The merger that never was
The proposed merger between BAE Systems and EADS was killed off last week by stern Auntie Angela who made it very clear she wasn’t having any of it. What interested me about this was the human behavioural aspect and how people who are clearly very intelligent can get caught up with propositions that do not succeed.
BAE is now a pure defence company. Indeed it sold its 20% stake in Airbus to EADS in 2006 as part of its strategy to focus on the defence sector, especially in the
However defence spending globally is now substantially reduced and likely to
fall further so BAE needs to find a way of reducing its dependency on the defence sector. At the same time EADS is trying to find ways of reducing its
dependency on its core Airbus commercial aircraft division. The leaders of both companies appeared to
take one look at each other and saw the solution to their problems. Let’s merge
the businesses and hey presto, our problems are solved.
Something strange seems to happen to business leaders when they get involved in mergers and acquisitions, especially when they see it as the answer to their problems. They get so caught up with the idea that in one bold stroke they can transform their situation that it does not occur to them that other people whose support they will need do not see it the same way at all. It has happened with BAE and EADS and it is bedevilling the proposed Xstrata/Glencore merger right now. It happened with G4S' failed bid for ISS last year and with Prudential’s proposed $35bn dollar acquisition of AIA a few years earlier.
The other aspect of the BAE and EADS proposed merger is that each company had the same problem. How does merging two of the same problems produce a solution? I am not saying it never can but it should at least make you stop and think. However mostly people don’t stop and think.
These examples demonstrate once again that poor process produces poor results. Coming up with the brilliant idea (and it may well be a brilliant idea) but making that the focal point of the process will almost inevitably mean that you miss the other vital stages of what it takes to achieve success. Ask yourself how often a really good idea, project or proposition you tried to make happen in your business came to nothing for reasons you can’t quite understand. What did you miss out and why?
Last week Kate Swann announced she would be stepping down as CEO of WH Smith next summer after 7 years during which she has transformed the company.
When she arrived the business was in a mess with hundreds of shops scattered across
high streets selling a bit of everything and doing nothing very well. Ms Swann’
strategy was a text book example of KISS (keep it simple stupid) and of
applying robust process to implement it. First she separated the wholesale
business from the retail business with separate management teams for each
business. Then she identified which categories of merchandise customers wanted
to buy at WH Smith and where they wanted to buy them. She then set about
getting rid of products where they could not compete, such as entertainment and
focusing on areas such as stationery, books, art & craft and others where they
could. Then she opened stores where
customers wanted them including railway stations, airports, motorway service
Then she concentrated on making WH Smith a better business, with ferocious attention to detail which has driven out £17m of costs to date with more to come (a further £12m this year).
In doing all this she sacrificed the sacred cow of retail investment analysts, like for like sales increases. If you are taking out product, as a retailer maintaining sales increases is hard work. In the year to August 31st like for like sales fell 5% but profits rose 10% with the dividend up 22%. The shares have generated a total shareholder return of 306% in the 7 years Ms Swann has been in charge, more than M&S, Morrison's and Sainsbury’s put together.
All achieved without a single merger or acquisition. It could have been different, a merger with Woolworths perhaps or with HMV, both with similar problems to WH Smith 7 years ago. Now does that sound like a good idea?
Tesco – a straw in the wind
It is funny how a straw in the wind can sometimes tell you more about the state of the haystack than the farmer might know.
Last week, one of my partners had a promotional email from Tesco on his main computer. Unusually, he chose to follow one of the links. It did not work. Because he is a bit geeky, he checked it out on his laptop, where it did work. All of the other promotional emails he gets do work.
He decided to do Tesco a favour and let them know there was a problem – obviously thousands of others with the same (totally standard) PC set up were also not going to get to Tesco’s email promotions. Their Customer Services did an initial good response but managed to miss the point. Eventually they sent detailed advice on how to change the computer settings so that their advertising emails would work! The fact that solution didn’t work is totally irrelevant to this story.
However, all the way through this tiny little saga, the Tesco tried to get the customer to do something to sort out the problem. They have not recognised that:
The customer doesn't want to read Tesco adverts badly enough to bother
Tesco do want the customer to read their adverts
TESCO OWNS THE PROBLEM, not the customer.
Tesco are not doing well in their competitive Market. Overall, they are not winning hearts and minds – people just don’t seem to like them. We know that attitudes, beliefs and behaviours have a massive effect on competitive success.
Customer Service experiences can be one the most revealing insights into a corporate culture. If they can’t get these tiny little things right, because they are not thinking about them the right way round, then there is probably something much bigger to worry about.
Shares for rights
Normally the term “rights issue” means existing shareholders being offered the right to buy new shares in a business ahead of non-shareholders. The Tories announced a new twist on this at their party conference, give up your employment rights in exchange for shares in the business you work for.
Plenty has and will be written about this policy but once again this started me thinking about the process behind this idea. To me it is like a confectionery manufacturer thinking that there are people who like chili and there are people who like liquorice allsorts. What’s more there are lot of people who like both so maybe there is a market for a chili flavoured liquorice allsort.
However before developing and launching this new product it is a good idea to do some research and some market and product testing. Maybe the people who will like the product or the flavour combinations they prefer are not what you thought they would be. There are host of questions to find answers to before you can judge if this has a chance of success and if so, how to make it succeed.
To me, this looks like yet another policy that is announced then pushed out by government without applying a similar robust process and that may be why many good ideas in principle have failed at implementation.
By the way if anyone does come out with chili flavoured liquorice allsort, remember I thought of it first!
So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.