Due diligence: Minimise integration risk.

Due Diligence & Integration

Due Diligence is the process of investigation prior to signing a contract. The contract is normally a Sale/Purchase agreement for a significant item. We most often hear the term relating to business activity, for example Merger & Acquisition (M & A) activity, restructuring, or a major contract with a new supplier. This paper is concerned with those activities that will require significant organisation change, such as the integration or alignment of two businesses following an acquisition or merger contract of agreement. There is much written on due diligence and many well understood processes, but one area that requires further tools and process is the Organisation Development (OD) area of integration, which is often  where the expected gains or Return On Investment (ROI) following a contract are won or lost.

The research conclusions are as follows:-

1.      More effective and detailed assessment of both organisations is required to determine the integration capability and capacity of each part , the differences between the capability and capacity of both and confirm integration is actually feasible within the defined constraints (time, cost, quality) – (Due diligence on integration capability, to confirm if it’s possible and what it will cost)

2.      OD interventions may be required individually, with the units to be integrated before they start to integrate either, to close the gap between them in capability levels or to bring one or more parts to a level to which they have the capability to effectively integrate. – (Prior to integration specific OD work may be required with individual units/teams)

3.      Once integration has started and, during integration continuous periodic assessment of the functioning levels of the integrated units is required, in order that they can continue to be facilitated with the correct interventions. Thus bringing the organisation as a whole to the highest level of performance as quickly as possible. (Periodic survey of integrated units and tailored OD actions for each)

4.      Both for due diligence and on-going assessment of organisation unit maturity/functioning current standard descriptive tools do not provide adequate measurement of the human systems and cultural/behavioural dimensions and a normative measuring process is required. (A normative scientific assessment must complement standard descriptive evaluations)

Why is integration important?

When we consider the goals of a (re)structuring activity (Financial, Operational, Market, Technology etc.), these goals and the outcomes expected will be delivered though the changed organisation, whatever the planned structure is. What we are considering is that we are bringing together people and groups to form new teams to deliver on the goals. Not only will the team(s) be new but it’s quite likely the policies, procedures, processes, management and leadership will also change to reflect the new entity and the goals to be achieved. So many if all the systems that the new entity operate will change and this change will be designed, implemented and achieved through the human systems , which will also be changing in the process. The bottom line is that integration is a critical success factor in all M & A and/or OD activity where re-structuring is required.

(The quality of the integration, will directly impact the achievement of the business goals)

What are the critical success factors (CSF’s) for successful integration?

There are several CSF’s that are important, and there is much written about many of these, however the area we are concentrating on is the human systems, the organisation maturities and learning levels as key areas that up to now have not been adequately covered and deployed in the change process, thus leading to loss of momentum and ROI because the integration process failed to consider one or more of these. The CSF’s are:-

·         The target structure and change/integration plan are a core element of the overall business strategy.

·         There is an effective diagnosis of the human systems and organisation maturity in those units who will be involved in the change.

·         There is clear criteria for go, no-go relating to due diligence of these organisation functioning elements. (Ability or capability to integrate of one or more parts may be at a level that the cost benefit may not be justified).

·         There are tools to help align the people and units coming together to optimise the integration and attain the best business outcomes.

·         There are clear criteria to confirm the ability and capability of each part to integrate, and interventions are deployed to bring both sides to a level where they can integrate successfully rather than joining in a dysfunctional manner prior to readiness.

·         There is a clear set of relevant CM/OD interventions calibrated for each new group to enhance and accelerate the new entities level of functioning.

·         There is a method to periodically diagnose progress and adapt the integration plans.

Full Life-cycle Integration process (An integrate aspect to any OD, CM or M & A process)

A full life-cycle integration process has 4 key components

1.      Standard descriptive assessments, document/process/performance reviews, comparisons and gap analysis (or benchmarked to a known accepted standard (ISO, FDA, FRS etc.))

2.      Standard Individual and Team engagement and assessment (interviews, workshops, forums etc.)

3.      Scientific based normative diagnostic survey, with reports and dashboards. (Before, During and on-going periodically as a minimum every 6 months)

4.      Individual and Team/unit based interventions appropriate to their specific circumstances before , during and on an on-going basis

Summary conclusions

The ability to integrate two or more organisations or two or more units of an organisation is not a given, so understanding the capability and capacity of each should be determined in advance of any project , including a cost benefit analysis . It can be discovered through proper diagnosis that the cost an effort to achieve integration may outweigh the benefits. However more likely with a scientific analysis, it will surface out the human system, cultural and behavioural maturity of each and allow for the correct level of intervention with individual units before and during the integration phase. The diagnostic dashboard provides integration management and senior management with a benchmark of where the overall organisation is developing towards a leadership position.

The Holignment Maturity Index and on-line diagnostic surveys are the most comprehensive available scientific based tools available to assist with Organisation Change and Integration.

Better Org change outcomes by understanding org maturity

UNDERSTANDING ORGANIZATIONAL MATURITY (Learning Level) FOR BETTER CHANGE MANAGEMENT OUTCOMES.

            Research & Author: - Dr. Myles Sweeney BA (Psych), Dip. (Mgt.), MBS (Fin.), Ph.D. (Psychol.)

THE ORGANIZATIONAL MATURITY INDEX (OMI)

OMI was designed to address the significant failure rates that research shows for organizational initiatives ranging from standard Organization Change & Development to more specific strategic and tactical changes. These could include M&A, Growth Strategy, Turnaround Implementation, etc., to more focused initiatives such as introducing Collaborative Software as an example.  The most common reason for such failures is that interventions (Change Actions) are at the incorrect level for the organisation maturity, or that the Organisation systems can accommodate.  OMI addresses this problem by ensuring that such initiatives gain traction by being designed as appropriate to the levels of functioning in the organization as mapped on the OMI learning framework.

Many years of research and analysis of current organisation development and learning theory have resulted in the ability to accurately and scientifically determine the organisations (or any sub unit) maturity (learning level) as a whole or across key organisation system dynamics.

OMI provides a normative methodology to 1) assess levels of functioning throughout the organization, 2) show gaps between, and within, organizations, business units or departments across all activities, 3) initiate interventions so that they gain traction, and 4) guide required development and integration in a manner that is sustainable.

The OMI diagnostic framework is as follows:

Stages of learning described from various schools of Psychology, ranked in order of increasing integration

o   15 stages of learning split between 2 Divisions:

§  Integration – At these levels developmental initiatives if deployed with good change-management protocols should achieve traction and desired results.

§  Disintegration – At these levels developmental initiatives if deployed at the incorrect lever or with less than excellent change management will not gain traction and most likely degrade the system further. If not addressed as a priority, will contribute towards failure.

Note:

ð  Integration refers to the potential to take on board change, development initiatives, growth strategy, etc., and the ongoing alignment of all resources/initiatives/processes within an organisation to drive organisation-wide strategy

ð  Many corporate failures have occurred where results had given the impression of a successful organization, where this metric would have revealed critical dimensions operating at disintegrative levels

ð  The more organisational dimensions or dynamics measured in the INTEGRATION side (level 6 and up), the fewer critical issues to be addressed.

OVERVIEW of the LEVELS of LEARNING:

	Description of Habituated Stage	Description of Developmental Phase
INTEGRATION  DIVISION– where the initiatives in place will be suitable and guiding the organization toward organization-wide effectiveness
Sustainable Leadership (12)	Trusted Brand , Market Leader, Continuous Innovation and change etc.	Regularly diagnosing organizational functioning & re-invigorating the phases
Leadership (11)	Leadership positioning in the sector and beyond, giving direction to the marketplace and beyond.  However, habituation brings the risk of a bias to constantly look internally for solutions rather than refreshing the system from outside	People from the organization, as well as the brand, assume leadership positioning within the organization, within the sector and in the broader world at large. External environment to be scanned and new blood introduced regularly
Sustainable C.A. (10)	Organizational Advantage with failure to take macro-systemic Leadership. The organization is well managed and has uniqueness but has not yet achieved leadership or brand leadership.	Systemizing to support innovation etc., maintain quality & manage direction,  Self-Organization
Competitive Advantage (9)	Innovation that loses awareness of market, external change, etc.	Systemic Self-Engagement, Innovation, Empowering game-changing connectedness, etc.
Sustainable Competitiveness (8)	Neglect of R&D, innovation, etc.	Systemizing Competitiveness throughout the organization
Competitiveness (7)	Performance becomes a matter of discreet contests rather than integrating strategic growth	Customer-Care Excellence internally and externally, organizational results comparable with the competition
Learning (6)	A bias to process and procedure rather than the next level of market focus and the organization never becomes adaptive enough	Embedding all of the processes and procedures needed to re-enforce the strategic plan and future development through the phases

OVERVIEW of the LEVELS of LEARNING (cont’d):

	Description of Habituated Stage	Description of Developmental Phase
DISINTEGRATION DIVISION – where integrative initiatives would not achieve traction.
Change (5)	Introducing new processes, training, etc. which are neither part of a viable strategic plan nor visibly growing the organization towards Sustainable Competitive Advantage	Training and personal development are established that will ensure that the competence requirements of a strategic plan are in place; learning from pilots, etc.
Destabilisation (4)	An internal friction that never integrates into a drive with potential for growth. Dissenters are bipolarized & degrade, or they leave	Allocation of resources, positioning key people, possible piloting, etc.
Stabilisation (3)	A niche is allowed to shape the organization to suit its needs. If the niche changes, degradation to a chaotic stage occurs	Getting people on board with the growth strategy, taking stock of progress from the opportunistic phase, planning for resource allocation in the next phase, etc.
Critical Divergence  (2)	Chasing opportunities that may not yield strategic value or potential for sustainable competitive advantage, churn, burnout	Strategic Delegation to a network of key people with the credibility to leverage change & grow beyond critical dependency, diversify, strategic opportunism
Critical Dependence (1)	Dependence on a singularity - customer, financier, etc., or deference to a leader or influence (Groupthink), limits growth creates boundaries & competence ceilings	Depending on the dimension this phase means attaining visible leadership commitment to a plan; winning a flagship customer; launching a strategic product, etc.
Insulation /Incubation (0.n)p	“Failure To Launch”, etc.	Planning progression through the phases
Inertia (0)	Deadwood, Switched off people, etc.	Critical mass of people make a resolved decision to stop what is damaging the organization or hindering its progress
Black Hole (<0)	Projects with no ROI, “sunk-cost effect”, Milking the system

HOW TO ORGANISATIONS CAN USE THE OMI

Based on your organisations assessment (on-line diagnosis), a diagnostic dashboard and report based on the OMI findings can be produced. This report segments the findings in 3 Sections, grouped per level of priority:

• Section 1 - Immediate Interventions required.

This section addresses the most urgent diagnosed organisational issues to be addressed through targeted interventions in order to ensure that your organisation develops towards integration. This section is applicable when organisational dimensions are diagnosed as currently operating within the lower stages of the Disintegration division of the model, and highlights the levels of learning that need to be addressed as a priority in order to ensure solid foundations for growth. Section 1 is a platform on which organization-wide engagement is built, and may concern e.g., planning, engagement of leadership, management and key people.  This section ensures that all dynamics are operating at Phase 2 as a basis for the Section-2 programme, and comprises:

• an overview of your current levels of learning
• the rationale behind the selected interventions identified as a priority
• often, but not always, a sample intervention recommended to address potential issues at the current levels of  learning, to be further discussed with your external OD consultant

• Section 2 - Next Step

This section addresses the subsequent organisational dimensions to be considered as a Next Step toward implementing and promoting sustainable integration so that the organization is internally fit for effective engagement in the marketplace in Section 3.  This section ensures that all dynamics are operating at Phase 5 and compromises:

·         an overview of the indicated levels of learning to be considered for intervention once the elements/issues in Section 1 have been addressed.

·         the rationale behind the selected interventions, identified as a next step often, but not always, a sample intervention recommended to address integration needs at the these levels of  learning, to be further discussed with your external OD consultant

• Section 3 - Working towards organizational advantage and Sustainable Leadership

This section addresses the remaining organisational functioning’s that are currently performing at integrative levels, to be considered in the future in order to sustain organisation-wide integration. This section deals with Sustainable Competitiveness, Organisational Advantage through to Sustainable Leadership and compromises:

·         an overview of the indicated levels of learning to be considered for intervention once the elements/issues in Section 2 have been addressed.

·         the rationale behind the selected interventions, identified as a final section of the O-D programme toward organisation-wide integration and effectiveness.

·         often, but not always, a sample intervention recommended to address sustainability needs at the these levels of  learning, to be further discussed with your OD advisor