Former General Electric chairman and CEO Jack Welch was one of the most respected and successful chief executives of his era. He was also one of the most acquisitive. Welch completed more than 1,700 acquisitions throughout his 20 year tenure at GE, including more than 100 during each of his last four years.
The key to making these acquisitions successful was GE Capital’s integration model. Here are some highlights of that model:
- The integration process should begin as soon as the deal reaches a strong likelihood of closing. Trust your gut and do not hesitate to defy history.
- Due diligence should not be limited to financials. Human resources, marketing, operations, and other key divisions should have their own due diligence and integration plans.
- The most important element, from Welch’s perspective, was culture. If changes needed to be made, even if they were minor, they needed to begin immediately. “Be aggressive and move quickly” was a mantra that Welch often stressed.
- The integration plan would typically be completed within three months. A plan that takes too long to implement becomes a distraction to the core business and typically results in confusion. The company’s distraction also gives competitors the opportunity to steal customers.
- One person was held responsible for implementing the integration plan. Given that GE conducted 100 acquisitions per year, it was vital for those in charge to lead successful acquisitions. Failed implementations meant their days at GE would be numbered.
There are some valuable lessons to be learned from GE’s model that you can apply to your company’s next acquisition:
- Start with a plan. We suggest our clients who are acquiring companies first break down their plan by department (e.g., Finance, HR, Operations, etc.). Then, for each area, list each task that needs to be completed, the responsible party, and the due date. Consider breaking large tasks down into smaller sub-tasks. All responsible parties should report back to the team leader at least weekly with the status of the projects they are accountable for. This process makes for an integration plan that is fluid – items can be added or removed as the integration leader sees fit.
- Address people issues up front. People and power issues should be resolved very quickly after the transaction. Because things become more difficult as time passes, act right away on any known personnel issues. Bad news should be delivered immediately so you can focus on positive change going forward.Good people are always the first to leave after an acquisition, since they have the best opportunities. If you have identified strong employees of the acquired company who you’d like to retain, consider offering bonuses or other incentives to make sure they stay, adapt, and thrive within the new entity. Before the acquisition is complete, consider asking these employees to sign confidentiality agreements so they can begin working with your management team even before the acquisition is signed. This makes them part of the decision process and helps them feel like they are already part of the team.
- Begin cultural changes at the top. All executives, especially the CEO, need to actively manage the culture and model desired behaviors. First, determine the behaviors and characteristics that will best support the culture you are trying to create. Then, design compensation and benefit systems to reward those behaviors. Make sure the organizational structure and decision-making principles you create are consistent with your desired culture.
- Track your progress against pre-determined benchmarks. Most importantly, stay focused on key performance indicators for both the acquiring company and the acquired company. It is very easy to get sidetracked by the daily activities of an acquisition and lose sight of the big picture.
- Refine your plan for next time. Six months after integration, meet with the acquisition team to discuss what went well and what could have gone better. Make changes to the integration plans so mistakes aren’t repeated in the future. Our clients who have most successfully conducted acquisitions have developed a repeatable integration model so go/no-go decisions are made more quickly and integration plans are successfully implemented.
David E. Shaffer can be reached at Email or 215.441.4600.
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