Str581 strategic plan implementation-LinkedIn

Running head: STRATEGIC PLAN FOR LINKEDIN
Strategic Plan for LinkedIn
Venkat Kethanaboyina
STR/581
December 4, 2013

STRATEGIC PLAN FOR LINKEDIN
Contents
Executive Summary........................................................................................................... 3
Strategy Recommendation................................................................................................. 4
Mission, Vision, and Values.............................................................................................. 4
Environmental Scan........................................................................................................... 6
Strategic Analysis and Choice ........................................................................................... 8
Implementation Plan........................................................................................................ 10
Plan Goals and Objectives ........................................................................................... 10
Functional tactics ......................................................................................................... 10
Major Milestones ......................................................................................................... 11
Budget and Cost Projections........................................................................................ 14
Control and Evaluations............................................................................................... 15
Risks and Contingency plan......................................................................................... 16
Conclusion ....................................................................................................................... 17
References........................................................................................................................ 18

Executive Summary
LinkedIn’s first-mover advantage in professional networking segment is paying off.
The company is expected to generate $1.5 billion revenue for the current year. The secret
sauce behind this success is the uniquely sticky phenomenon of digital connections and the
user engagement it generates and creative monetization of engagement. Connections are
akin to roots. The more they are the stronger they become over time. To make meaningful
switch from one social network to a competing social network, not only the user needs to
move but also the entire professional circle. This environment creates an excellent
opportunity for high customer lifetime value. The more engaged members, the better
prospects for creating new revenue streams. LinkedIn’s mission to “Connect the world’s
professionals to make them more productive and successful” is fully congruent with this
reality. With a strong user base of 259 million professional members, LinkedIn is at an
expanding stage of growth. To guide this next stage of growth, we conducted a major
planning process. We analyzed the company’s mission, vision, and values and broader
environmental scan to understand how to achieve the growth, in a sustainable manner.
Based on this process, we developed a strategic plan to focus on the global market
expansion. This plan shows the way toward building on LinkedIn’s strengths in innovation,
speed of execution through a horizontal acquisition of a competitor XING. When
implemented this plan will enable LinkedIn to become #1 player in Europe and German
speaking markets and broaden customer base for LinkedIn products. It gives an immediate
boost to membership (14 million), revenue ($115 million/annual) and net income ($16
million) and improves key ratios such as ROE. That is just a start. Market dominance,

longer term, gives pricing leverage through economies of scale. It will unlock synergies
between LinkedIn and XING in areas such as engineering, production operations,
marketing, sales, and reduce costs and build on LinkedIn’s global brand for expanding
further across emerging markets.
Strategy Recommendation
The recommended strategy for LinkedIn is a Horizontal Acquisition of XING, a
leading talent network in Europe. The main motivation for Horizontal Acquisition is to
gain market share in German speaking (D-A-CH) countries where XING enjoys number
one position. LinkedIn dominates North American market with more than 65% revenue
stream but its penetration in international markets is not nearly as deep. Contribution from
international operations is about 35% with Europe at 22%. For comparable Internet
companies, the international revenue component is at least 50%. LinkedIn as a global
professional networking company must leverage the competitive advantages for Global
industries by increasing their global market coverage (Pearce & Robinson, 2013). XING
provides 14 million new members with attached high customer lifetime value. This
acquisition diminishes a threat and positions LinkedIn as the #1 player across Europe.
Further, such strategy contributes to increase in revenue and synergies through established
geographic partnerships, compliance with local privacy laws.
Mission, Vision, and Values
LinkedIn’s foundations and growth hinges on increasing, engaged membership. If
members do not find value, it is unlikely they will return to the site often. The company’s
mission to “Connect the world’s professionals to make them more productive and
successful.” is both expansive and global. To connect world’s professionals the company

needs a world-wide presence and strength in all markets where professional networks exist.
In markets where the company is not the strongest, and where the users are already locked
into niche players, Horizontal Acquisition is a prudent strategy. Horizontal acquisition at
the minimum has additive effect and in its best form can be multiplier by tapping into the
synergies of the combined entities (Damodaran, 2005). Such an acquisition brings the
benefits of increasing presence, brand momentum. Regional dominance in major markets
will eventually lead to strong Global brand that can truly fulfill the mission of “connecting
the world’s professionals.”
LinkedIn’s Vision is to “Create economic opportunity for every member of the
global workforce.” Geographic expansion aligns with LinkedIn values of “Everywhere”.
LinkedIn can be the vehicle and conduit for end-to-end hiring and career transition process
of professionals at all levels. A horizontal acquisition helps broaden the scale of
Talent/recruiting solutions on a global scale to all the members of the network regardless of
their location, where employers and professionals engage deeply – to share knowledge,
thought leadership, and find information and land in new opportunities.
LinkedIn values of Identity, Insights, Everywhere, Hire, Market, Sell are not market
specific. They are scalable and can be easily applied to new demographic groups to deliver
more insights, and facilitate hiring, marketing, selling – across all global professionals and
corporations. Geographic expansion aligns with LinkedIn values of “Everywhere”.
Expanded product offerings will help with “Insights” and “Hiring” and becoming better
“Market” for employees and employers engage in an end-to-end transaction during various
phases of career transition. The only limit is the size the network and the breadth of

customer reach. Horizontal Acquisition can enable the spreading of these values to more
members of the ecosystem.
Environmental Scan
The following is an assessment of LinkedIn’s external and internal environment
and specifically how the chosen strategy of horizontal acquisition supports the organization
to thrive within the context of the prevailing environment – either by overcoming
weaknesses or leveraging the inherent strengths of the organization.
External and Remote Environment
The most important factor that affects LinkedIn business is the economic growth
and businesses willing to hire people and spend on online advertising. When the economy
is growing LinkedIn is likely to grow faster than the economy because of the high levels of
recruiting activity and employees switching jobs. Geographic expansion through horizontal
acquisitions can mitigate regional economic risks to an extent. The company revenue
becomes less vulnerable to sudden, catastrophic events in a single geography. By acquiring
firm (XING) based Europe with native presence can make LinkedIn less vulnerable to
privacy related litigation. As a general approach to globalization, this also ensures the
favorability among the regional governments because of tighter coupling with local
ecosystem - employment base and partnerships with local service providers.
Industry Environment
The state of competition in an industry depends on five basic forces – industry
competitors, buyers, suppliers, new entrants, and substitutes (Pearce & Robinson, 2013).
Social networking industry is a monopolistic competition with many leading companies
such as Facebook, Twitter, Google, Four Square, etc. competing for one or more segments

of the market. For the professional networking segment, LinkedIn is a near monopoly in
the United States. It is partly because of the network effect where once established there is
a natural inertia for change – especially if such change involves the movement of an entire
professional circle. The three categories of products are offered by LinkedIn are
Talent/recruiting solutions, Marketing/advertising solutions, and Premium membership
services. At this stage of professional networking evolution, the risk of new entrants is
moderate to low and risk of other incumbent players is moderate to high. With sufficient
focus and investment, Facebook could offer professional networking features to the billion
plus membership. To thwart such moves, LinkedIn’s continued focus on product offerings
that meet the market and customer needs are the key differentiation. For example, LinkedIn
building a mobile application for Nokia phones for users in India is one such example of
differentiation. Internationally there are many niche players that are operating regionally
creating good-enough substitutes. They include XING in Germany, Viadeo in France
Woirhay (2011). Collectively these players have a chipping effect on LinkedIn’s
“everywhere” ambition. Horizontal acquisition of XING will reduce the threat of regional
players and help build a stronger international brand. That gathering strength bodes well
for any future competition with heavy weights like Facebook.
Operating Environment
The operating environment is primarily consists of its competitive position,
customers, its reputation among suppliers and creditors, and its ability to attract capable
employees. LinkedIn enjoys solid financial position with a #1 position in professional
networking and more than $2 billion in cash, and richly valued stock with a market
capitalization of near $25 billion. LinkedIn faces intense competition for tech talent from

other Internet companies; horizontal acquisition can provide diversification and new source
of talent pool. By acquiring XING, LinkedIn immediately gains access to their talent of
more than 500 highly skilled employees. LinkedIn can leverage their agile development,
continuous delivery process in the combined organization to drive synergies and
efficiencies at scale. The savings can be further invested in new innovations. Further
LinkedIn’s properties with largely curated content (Pulse, Slideshare.net, LinkedIn groups)
can be a superior way to add value and engage new members as the company expands
through horizontal acquisitions across the world.
Strategic Analysis and Choice
LinkedIn can also implement the grand strategy of Product Development and build
the product in-house by using their competitive strengths of speed of product delivery. For
example, Talent Solutions - a key product category contributes to 57% of revenue stream
with a total addressable market of $130 billion (Forbes, 2013). If LinkedIn expands
successfully into any of the adjacencies, they have a lucrative and large market to tap-into.
By acquiring and integrating with firms specialized in automated interviewing, they can
leverage proven third-party intellectual properly in this emerging talent management area.
Vertical Acquisition is strategic choice for overcoming weakness via external acquisition
and integration. It has elements of both product development and horizontal acquisition;
therefore the complexity and risk are higher.
Product development and expanded product offerings can make LinkedIn a vehicle
for the entire process of end-to-end hiring. Product Development strategy leverages
LinkedIn strengths; however, does not address the international expansion and market

share. Geographic expansion with more worldwide professional membership strengthens
LinkedIn’s global ambitions of “connecting the world’s professionals.”
Strategic Choice
Among multiple strategies a recommended choice can be based: a) on alignment
with mission, vision, and values; b) whether the principal purpose is to leverage strengths
or overcome weakness; c) whether the focus should be external or internal to achieve the
results (Pearce & Robinson, 2013). Horizontal Acquisition enables rapid market growth to
overcome weak competitive position by leveraging the firm’s strengths - specifically, cash
position, and management experience. Geographic expansion with more worldwide
professional membership strengthens LinkedIn’s global ambitions of “connecting the
world’s professionals.”
The recommended strategy is Horizontal Acquisition because it provides a new
strong base of operation in Europe – and adds 14 million strong to the global network. This
acquisition can make LinkedIn overcome the challenges surrounding privacy laws of
European countries relative to the storage of personal information. By leveraging XING’s
strong presence in Europe (XING-Colo, 2013), LinkedIn can improve its production
datacenter operations capabilities and gain control of knowledge-based resources and apply
their strengths to the LinkedIn’s superior delivery process and Big Data advantages across
the combined firm. By acquiring XING, LinkedIn immediately gains access to their talent
of more than 500 highly skilled employees. LinkedIn can leverage their agile development,
continuous delivery process in the combined organization to drive synergies and
efficiencies at scale. Horizontal acquisition strategy when effectively implemented has high
probability of value creation which is more than the sum of the individual entities.

Implementation Plan
Strategy implementation occurs when a firm adopts organization policies and
practices consistent with its strategy (Pearce & Robbins, 2013). Empowerment of people
and communicating policies and designing effective rewards are core ingredients of a
successful implementation.
Plan Goals and Objectives
The following are the objectives of a Horizontal acquisition strategy for LinkedIn:
• Complete the Acquisition of XING
• Become #1 player in Europe and German speaking markets
• Broaden customer base for LinkedIn products
• Unlock synergies between LinkedIn and XING in areas such as engineering,
production operations, marketing, sales
• Reduce costs
• Increase investment into successful products; divest low performing products
• Improve global brand image
Functional tactics
The functional tactics surrounding a horizontal acquisition are broadly in two categories:
Pre-acquisition deal management and Post-Acquisition integration. Pre-acquisition phase
involves business case evaluation, due diligence, developing the preliminary terms, and
executive approval. Negotiating the merger can be difficult, and from corporate
development perspective, hiring integration experts from leading management consulting
firm is a recommended tactic. The job of the deal/integration experts is to manage the
negotiation process in such a way that it reaches a satisfactory conclusion. They also ensure

the deal does not run into legal and regulatory constraints. The goal is to reach an
agreement embodied in the "sale and purchase agreement," which includes the key terms of
the deal (Giddy, 2006).
Post-Acquisition phase involves integration tactics involving people, process, and
systems. Successful integration must happen quickly and systematically. The period
between deal announcement and deal close and the first 100 days post-close are critical to
realizing quick wins and preparing the combined company to maximize value over the long
term (PWC, 2012). The most important part of this is to establish an integration office with
integration leadership with responsibility for three major areas: communication, change
management, and integration project management of all deliverables of the integration.
Change management is a key component of acquisition integration involving
assessment, planning, execution, and monitoring/updates. The change management lead in
collaboration integration leads and other functional teams defines and implements a set of
activities to ensure the understanding, buy-in and commitment of the newly acquired
employees and broadly all other stakeholders impacted by the change. Finally in such an
environment of change, employee and customer satisfaction are vital for the success of the
combined operations. Collecting customer, partner, and employee feedback and developing
rapid action plans by setting up war-rooms soften the change curve and help achieve full
commitment.
Major Milestones
The major implementation milestones start in earnest upon the commitment of
acquisition. The following are the major milestones in three phases (PWC, 2011):
Phase I Identify and execute Day One requirements across functions

Phase II Execute 100-day plan and critical quick wins
Phase III Execute, Track, Monitor (quarterly) long-term integration tasks to fully realize
the deal value.
Tasks and Ownership
The following are top tasks prior to the commitment of the deal.
Action Owner
Research Target Company Deal Lead
Hire Management Consultants Deal Lead
Value the Target firm Deal Lead, Consultants
Estimate the Cost of Acquisition Finance Lead, Dead Lead, Consultants
Decide on method of Payment (Stock, Cash,
Debt/Equity financing)
Deal Lead
Estimate the cost of integration Integration Lead, Functional Leads, Finance
Design high-level organizational structure Functional Leads, Integration Lead, Deal Lead
Decide rewards and recognition Integration Lead, Functional Leads
Document issues, Risk and Mitigation plans Integration Lead, Functional Leads
Go-No-Go decision Board
The following are top actions post-acquisition/commitment of the deal.
Action Owner
Launch Integration team and governance Integration Lead
Prepare and Execute announcements Integration Lead

Integration Kick-off Integration Lead
Complete 90+ day plan Integration Lead, Functional Leads
Conduct Detailed Integration Planning Integration Lead, Functional Leads
Execute Communication Plans Communication Lead
Execute Change management Plans Change Management Lead, Functional Leads,
Integration Lead
Conduct Post-commit milestone review Integration lead, Functional Leads
Close-out the Project Integration Lead
At a more granular level, each function will have a team responsible for executing
the tasks specific to their area. For example, engineering functional lead and work group
will be responsible for engineering integration tasks that must be reviewed in terms of
current state and end-state. Development methods, source code management, document
management, program/portfolio management standards, defect tracking, quality standards,
security compliance, H/W infrastructure standards, etc. are some of those tasks.
Resource allocation
The following are the key resources, which are in-turn supported by members of
their team and outside consultants.
Deal Lead: This is the primary role during the due diligence process. He or she is from the
corporate development, assisted by business analysts and financial analyst and consultants.
Integration Lead: Once the deal is committed, this is a point person to integrate
successfully the businesses with the help of functional leads, change management, and
communication.

Functional Leads: These are responsible for plans and execution across different functions:
Engineering, Marketing, Sales, Service, Operations, Facilities, Legal, HR
Change Management Lead: Responsible for assessing, planning, executing, and
monitoring/adjusting the change management plan. This involves communication, training,
and leadership sponsorship.
Communication Lead: Responsible for communication strategies and detailed execution.
Consultants: Provide expert guidance and best practices within the context of the industry
and acquisition target.
Budget and Cost Projections
From the acquirer’s (LinkedIn) perspective, the largest budget item is the cost of the
acquisition. Depending on the operating model of the combined firm, the valuation of the
target can include two parts: Independent value of the target firm (XING) and the value
attributed to the synergy of the acquisition. According to Damodaran (2005) “The firm that
is indispensable is the acquirer, therefore no synergy premium is recommended.” XING
has no outstanding debt therefore a reasonable Enterprise value can be approximated to the
market capitalization of $425 million (MorningStar, n.d.). This can be all-cash transaction
using LinkedIn’s excess cash position of $2 Billion. Integration costs are another major
component of the budget. According to PWC (2011) survey, integration costs are
underestimated in 60% of the acquisitions. The following provides a very simplistic view
of the budget line items.
Cost of Acquisition: $425 million
Cost of Integration (top down estimate based on historical data): 15% of $425 million
= $63.75 million

Item Cost
Enterprise Value of XING $425,000,000
Integration (Top down estimate – industry
average)
$63,750,000
Total $488, 750,000
It is imperative to revise the top-down estimates using a bottom-up approach during the
course of the integration taking the inputs from multiple work streams and roll up to the
overall integration budget.
Control and Evaluations
In case of acquisition of a profitable firm such as XING, break-even analysis is not
a useful measure. Market leadership is the most important measure of success, which when
achieved provides additional leverage to achieve greater profits. From the stakeholder
perspective, another compelling measure of the operating synergy will be increased return
on equity (ROE). LinkedIn ROE is just 2.05% whereas XING, the number is 16.69%. On a
weighted average basis, the ROE of the combined operations is estimated at 2.34% (which
is an improvement). Balanced score card provides quantitative and qualitative measures of
success – and indications whether the strategy is working or new tactics and/or strategies
are needed.
• Market share (achieve #1 position in 18 months)
• Integration project milestones – hit all milestones 90% of the time or greater.
• Revenue and Profit growth – There is no reliable data on XING’s five-year revenue
and profit estimates*.

• Customer Satisfaction - Achieve 4.5 or higher on scale of 5
• Membership growth – Achieve membership growth better than Industry average.
• Membership churn rate (in the target markets, Europe) – Maintain the churn rate
better than the target firm (XING).
Risks and Contingency plan
This strategy is low risk because the success of the expansion is mainly dependent
on proven abilities of both companies. Despite that historical statistical odds of success and
achieving the desired results are 50-50 over a longer period. Even on a shorter time frame,
20% of the acquisitions fail within four years (Damodaran, 2005). Some of the risks
associated with a merger include:
• Culture and communication issues
• Talent Retention Issues
• Majority of mergers and acquisitions do not create value and fail to produce the
anticipated synergies and value.
• Implementing an integration strategy is not easy
• Can bring the company into conflict with antitrust law
Despite the inherent risks, LinkedIn must employ the horizontal acquisition for the
potential of gaining undisputed market leadership region-by-region. Some of the risks of
integration can be mitigated through effective change management and cultural integration
early by establishing a strong integration office with accountability. Engaging experts from
reputed management consulting firms specializing in mergers and acquisitions is a highly
recommended. The risks associated with not delivering on the synergies can be addressed
through divestiture (or shutdown) of XING products and standardize on LinkedIn

offerings. In the unlikely event of a government anti-trust action, LinkedIn should continue
to explore alternative strategy of Market Development, supported by an aggressive
marketing campaign.
Conclusion
The underlying driver of each of LinkedIn offerings is the strength of the network –
members and customers who advertise on LinkedIn marketplace. Geographic strength can
be achieved through horizontal acquisitions. In horizontal acquisitions, the key goal is
economies of scale - reduce costs or increase profit margins and sales via increased market
share. LinkedIn’s net cash position can be leveraged to acquire XING without impacting
current operations. However, such strategies have multiple inherent risks. LinkedIn must
employ key tactics, including hiring outside experts, establishing an Integration
management office and stay ahead of the curve on the cultural understanding of both firms.
This can soften the change curve to create successful integration that can unlock the full
potential of the combined operations.

References
Alexa (2013). Site information for Linkedin.com
Viewed from: http://www.alexa.com/siteinfo/linkedin.com
Damodaran, A. (2005). Mergers & Acquisitions: An Introduction Acquisition Valuation
Downloaded from:
http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/AcqValn.pdf
Finviz (2013). Financial Visualizations
Viewed from: http://www.finviz.com/quote.ashx?t=LNKD
Giddy, I (2006): Mergers & Acquisitions: An Introduction
viewed from: http://pages.stern.nyu.edu/~igiddy/articles/mergers_intro.htm
Hill, R, Weiner, S. (2008): Seven Steps to Merger Excellence
Viewed from: http://iveybusinessjournal.com/topics/the-organization/seven-steps-
to-merger-excellence#.UpU9FsRDsrU
Investors.LinkedIn.com (2013). LinkedIn third quarter earnings slide deck.
Viewed from: http://investors.linkedin.com/events.cfm
MorningStar (NA). XING market capitalization and other facts
Viewed from: http://www.morningstar.com/invest/stocks/342553-o1bc-xing-
ag.html
Pearce II, J.A., Robinson, R.B. (2013). Strategic Management. Planning for Domestic &
Global Competition. Thirteenth Edition. Copyright ©2013 by The McGraw-Hill
Companies, Inc
PWC (2012). Seven fundamental tenets of successful integration

Downloaded from:
http://www.pwc.com/en_US/us/transactionservices/publications/assets/seven-
tenets.pdf
PWC (2011). How synergies drive successful acquisitions
https://www.pwc.com/en_US/us/transaction-services/assets/how-synergies-drive-
successful-acquisitions.pdf
Smeets, V., Ierulli, K., Gibbs, M. (2013). AN EMPIRICAL ANALYSIS OF POST-
MERGER ORGANIZATIONAL INTEGRATION
Downloaded from:
http://faculty.chicagobooth.edu/michael.gibbs/research/papers/Mergers.pdf
Stompery, A., Pichlerz, P., Zulehnerx, C. (2007). Why Leverage Affects Pricing
Viewed from http://web.mit.edu/astomper/www/papers/pricing.pdf
Woirhay, N (2011). LinkedIn against its European competitors
Downloaded from: http://www.iko-system.com/files/2012/10/LinkedIn-vs-
competitors.pdf
XING-Colo (2013). XING collocation facilities
http://www.telecitygroup.com/our-customers/xing-colocation.htm

Str581 strategic plan implementation-LinkedIn

More Related Content

Similar to Str581 strategic plan implementation-LinkedIn

Recently uploaded

Str581 strategic plan implementation-LinkedIn