View point - succeeding in tough times

Crisis leadership: Stop your It’s a question best people of style from walking Page 6 Page 10 View Point Issue 2 May 2009 Succeeding in tough timesChill winds Reward survey: worsefreeze pay to come? Pressures on pay, it appears, could be just the start.The chill winds of recession are starting to bite Based on trends uncovered by three sweepsemployees where it hurts – in their pay packets. of our ‘Reward in a downturn’ survey in March 2009 and November and March 2008, employees won’t just see more companies freezing salaries.According to new Hay Group research, salary survey showed that many organizations Other real scenarios include:freezes and, in some cases, salary cuts are were having trouble filling vacancies. Nowon the cards. Increases, where they happen, they are resorting to job cuts. n employees being asked to choose betweenare significantly lower than expected. And In these troubled times, no one is safe, pay cuts or job lossesthe specter of cuts in other parts of the even those at the top. In contrast to recentcompensation package, such as bonus pools, n bonuses made tougher to earn years, executive pay is likely to increase lesspension plans and benefits like healthcare is than that of their employees. With bonuses n cuts to company pension contributionsnever far away. under pressure and share-based payments and a further move away from defined ‘Reward in a downturn’, a survey of benefits schemes hit by falling stock prices, many executives2000 companies in 88 countries, reveals that will see their remuneration fall. n benefits such as medical insurance andthe deepening recession, is affecting pay, The repercussions could be car allowances coming under scrutiny.benefits and job prospects at all levels of considerable. Organizations need theirenterprise. There is no sign that it is going people, and particularly their high When times were good, companies could taketo get easier any time soon. The decline in performers, to go the extra mile if they a simplistic view to pay, relying on benchmarks,business confidence has been rapid andremarkable. Projected salary increases have are to survive these difficult times and setting annual increments and so on. Todaydropped from four per cent to 2.8 per cent reap the advantages of the upturn when money is tight and people are still as importantin just four months since the last Hay Group it comes. In these conditions, it can be as ever.survey. In the latest report, more than a third hard to maintain employee engagement. Organizations navigating the months and, quiteof companies globally – 36 per cent – say When enterprises cannot afford to raise possibly, years ahead will still need to reward,that they will freeze salaries, while more than pay, leading organizations must focus on motivate and develop the people on whom theira quarter – 27 per cent – will take the ax to improving non-financial aspects of reward, success depends.headcount. such as training, career development and These are dramatic changes and the making the company a great place to work That will require a much more strategic approachprospect has become more certain in a very This issue of ViewPoint explores some to reward, based on strategic goals and criticalshort space of time. In fact only a year ago, of the ways in which organizations can talent needs, as well as the ability to pay.Hay Group’s first ‘Reward in a downturn’ respond to these challenges.

2 ViewPoint I Issue 2 I Succeeding in tough times Contents 2 ow is the time N 6 risis leadership: It’s C 10 Stop your best to review rewards a question of style people from walking the chill winds of recession effective crisis leadership in the present environment even are starting to bite can get people focused options are still available to on the way ahead top performers 4 Cracking the matrix code 8 Robust strategies, 12 M&A: Look before Hay Group consultant flexible models you leap Sylvia DeVoge explains how are the World’s Most tough market, but opportunities a Admired Companies wired still remain for success? Reward services Meet the author Now is the time to review reward strategies From pay reviews to affordability – why remuneration strategies should be reviewed in this era of near-zero inflation. All around the world, inflation is Some employers have introduced n what components of remuneration falling. Our study of more than imaginative solutions to save jobs employees really value and how 2,000 companies in 88 countries – reducing costs through flexible the biggest return on investment globally shows that pay increases working arrangements, reducing can be achieved from the pay bill this year have fallen from four work weeks, delaying start dates n how can the organization ‘put its per cent to 2.8 per cent just four and so on. All are designed to mouth where its money is’ and months since our last survey. cut costs while holding on to the improve the communication of Indeed, many organizations will employees that will be needed the value and rationale of the be freezing salaries and may even when the recovery comes. To compensation program? be cutting pay. This is a period ensure that remuneration policies n what structure of employment when relative deflation combines contribute to business strategy, the company wants – between with a global recession. companies must assess: full-time, part-time, contract and For organizations facing pay Nick Boulter reviews, the question is less: “what n target levels of profitability and performance and the resulting other approaches n how can remuneration policies is my competitive position?” or Managing director, level of affordable compensation be supplemented with other reward services, Hay Group “what are inflation rates?” and more “what, if anything, can we n which components of the aspects of non-financial rewards. afford?” Given the speed at which remuneration system help the These could include training, the recession has taken hold, business most to achieve business motivational management companies have been forced to strategy and performance goals, and workplace environment. take rapid action to cut costs. retaining and motivating talent Consider how to create a more compelling total reward offer that n how to reduce the fixed elements captures the hearts and minds of A range of solutions of remuneration costs and build employees. Our latest Hay Group survey, ‘Reward more performance related in a downturn’, shows that not only ‘automatic stabilizers’ As yet, few companies have targeted is a huge amount of organizational or safety nets into the pension schemes and other benefits, restructuring going on, but also that remuneration system not least because of the time it employers are resorting to a range of n takes to make changes. However, whether any increases need to be solutions: recruitment freezes, much they have started to review both made at the present time, or if the reduced pay increases, pay freezes short-term and long-term incentive ‘reward pot’ could be distributed and even pay cuts in some cases. schemes to refocus employees on more effectively achievable performance targets.

Reward services continued“ few companies have really consulted with employees about which parts of the remuneration ” package are most valued Did you know?A fresh look at existence, let alone the value, of Conversely, when performanceremuneration certain aspects of their package – improves, compensation rises. and sometimes value components The other advantage of variableHow times change. For the last of their packages quite differently pay – or bonuses – is that in a lowdecade or more, remuneration from the cost to the employer. inflation climate they might be thedecisions have been driven by only real vehicle for rewarding theemployee shortages, especiallya dearth of top talent. Employers, Root and branch review contribution of high performers, as base salary increases will be low,compelled to keep abreast or ahead Yet while inflation is low, if they are awarded at all.of the market to attract and retain opportunities exist for companies –talent, have allowed bad practice to with their employees – to undertakeslip in. a root and branch review of their Inflation forecasted to rise Performance management remuneration structure and costs, So this is the time for employersprocesses and decisions have and to understand where value to look more strategically at thebecome sloppy. Bonus schemes lies in the eyes of the employee. total cost and perceived valuehave not always been fully aligned In the current climate of low inflation of remuneration packages. Afterwith performance. The different combined with recession, it may all they are often the largest costcomponents of compensation– base be possible to redistribute rewards for many companies. There issalaries, short-term and long-term in ways that both reduce costs and no advantage in waiting to takebonuses, benefits, allowances, satisfy employees. action. By 2010, following thepensions – have often been Organizations are likely to huge stimulus made to the globalmanaged separately and in isolation, seek remuneration structures that economy by governments, inflation In a significant reversaleven by different departments reduce fixed costs – such as benefits is forecast to rise once more. The of fortunes, executives arewithin the same company. Few – and move more to variable pay time for action is now – and with set to receive the lowestorganizations have assessed the and compensation that is more a root and branch review, this salary increases – 1.5 peroverall costs, competitiveness and aligned with performance. The downturn may turn out to be a cent compared with 2.5 perperceived effectiveness of the total great advantage of this is that it unique opportunity for companiespackage. cent for clerical and support focuses on the performance goals to get back to basics. Because Moreover, few companies while building what economists of the pressures to keep some roles. Executive levelhave really consulted with call an ‘automatic stabilizer’ to the companies afloat, the temptation positions are most likely toemployees about which parts of remuneration system. In short, if may be to put such a review on see their salaries frozen orthe remuneration package are company performance falls, bonuses the back burner. However, one even cut.most valued. Indeed, employees fall too, reducing total costs and so day soon, it may be too late.are sometimes unaware of the helping to preserve jobs.

4 ViewPoint I Issue 2 I Succeeding in tough times Building effective organizations Cracking the matrix code All organizations that operate across more than one country, with more than one product, serving more than one customer group, operates a matrix – by definition. Yet despite this common structure, too often companies fail to make the matrix work. ViewPoint asked Hay Group consultant Sylvia DeVoge to explain. Sylvia DeVoge ViewPoint Matrix structures became commonplace decades ago. Surely they must work, or companies would have ditched the concept? explains SDV As organizations became more complex, they wanted to attack their markets from all angles, so they set up structures around geographies, different products and services, vertical markets and so on. The management of each unit then had one key focus: maximizing its own bottom line. This structure looks like it works, but actually people then compete for resources. It may be tempting to think that healthy internal competition is good, but it’s easy to overlook the fact that the numbers could be even better if you think about the organization as a whole. ViewPoint If every business unit maximizes its performance, surely the organization’s results overall are maximized? SDV You’d think so, but it’s rarely the case. When your job is to maximize the performance of your business unit, even if that’s to the detriment of other units, that’s what you do. Organizations reward people based on meeting their own targets, but they need to optimize performance across the organization, not maximize it for individual business units. That means getting managers to behave like mini CEOs and rewarding people differently. ViewPoint Isn’t the idea that you can’t maximize your organization’s performance negative thinking? SDV It’s realistic, practical and will lead to better results. Let me give you an example. Let’s say you sell hardware in a global IT firm – so you sell product come hell or high water. Your company, though, deals not only in hardware, but in software, IT services and consultancy too. As a CEO, you want to sell the lot. Even as a product head, you know your company wants to sell across the portfolio, but hey, your job is to sell hardware. Then a multi-country opportunity for hardware, software and a bit of consultancy comes up, but it’s dependent on you cutting the price of hardware. You’re going to fight that, even if it puts the deal at risk, because your targets involve margins on hardware only. Software is someone else’s problem. Software can cut its price if it wants, but not you. So you can see that the matrix doesn’t work – and won’t work unless each business unit head acts like a mini CEO.

Building effective organizations continued News In brief Companies seek strength and clarity in their future leaders New Hay Group research shows that, in the current tough economic climate, theViewPoint But surely someone comes along and bangs heads together at that point? world’s Best Companies for Leaders are focused on developing managers thatSDV You’d hope so, but it takes management time and energy. With one of our clients,such a scenario was escalated up five levels right to the top, to the executive team just to excel at ‘execution’ i.e. achieving resultscut $50k of software off a multi-million dollar deal. Clearly, you need to re-think how the through others.matrix works before these situations arise. A CEO in such a case might be happy to losemargin in one business unit, thinking a bird in the hand today means bigger business later. Hay Group’s Annual Best Companies for Leaders Survey identifies the top 20 best-in-classViewPoint It must be dispiriting to those people who are proud of delivering on their companies as well as the attributes that makenumbers? these companies known for great leadership.SDV It’s a profound change and for some people it will be almost impossible to make the It found that 83 per cent of the best-in-classtransition. The solutions do not lie in changing the structure, accountabilities and reward organizations say ‘execution’ is what they valuesystems. Those are necessary, but they are not sufficient. You must also shift people’s the most in leaders. Managers who are focused onself-image and you do that by sending new and consistent messages from the top and by execution create a climate in which people knowpromoting the right people. You need collaborative behaviors, not competitive ones. You exactly what is expected of them – something thatneed to move from traditional command and control to embrace cooperation. employees value during darker economic periods. Typical leadership styles which accomplish thisViewPoint So what do you measure people on if it’s not maximizing include, ‘authoritative’ with some ‘coercive’ andtheir numbers? ‘pacesetting’ when needed. (For more information on these see Crisis leadership: it’s a question of styleSDV We’d like companies to adopt a strategic scorecard. Invented by Hay Group, it aims overleaf. )for balance. So it’s not just about getting the highest numbers possible at the end of anygiven period, but about customer satisfaction, innovation and so on. It’s a completely new The survey also highlights how these organizationsway of measuring results and will help focus organizations on cracking the matrix code. create clarity, encourage development and drive accountability during these turbulent times. OverHay Group’s whitepaper on effective matrix management will be published mid 2009 60 per cent of these organizations hold senior managers accountable for commitments versus 36 per cent in other companies and 63 per cent create a“ sense of purpose for employees by communicating a bird in the hand today values versus 43 per cent for all other companies. The results also reveal that even in the downturn means bigger these organizations make leadership development a priority with 70 per cent saying they have a formal business later process to identify individuals for leadership roles, versus 37 per cent of all companies.

6 ViewPoint I Issue 2 I Succeeding in tough times Leadership styles Crisis leadership: it’s a question of style A tough economic climate can take the wind out of the sails of both your employees and leaders. The fear and uncertainty it creates can often cause people to become fixated on the things they can’t control and as a result they stop taking positive action. Effective crisis leadership can It gives employees goals to focus help the company through the Meet the get people focused again on the way ahead by creating an on and room to innovate, while also encouraging them to work downturn. They know it’s important not to leave employees in the dark author engaging work climate despite collaboratively. This is important about the company’s strategy. the bad economic news. Obama because employees that are These leaders make decisions offers a good example. The new engaged by the right kind of quickly and then communicate US president used his inaugural leadership will go the extra mile. them effectively to staff so people address to inspire the nation and have an area to focus on moving consulted the opposition before Avoid bad habits forward. making decisions to overturn prior policy. During a downturn it’s easy to fall Untapped energy into bad habits. Perhaps the biggest Good leaders call on a full range of risk is adopting an exclusively When leaders use a mixture of styles leadership styles. And the very best coercive approach, which at its they create the clarity, flexibility and keep focused on what they must worst involves micromanaging the responsibility employees need Mary Fontaine achieve, adapting their style where employees. Another tendency is for frustrated leaders to fall back to be effective. They’re also able to maintain a focus on high standards appropriate. Here is some practical Managing director, on a pacesetting style where they and create much needed team advice on what leaders can do. leadership and talent jump in and try doing the work commitment that is often in Hay Group themselves. However, by doing this short supply during tough times. Keep employees energized they’re missing the strategic piece. Businesses that win in a downturn Used in isolation both of these styles It is this set of elements that provide clear direction in the face can adversely affect the overall work together create an engaging, of uncertainty, reassuring when climate within an organization. empowering work climate. In many necessary, all the while continuing cases it may be enough to offset the cuts companies have had to make to push for results. These leaders Communicate, elsewhere, so it’s plain to see that create energizing, engaging work communicate, improving leadership styles really climates by using the full range of communicate leadership styles (see box out). can offer extraordinary value to an Successful leaders avoid these organization. common pitfalls and concentrate Don’t rely on one style on creating positive work climates. To find out more about the clear Combining leadership styles, They get people looking at what actions organizations can take rather than relying on a single they can do, so that they feel to tackle the downturn, visit the style, fosters a better work climate. empowered and energized to ‘Managing in a downturn’ page

Leadership styles continued “ The new US president used his inaugural address ” to inspire the nation Leadership styles most needed in a downturn Authoritative Effective leaders create clarity and buy-in while keeping people focused on the work at hand by being authoritative – creating the vision, providing the context and gaining commitment. Coercive Occasionally during times of real crisis leaders become coercive, directing people to specific actions and warning of the consequences if they are not followed in a timely fashion. This style can become overbearing if overused, but can be effective if applied in moderation. Democratic When required, effective leaders reach out to others for help and expertise, taking a more democratic approach. But they do so only after they have framed the issue and established the parameters. Affiliative In times like these, a little affiliative leadership can be important. People are scared and sometimes the best leadership involves listening and understanding. Coaching It’s also important to continue to coach and develop people. This may not involve regular coaching sessions, but at the end of a long day taking a few minutes to listen, help and provide a bit of feedback can be invaluable. Pacesetting Effective downturn leaders become more visible, using elements of the pacesetting style. Beware, however, as your role is to lead and not to micromanage employees, so use this style sparingly.

8 ViewPoint I Issue 2 I Succeeding in tough times World’s Most Admired Companies Robust strategies flexible models The World’s Most Admired Companies® (WMACs) have enduring The strategies that see them through good times and bad. However, research crucially, these organizations adapt their operating models to cope with prevailing conditions, according to Hay Group’s independent sidebar research this year. In addition to identifying the to gain share at a time when highly decentralized, even within WMACs, Hay Group wanted to their competitors are distracted the same industry. And there are understand what lessons others by other concerns. One WMAC as many unique organization could learn from them. What is it has seen no need to change its structures as there are WMACs, FORTUNE® magazine about their organizations that wires strategy in nearly four decades. with matrix models, vertically commissioned Hay Group them for success? This, to some, is puzzling. After all, integrated models and geographic responsiveness to market changes models all in evidence. to conduct its twelfth Constancy counts is generally considered to be vital annual survey of the World’s for success. Excellent examples of companies Most Admired Companies® What WMACs do have in common mixing models were uncovered is constancy of business strategy. No single structure too. The fact that there is no (WMACs). In addition to They refuse to chop and change common structure to copy may the industry rankings, in response to market conditions, The bad news for businesses disappoint those who seek a quick Hay Group separately even in these difficult economic that hope to borrow a structure solution. Yet some building blocks surveyed 70 contenders times. What’s more, the strategic from a WMAC is that no single are clear. Companies that wish to to learn more about the direction is clearly understood best structure exists. Hay Group excel should: organizational structures of across the organization. Indeed, vice president Katie Lemaire, many WMAC executives told who led the research, says that n create a strong, stable strategy these organizations. and stick to it us that the present downturn for every WMAC with a highly presents them with an opportunity centralized structure, another is

World’s Most Admired Companies continued“ There are some characteristics that nearly all great companies share – talented senior management, a passion for innovation, and financial strength, among others. ” But when it comes to how they’re organized, the World’s Most Admired Companies have little in common Fortune Magazinen build a structure that is aligned to structure than to the operating to that strategy and stick to that model. They create such a model, a too blueprint, as part of organizational design, but then file this important,n design a robust operating invisible guiding hand away. model – with built-in flexibility The fact that it is largely invisible and suppleness appropriate for makes it easy to ignore. Yet this is a changing conditions mistake that WMACs do not make.n make processes explicit; They agonize over the operating adopting a common vocabulary model. They make it explicit. across the enterprise They concentrate not only on the processes that ensure the workn equip leaders with the tools gets done, but also on human needed to help them be behavior. successful in working cross- functionally and across the So if there is one key differentiator organization. between a WMAC and it’s peers, it is in the care and attention it gives to aligning it’s operating modelSupple operating models with structure and strategy.For the World’s Most Admired All companies have a strategy.Companies, however, ability to WMACs have strategies that last. Allrespond lies not in organization companies structure themselvesstructure, but in the operating to achieve their strategy. WMACsmodel. Without exception, WMACs have the right structures aligned toadopt a model that is far more strategy. But far too few companiescomplex and sophisticated than implement operating models thattheir competitors. These models, have the suppleness to adapt towhich exhibit a suppleness rarely different conditions at differentfound in other companies, ensure times in different locations. WMACsthat strategy is delivered as do.planned and that people do the And that is what sets them apart.work that needs to be done. Theyprovide clarity without distraction,and far more than organizational To learn more about ourstructure, are the most important partnership with FORTUNEdeterminant of success. magazine, visit our website – www.haygroup.com. A Hay GroupMore ordinary companies make the whitepaper on the subject will bemistake of paying greater attention published mid 2009. Did you know? Some 83 per cent of WMACs say they are effective or very effective at managing a matrix organization, compared with just 58 per cent of their peers in the Fortune 500.

10 ViewPoint I Issue 2 I Succeeding in tough times Engagement and enablement Stop your best people from walking The downturn has made it more difficult to rely on pay to keep Meet the key people committed, so how should companies react? author Retention of top talent is an developing systems that provide demonstrate revenue growth 2.5 important concern in both better support for the success of times that of organizations in the good times and bad. While their employees. bottom quartile, companies in the a soft labor market may have To foster high levels of top quartile on both engagement depressed turnover rates in many engagement, companies must and enablement achieve revenue organizations, retention issues can make greater use of non-monetary growth 4.5 times greater. be expected to surface once labor rewards such as career growth But how do you ensure that markets strengthen. Even in the opportunities, meaningful job you’re doing the best possible job present environment, options are designs, training and recognition of enabling your employees? still available to top performers. programs. For these measures to The first step is to make sure Savvy organizational leaders be effective, there must be a clear you’re putting the right people in recognize that their best people link between performance and the right jobs, as employees in the work for their organizations rewards in the minds of employees. wrong role can quickly become because they want to, not because The best way to do this is to make disillusioned and unproductive. they have to, and treat them like sure there is clear differentiation In deploying talent, ‘volunteers’ regardless of market in performance ratings between leaders must consider both the conditions. employees. Those differences in requirements of the job and the performance should be reflected in employee’s ability to meet them. meaningful differences in pay and They also have to think about the Dissatisfaction with pay advancement prospects. extent to which the job will draw Will Werhane is not what leads employees to Hay Group Insight’s research upon the employee’s distinctive Managing director, begin exploring alternatives. shows that high employee competencies and make the most Hay Group Insight engagement alone does not of them. It’s also crucial to root While compensation is often guarantee an organization’s out bad business practices, such as a factor for employees when they effectiveness. unnecessary or duplicated work, consider new employment, it is to ensure that work environments seldom the precipitating factor. Many companies enjoy are supportive of high levels of Nonetheless, retention strategies productivity. commonly focus on compensation, high levels of engagement, Finally, organizations have for example, retention bonuses or yet still struggle in terms of to understand and manage the stock options. performance. work climate. The benefit of a The downturn has made it more positive work climate is often difficult to rely on pay to keep key What’s missing is real employee underestimated, but our research people committed, so how should enablement to position motivated shows that business results can vary companies react? employees to succeed (see by as much as 30 per cent purely Organizations must focus on two figure 1). In fact, our findings due to differences in the work key concerns to retain and motivate suggest that while organizations climate created by a manager. their talent: increasing in the top quartile on engagement To create a positive work climate, employee engagement and

Engagement and enablement continued“ High employee engagement alone does not guarantee an organization’s effectiveness you also Six steps ” need real employee enablement to better engagement and motivation In order to succeed in engaging and motivating employees organizations should: leaders must have the right competencies the organization a success. And harnessing this 1 ensure that there is a clearly communicatedto engage and enable employees. They have ‘discretionary’ effort through enabling work link between performance and rewardsto understand how to give employees the environments will provide companies with a within the organizationauthority to get on with their jobs so they competitive edge that will prove invaluable infeel empowered to act where decisions are helping them to ride out the stormy economicbest made at a local level. If organizations conditions created by the global downturn. It 2 ensure that there is proper differentiationsucceed in putting these measures in place will also ensure that they are well positioned in performance ratings between employeesthey will reap the rewards of highly engaged when the recovery eventually arrives.employees willing to go the extra mile to make 3 root out bad business practices, such as unnecessary work and duplication, that can Employee engagement Both high levels adversely affect employee enablement Low High of engagement and high levels of 4 put the right people in the right jobs by enablement are focusing on job sizing and the kind of needed to produce person that best fits the role Detached Effective High effective employees. Employee enablement 5 monitor and improve the work climate within the organization by ensuring that leaders have the right competencies and management styles to motivate employees Ineffective Frustrated Low 6 focus on non-monetary rewards such as Figure 1: Clustering of employees career growth opportunities, development, by engagement and enablement and recognition programs.

12 ViewPoint I Issue 2 I Succeeding in tough times M&A M&A: look before you leap With many of the world’s economies in the grip of recession and credit in short supply, the stakes are higher than ever when it comes to brokering Five key new mergers and acquisitions (M&As). Hay Group research shows that many opportunities organizations are failing to take steps that could increase transaction success 1 ompanies with strong balance C rates by as much as 70 per cent. sheets and access to funding are predicted to broker transactions, although there The negative affects of the credit Increased success rate rate – 70 per cent – compared will be no significant activity crunch are being felt when it comes with companies who do not – Hay Group and mergermarket until the final quarter of 2009. to M&As. Global activity in 2008 30 per cent. What’s more, two-thirds was down 28 per cent in terms of found that a third of respondents of executives believe an increased 2 dverse market conditions A deal volume and 34 per cent with fail to conduct any formal review and earlier focus on intangibles mean valuations continue regard to deal value compared to of their intangibles. when engaging in M&A activity to fall. 2007 data. Moreover, only 25 per cent would have improved the chances However, opportunities of due diligence time is spent of success of their deal and 61 per 3 here has been a significant T do remain. Strategic buyers – quantifying and assessing the cent of business leaders report that realignment of buyer and corporates with strong balance intangibles of the target company they plan to increase the focus on seller price expectation. sheets and access to funding – are during stable market conditions. them in forthcoming M&A deals. predicted to broker transactions. During an economic crisis, the 4 ertain industry sectors, C Valuations continue to fall and there immediate priority is to look at the Know what you’re such as banking, will continue is a realignment of buyer and seller cash flow and at how to protect getting into to see forced mergers/ price expectation. it. Less consideration is given to disposals due to government It is against this backdrop the intangible aspects of a deal. Lack of attention to protecting involvement and bailouts. that Hay Group and mergermarket, Yet, there are long-term strategic the intangibles before, during and considerations which executives after an M&A deal can create major 5 nalysts report an increase in A an independent M&A intelligence must keep in mind. problems for CEOs years after the the number of distressed M&A service, conducted research. They “Looking at the intangibles now, ink has dried on a contract. With opportunities. During the next polled 560 leading international is what will make the deal valuable the downturn putting added six months there is likely to be corporate decision makers – board tomorrow,” states David Derain, pressure on M&A deals, it’s now an increase in the number of level executives who have worked global M&A director at Hay Group. more important than ever that re-structurings in Europe, which on deals worth in excess of $500m While ignoring them is perhaps businesses look before they leap. will turn into actual M&A deals. in the past three years – on the role intangible assets (the relational, understandable in the heat of the They have to ensure that these organizational and human capital transaction, it’s counterproductive opportunities don’t turn into elements of a transaction) play in the medium to long-term. This expensive mistakes as a result of within the M&A process. See the is because companies who carry a poor understanding of the assets How to increase of the target business and a lack Hay Group intangibles model below. out an intangibles review, report an increased transaction success of a long-term strategic vision. your chances of M&A success 1 et a clear and accurate picture G Hay Group’s intangibles model of the value of your targets’ intangibles. Organizational capital Relational capital Human capital 2 pend more time and energy S Culture and market Brand Leadership on understanding the intangible convergence asset ‘fit’ between your company Governance Client intimacy Employees and your target acquisition. Agility Client loyalty Development 3 mphasize cost and revenue E savings to secure your cash and management position and be ready to take Communication and teaming External networks Engagement advantage of the eventual upturn in the economy. Energy and clarity Internal networks Productivity 4 ngage managers and staff E Organizational structure quickly in order to provide them with a vision of the Tacit ‘know-how’ company’s objectives. and innovation

View point - succeeding in tough times

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