As companies seek to become more agile in their business processes to better serve clients, as well as achieve growth and sustainability in the long run, many look towards digital transformation via mergers and acquisitions (M&As) as they provide the speed and flexibility to capture emerging opportunities before the competition.
This option becomes an even more attractive measure as it also sidesteps today’s supply-side challenges on the talent and skills front without compromising on growth.
With the growth trajectory of M&As set to remain robust throughout 2022 and onwards to 2023, we are also seeing strong evidence supporting the use of consolidation to drive digital transformation.
According to EY and Deloitte, not only does digital adoption of new technologies account for over one-quarter of deal volume and one-third of the deal value in the first half of 2022, but more than a third of business leaders report that the most ideal time period for digital transformation occurs during the transaction.
Hence, it comes as no surprise that M&A has become an effective mechanism to help support the digital transformation of a company using the power of transformative deals to unlock value.
Companies that are interested in pursuing consolidation must therefore consider the initial challenges of bringing multiple disparate businesses together in a single global strategy. Some of these challenges include disparate groups within the company undertaking digitalisation efforts in silos, asymmetrical expectations on desired business outcomes, as well as misalignment across business functions and operation processes.
However, these pitfalls can be circumvented by establishing clear governance and leadership to ensure that the company adopts a strategic and focused approach towards transformation – breaking down the project into smaller streams and prioritising key elements without losing sight of the strategic vision wherever applicable.
Additionally, it is key that leaders ensure that similar functions and processes are aligned from the get-go so that they not only cut down on redundancy but, more importantly, can leverage the capabilities across the departments to come together to facilitate the transformation process.
Therefore, it is key that business leaders develop a calibrated and cohesive digital transformation strategy that integrates digital capabilities throughout the business to ensure a successful outcome.
In this regard, there is the “triangle of trade-offs” to consider, with three key yet diametrically opposed sides that represent the peak outcomes that businesses desire to achieve.
However, organisational constraints create opportunity costs for the side that is deprioritised in the interest of the others. Hence, it is imperative for key decision-makers to understand the chain of implications when deciding to prioritise one outcome over another.
Setting a strong foundation to integrate disparate businesses
The challenge of bringing multiple, disparate businesses together is exceptionally complex – not just in terms of technological alignment through a shared architecture, but also to ensure the right balance between conflicting outcomes that the business is trying to achieve as well as having clarity on what are the desired business objectives that need to be achieved.
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Due to the aforementioned “triangle of trade-offs”, compromise and operational gaps are bound to occur. Every transformation initiative requires time, resources, and finances, therefore, prioritisation is key, especially as the integration process ensues.
For instance, if the leadership team decides to minimise changes to legal and contractual implications for clients and to its taxation structure, this will come at the expense of operational efficiency in the short term. Without clarity on the priority objectives, it hinders leadership and employees’ buy-in on the project, disincentivising progress.
Another strong pillar of this integration is people and culture, the backbone and changemakers of companies. Bringing multiple unique businesses together requires a correct balance in the leadership team, with as smooth a transition as possible for the workforce. The team’s calibre of leadership and alignment with the global strategy is critical to rolling out initiatives faster and with trust and confidence.
This entails having a leadership team that is representative of the major businesses forming the new entity. Cultivating organisational listening and inward reflection as part of the new company culture is critical as everyone comes with a bias of what we know and what is more intuitive to follow.
While a company’s culture is not created overnight, carefully thought-out and calibrated decisions that promote employee confidence will be advantageous during this transitional period and forward.
Furthermore, with disruptive innovations constantly emerging and evolving, it is essential to have an involved leadership team that can evolve what “digital” really means to the combined business and bring along far-reaching transformative benefits to the organisation.
Data is at the heart of digital transformation
One of the core changes and critical enablers for a digital transformation programme is a focus on becoming cleaner in master data and master data governance. When executed successfully, its impact is felt across the whole company, not just in terms of income generated but, more importantly, client and employee experience.
While a change was previously viewed across three capabilities – people, process and technology, this new digital world requires change management and a shift to a client-centric model. It is imperative for companies to utilise their skills to align back to the client experience. Therefore, companies should view data as the vital fourth cog in the client experience wheel.
The impact of data can be tracked across three stages – short, medium, and long-term.
- Short-term: understanding how data can be an asset and generate the most tangible benefits for you immediately, i.e., cost savings
- Mid-term: simplifying and standardising data across different countries and potentially different enterprise resource planning systems
- Long-term: deriving insights from data that will inform the company’s future direction
However, data programmes are not something technology teams can manage alone. It must be done in alignment with the business goals and objectives. Once again, the “triangle of trade-offs” means that the leadership team must prioritise important data functions based on the current business demands.
It is paramount, then, that leaders anticipate which areas of their business will be hit hardest by the changes and ensure that there is enough bandwidth to manage it. Otherwise, it would be ideal for acknowledging early when they do not know something and bring in the experts.
Partnership is key to unlocking and driving agility and innovation
To remain relevant and competitive in this increasingly complex digital world, companies must continuously improve both the end-to-end service provided to clients and the efficiency of internal processes. Partnerships with relevant service providers are a source of competitive advantage, freeing up other organisational resources to focus on core business functions.
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For instance, NTT Ltd initiated a global Excellence Programme, which was supported by best-in-class business process service partners. Through this partnership, NTT Ltd was able to introduce operational efficiencies in select back-office functions. This was necessary to maintain efficient, controlled processes and enable the team to become a more agile, innovative and sustainable business.
Such partnerships enable companies to focus on their core businesses and empower them to make continued investments in various aspects – including their people and innovate across the IT services and infrastructure, networks, cloud, and the edge – that will further enable them to unlock more growth opportunities, ensuring their continued success and longevity.
Driving such changes calls for business leaders to consider the balance between speed and the quality of delivery based on their priorities. It is imperative that the companies receive a solid communications plan and give leaders plenty of time to prepare. Once they are fully on board, the rest of the business follows.
The need for a strategic enterprise-wide approach
In summation, a successful digital transformation exercise requires a strategic enterprise-wide approach, an innovative culture, and a clear vision from the top management. M&As offer the opportunity to quickly acquire essential technologies and talent for digital transformation.
It can be extremely challenging to successfully execute a comprehensive and large-scale transformation across the entire organisation. Companies may therefore need to break the transformation project into smaller work streams and prioritise the ones to focus on without losing sight of the strategic vision.
In identifying these priorities, companies will need to balance investing for growth, reducing costs, and driving profitability. In this regard, digital transformation must not be merely perceived as a destination but an ongoing journey that companies are still navigating. It is important to keep an open mind to maintain the agility of the business strategy during the digital transformation process.
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