View Point issue - Succeeding in tough times

1. 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 times
Chill winds Reward survey:
worse
freeze 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 sweeps
employees 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. Now
on the cards. Increases, where they happen, they are resorting to job cuts. n employees being asked to choose between
are significantly lower than expected. And In these troubled times, no one is safe, pay cuts or job losses
the specter of cuts in other parts of the even those at the top. In contrast to recent
compensation package, such as bonus pools,
n bonuses made tougher to earn
years, executive pay is likely to increase less
pension plans and benefits like healthcare is than that of their employees. With bonuses
n cuts to company pension contributions
never 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 executives
2000 companies in 88 countries, reveals that will see their remuneration fall. n benefits such as medical insurance and
the 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 their
enterprise. There is no sign that it is going
people, and particularly their high When times were good, companies could take
to 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 and
remarkable. Projected salary increases have are to survive these difficult times and setting annual increments and so on. Today
dropped from four per cent to 2.8 per cent reap the advantages of the upturn when money is tight and people are still as important
in 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, quite
of 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 their
a 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 approach
prospect has become more certain in a very This issue of ViewPoint explores some to reward, based on strategic goals and critical
short 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. 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
MA: 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.

3. 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 performance
remuneration certain aspects of their package – improves, compensation rises.
and sometimes value components The other advantage of variable
How times change. For the last
of their packages quite differently pay – or bonuses – is that in a low
decade or more, remuneration
from the cost to the employer. inflation climate they might be the
decisions have been driven by
only real vehicle for rewarding the
employee shortages, especially
a 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 undertake
slip in. a root and branch review of their Inflation forecasted to rise
Performance management remuneration structure and costs, So this is the time for employers
processes and decisions have and to understand where value to look more strategically at the
become sloppy. Bonus schemes lies in the eyes of the employee. total cost and perceived value
have not always been fully aligned In the current climate of low inflation of remuneration packages. After
with performance. The different combined with recession, it may all they are often the largest cost
components of compensation– base be possible to redistribute rewards for many companies. There is
salaries, short-term and long-term in ways that both reduce costs and no advantage in waiting to take
bonuses, benefits, allowances, satisfy employees. action. By 2010, following the
pensions – have often been Organizations are likely to huge stimulus made to the global
managed separately and in isolation, seek remuneration structures that economy by governments, inflation In a significant reversal
even by different departments reduce fixed costs – such as benefits is forecast to rise once more. The of fortunes, executives are
within the same company. Few – and move more to variable pay time for action is now – and with set to receive the lowest
organizations have assessed the and compensation that is more a root and branch review, this salary increases – 1.5 per
overall costs, competitiveness and aligned with performance. The downturn may turn out to be a cent compared with 2.5 per
perceived effectiveness of the total great advantage of this is that it unique opportunity for companies
package. 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 level
have really consulted with call an ‘automatic stabilizer’ to the companies afloat, the temptation positions are most likely to
employees about which parts of remuneration system. In short, if may be to put such a review on see their salaries frozen or
the 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. 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.

5. 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, the
ViewPoint But surely someone comes along and bangs heads together at that point? world’s Best Companies for Leaders are
focused on developing managers that
SDV 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 results
cut $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 lose
margin 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-class
ViewPoint It must be dispiriting to those people who are proud of delivering on their companies as well as the attributes that make
numbers? 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-class
transition. The solutions do not lie in changing the structure, accountabilities and reward organizations say ‘execution’ is what they value
systems. Those are necessary, but they are not sufficient. You must also shift people’s the most in leaders. Managers who are focused on
self-image and you do that by sending new and consistent messages from the top and by execution create a climate in which people know
promoting the right people. You need collaborative behaviors, not competitive ones. You exactly what is expected of them – something that
need to move from traditional command and control to embrace cooperation. employees value during darker economic periods.
Typical leadership styles which accomplish this
ViewPoint So what do you measure people on if it’s not maximizing include, ‘authoritative’ with some ‘coercive’ and
their numbers? ‘pacesetting’ when needed. (For more information
on these see Crisis leadership: it’s a question of style
SDV 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 any
given period, but about customer satisfaction, innovation and so on. It’s a completely new The survey also highlights how these organizations
way of measuring results and will help focus organizations on cracking the matrix code. create clarity, encourage development and drive
accountability during these turbulent times. Over
Hay 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. 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

7. 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. 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

9. 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 Magazine
n
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 work
n
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 model
Supple 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. All
respond lies not in organization companies structure themselves
structure, but in the operating to achieve their strategy. WMACs
model. Without exception, WMACs have the right structures aligned to
adopt a model that is far more strategy. But far too few companies
complex and sophisticated than implement operating models that
their competitors. These models, have the suppleness to adapt to
which exhibit a suppleness rarely different conditions at different
found in other companies, ensure times in different locations. WMACs
that strategy is delivered as do.
planned and that people do the And that is what sets them apart.
work that needs to be done. They
provide clarity without distraction,
and far more than organizational To learn more about our
structure, are the most important partnership with FORTUNE
determinant of success. magazine, visit our website –
www.haygroup.com. A Hay Group
More ordinary companies make the whitepaper on the subject will be
mistake 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. 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

11. 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 communicated
to engage and enable employees. They have ‘discretionary’ effort through enabling work link between performance and rewards
to understand how to give employees the environments will provide companies with a
within the organization
authority to get on with their jobs so they competitive edge that will prove invaluable in
feel empowered to act where decisions are helping them to ride out the stormy economic
best made at a local level. If organizations conditions created by the global downturn. It 2
ensure that there is proper differentiation
succeed in putting these measures in place will also ensure that they are well positioned in performance ratings between employees
they 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. 12 ViewPoint I Issue 2 I Succeeding in tough times
MA
MA: 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 (MAs). 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 MAs. 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 MA 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 MA 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 MA deal can create major 5 nalysts report an increase in
A
an independent MA intelligence
must keep in mind. problems for CEOs years after the the number of distressed MA
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 MA deals, it’s now an increase in the number of
level executives who have worked
global MA 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 MA 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 MA 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 MA 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