• Constraints: Differences in compensation and benefits for employees. Consequence management is not documented in KiwiklyComm. Inconsistent performance evaluation criteria for rewards and recognition, lack of clear incentives for collaboration and innovation
• Actions: Harmonize compensation and benefits over a period of time rather than take a shotgun approach. Develop a performance-based compensation and benefit system that aligns with the merged organization's goals, recognizes and celebrates team successes, and establishes consequences for non-performance. Develop a specific policy on rewards, recognition, and consequence management and instill a framework that ensure adherence.

Organizational Hierarchy and Leadership Styles:

• Constraints: Different leadership styles, misaligned decision-making processes, potential power struggles
• Actions: Establish a unified leadership structure, promote open communication, tune leadership styles based on future requirements, and create a clear decision-making matrix for strategic and key operational decisions. Ensure transparency, and empower middle management to drive change

Management System:

• Constraints: Incompatible management systems, lack of standardized processes, and potential for operational inefficiencies
• Actions: Integrate and streamline management systems, standardize policies, procedures and processes across the organization, and establish clear performance metrics and reporting structures

Innovation and Critical Thinking:

• Constraints: Risk-averse culture in Roo-Tail, rigid structures, and practices exist., Long-tailed decision-making, business focus on stability and cost optimization. On the other hand, KiwiklyComm has a highly innovative and agile culture where the leaders are risk-takers, and the teams experiment at scale and focus on speed-to-market and faster go-to-market strategies.? Limited cross-functional collaboration, resistance to adopting new technologies, risk-averse culture
• Actions: Foster a culture of innovation, encourage cross-functional collaboration, and promote experimentation with new technologies and business models

Strategic Future:

• Constraints: KiwiklyComm primarily focuses on operational goals and objectives with a one-year horizon whereas Roo-Tail analyzes and creates a 3-5 years future strategy. Strategic thinking skills are limited in KiwiklyComm. Both companies do not have the practice of converting the Strategic Future goal into specific strategic capabilities that are required to achieve new competitive advantages.?
• Actions: Get both leadership teams trained on developing strategic capabilities. Upskill leadership teams of KiwiklyComm on strategy skills. Create a shared vision for the merged organization, align strategic goals, and prioritize initiatives that drive growth and digital transformation

Employee Experience:

• Constraints: Different employee engagement processes, career development opportunities, and work environment. Roo-Tail has groupism, influencers, and organizational politicking whereas KiwiklyComm has small team culture without additional influencers outside of the leadership team and does not have groups?
• Actions: Understand and acknowledge the differences.Harmonize policies and procedures, and career development opportunities. Coach the KiwiklyComm leadership team on organizational influence, politicking as well as how to handle groupism and still get the work done.?

Understanding the constraints under each of the seven factors of the PROMISE framework allows businesses to develop specific actions that will create the right culture and drive the right behavior required by organizations to grow and thrive.

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Addressing "P" of PROMISE

People and professional development is a critical aspect of the post-acquisition integration process. Roo-Tail must address the needs of its employees and the employees of the acquired company, KiwiklyComm, to ensure a smooth transition and maintain a high level of engagement and collaboration.?

This section will delve deeper into the "P" of the PROMISE framework to provide a perspective to the reader, focusing on the following areas:

• Skills Differences: Roo-Tail should conduct a thorough skills assessment to identify any gaps between the current capabilities of both companies and the required capabilities for future growth. This assessment will help create tailored training programs and upskilling initiatives to bridge the gaps and prepare employees for new roles and responsibilities.
• Professional Development: Roo-Tail should provide professional development opportunities for employees at all levels within both companies. This can be achieved through training programs, workshops, mentorship, and access to online resources. A focus on lifelong learning and skill enhancement will foster a growth mindset and contribute to the overall success of the merged organization.
• Teamwork and Collaboration: To encourage teamwork and collaboration between the two organizations, Roo-Tail should create cross-functional teams with representatives from both companies. These teams can work together on joint projects, share knowledge, and develop a deeper understanding of each other's strengths and expertise. Additionally, team-building activities and events can help to break down barriers and promote camaraderie.
• Innovation and New Solution Development: Roo-Tail should establish a culture that encourages openness, exponential generation of ideas, experimentation, and courage to take risks. This can be achieved by creating an innovation lab or dedicated space for employees to brainstorm and develop new solutions. Managers should also be trained to foster a culture of innovation, providing support and resources for employees to experiment and learn from failures.
• Cross-cultural Sensitivity: Roo-Tail should prioritize identifying, respecting, and addressing cultural differences between the two organizations. This can be achieved through cultural sensitivity training, workshops, and open forums for discussing and addressing cultural concerns. By fostering an inclusive environment, the merged organization can better leverage the diverse skills and perspectives of its employees.
• Communication and Presentation Skills: To ensure that the leadership team of the acquired company, KiwiklyComm, can effectively work within the Roo-Tail organization, it is essential to provide training in communication and presentation skills. This will enable the leaders to adapt to Roo-Tail's rituals and practices and ensure their messages are clearly understood and well-received.
• Executive and Corporate Skills: The acquired leadership team should be provided with executive coaching and training to develop the necessary skills to work effectively with the executive leadership of Roo-Tail. This training should cover topics such as decision-making, strategic thinking, and corporate governance, as well as provide opportunities for networking and relationship-building with key stakeholders.

In conclusion, addressing the "P" of the PROMISE framework is crucial for the success of the post-acquisition integration process. By focusing on skills differences, professional development, teamwork and collaboration, innovation and new solution development, cross-cultural sensitivity, communication and presentation skills, and executive and corporate skills, Roo-Tail can create a strong foundation for the merged organization's growth and long-term success.

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Recasting Organizational Values

Roo-Tail’s acquisition was aimed to enhance Roo-Tail's digital capabilities, expand its market reach, and leverage KiwiklyComm's expertise in delivering seamless customer experiences across multiple channels.

Prior to the acquisition, Roo-Tail's organizational values focused on customer-centricity, operational excellence, and continuous improvement. These values served as the backbone of Roo-Tail's culture and contributed to its success in the highly competitive retail industry. However, to capitalize on the acquisition's potential and achieve the desired future capabilities and competitive advantage, it was crucial to reassess and realign the organizational values.

In this process, Roo-Tail's leadership team worked closely with KiwiklyComm's management to identify the key strengths and values of both organizations. They discovered that KiwiklyComm's values centered around innovation, agility, and collaboration, which were instrumental in developing cutting-edge e-commerce solutions and fostering a dynamic work environment.

To create a unified set of organizational values that resonated with the combined entity's future capabilities and competitive advantage, Roo-Tail and KiwiklyComm developed the following values:

• Customer-centricity and Seamless Experiences: Building on Roo-Tail's existing value of customer-centricity, the merged organization prioritized delivering seamless experiences across all channels, integrating the unique capabilities of both companies.
• Innovation and Digital Transformation: Emphasizing KiwiklyComm's expertise in innovation, the new values highlighted the importance of embracing digital transformation and leveraging technology to drive growth and enhance customer experiences.
• Agility and Adaptability: Incorporating KiwiklyComm's value of agility, the merged organization is committed to adapting quickly to market changes and continuously evolving its strategies, processes, and solutions to stay ahead of the competition.
• Collaboration and Synergy: Recognizing the importance of teamwork in achieving the desired outcomes, the new values emphasized collaboration and synergy between Roo-Tail and KiwiklyComm's teams, fostering an environment where diverse perspectives and expertise could be combined for greater impact.
• Empowerment and Growth: The merged organization valued employee empowerment and growth, promoting a culture of continuous learning, professional development, and opportunities for advancement.

With these new organizational values in place, Roo-Tail and KiwiklyComm began the process of integrating their operations, teams, and cultures. The values were communicated to all employees, embedded in the company's policies and procedures, and used as a foundation for decision-making, performance evaluation, and rewards systems.

By aligning their organizational values with the desired future capabilities and competitive advantage, Roo-Tail and KiwiklyComm have created a strong foundation for a successful merger, driving innovation, collaboration, and long-term growth in a rapidly changing retail landscape.

Takeaways for Senior Executives

Mergers and acquisitions offer exciting opportunities for growth and expansion. As a senior executive, you must understand that the success of these transactions depends on effectively managing the integration process and building organizational capabilities. Here are the key takeaways from our analysis that you should consider when navigating the complex world of M&A:

• Embrace the Capabilities-Quadrant framework: This comprehensive approach helps you understand and categorize the various capabilities needed for M&A success, considering both agility-control and internal-external aspects. By examining these dimensions, you can make informed decisions about the most critical capabilities to develop and nurture.
• Adopt the PROMISE framework: Managing and shaping your organization's culture during M&A transactions is crucial. The PROMISE framework addresses constraints and outlines necessary actions across seven key elements that will help you create the right culture and structures needed to support capability development over a long period.
• Focus on people and professional development: Your employees are the lifeblood of your organization, and their skills and expertise are crucial for future success. Ensure that you address skills differences, promote teamwork and collaboration, foster innovation, develop cross-cultural sensitivity, and enhance communication, presentation, and executive skills.
• Realign organizational values: To create a unified culture and drive growth in a merged entity, you must realign your organizational values to resonate with future capabilities and competitive advantage. Identify the key strengths and values of both organizations and develop a new set of values that reflect the desired future direction.
• Learn from case studies: The Roo-Tail and KiwiklyComm case study demonstrates the importance of reassessing and realigning organizational values following an M&A transaction. By creating a unified set of values that emphasize customer-centricity, innovation, agility, collaboration, and empowerment, you can build a strong foundation for long-term success.

In conclusion, as a senior executive, it is essential to approach mergers and acquisitions with a comprehensive understanding of the capabilities required, a clear strategy to build the right culture, and a commitment to realigning organizational values to support future growth and success. By keeping these takeaways in mind, you can lead your organization through the complexities of M&A and ensure a prosperous future.

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**Names and details of the companies have been altered for this article for privacy reasons. We had taken a real situation and explained how our newly launched PROMISE framework can be used effectively and create simple plans to address culture and organizational constraints.

This article was published originally as a?blog ?on the?Fifth Chrome website ????????????????????????

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Want to know more about PROMISE?

Most organizations struggle with cultural integration in M&A due to the intangible and challenging nature of culture. Business and operational leaders often find it difficult to manage culture during M&A and as a result, culture is often ignored with the hope that "what you don't know can't hurt you". However, ignoring culture can lead to significant problems during integration, and by the time action is taken, it is often too late.

Culture remains the biggest barrier to M&A integration around the world. It's important to remember that culture does not exist in isolation and it's shaped by values, beliefs, practices, and underlying business structures. Changing culture is difficult to achieve directly, that's why organizations should focus on addressing underlying structures and practices that influence culture.

Organizational culture is the foundation that connects an organization's operating model with its people, creating a cohesive and unified whole. It is the "glue" that holds the organization together, shaping the way people think, feel, and behave within the organization, and influencing the organization's overall performance.

To facilitate cultural integration in M&A, at?Fifth Chrome , we have designed the?PROMISE framework ?which assists practitioners in this process.?PROMISE framework ?is a simple seven-factor structure that focuses on elements that have a high impact on culture, especially culture that is focused on achieving high growth. This framework helps organizations identify the key factors that influence culture and take appropriate actions to achieve cultural integration in M&A.

Visit our website?page ?for more details.