The Merger & Acquisition Leader’s Sub-Playbook #2
Per our earlier article on A Merger & Acquisition Leader’s Playbook For Success, avoid the traps of poor strategic focus, poor cultural integration or poor delivery of synergies by leveraging the full playbook and its seven sub-playbooks: Strategic, commercial, operational, financial, governance, organizational, change management.
This article focuses on The Commercial Playbook and its components of organic revenue growth, marketing and sales, and customers.
Value Creation versus Value Capture
Let’s begin by appreciating the difference between value creation and value capture.
Value creation occurs when a customer pays a supplier for a product or service that costs the supplier less than the price paid. Think customer-back to create value by innovating to provide benefits that are perceived to be relatively greater than your competitors’ offering.
Value capture. You can capture value from your competitors by undercutting their prices, or reducing customers’ time or stress to take market share. However, this is why the price of everything gets competed down to its marginal cost over time. Winning that race to the bottom leaves you with a large share of a business with no value.
Organic Revenue Growth
Organic revenue growth requires marketing and sales efforts. Let’s use Philip Kotler’s definition of marketing: “the science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit.” Sales then converts that value into transactions.
Every sales funnel that ever was is a variation of awareness => interest => desire => action in which the “action” is the sales close.
Revenue funnels look like awareness => interest => decision => action in which “decision” is when the buyer decides to purchase and “action” includes closing the sale, delivering the product and experience to maximize the lifetime value of customers.
The pivot is desire or decision. If you don’t have a product or service that others with a perceived, relatively higher value than other offerings, nothing else matters.
Generally, marketing owns the top of the funnel, generating awareness, and fueling interest. Sales turns that desire into decisions and action. With that in mind, growing the top-line has to involve new customers or current customers buying more or paying more.
Mergers result in inorganic revenue growth and enable further organic revenue growth with cross-selling, new ways, new products, new geographies, end markets and new technologies.
Cross-selling is the art and science of getting the customers of one of the formerly separate entities to buy the products or services of the other entity or entities either in existing or new markets (geographies or end markets).
Customers and Consumers
Work through customers, people and capabilities, and costs—in that order. First, figure out how you’re going to win with customers.
Customers are the entities your organization sells to or serves or could sell to. These comprise direct customers who actually give you money, along with their customers, their customers’ customers, and so on down the line. Eventually, there are end users or consumers of whatever the output of that chain is. Additionally, there are the people who influence your various customers’ purchase decisions. Take all of these into account from the consumer back.
Consumers are the people that actually ingest, wear, use, or experience your product or service. They are the ultimate C in a chain of SIPOCs (supplier–input–process–output–customer). They add no further value to your product or service, no further design, no further production, no further distribution, no further service. When they are done, your product or service is consumed – hence the term, “consumers.”
Start with them. Figure out their needs, hopes, and desires. Figure out what other product or services they might consume instead of yours. Figure out the value you add to their lives or businesses and what they would be willing to pay for that—the value equation. It is important to think through technology disruption and how to stay ahead of the competition.
People and Capabilities, and Costs
Then figure out the people and capabilities you need to deliver that and, finally, manage your costs so you’re creating value for your customers and yourselves.
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Click here for a list of my Forbes articles (of which this is #771) and a summary of my book on executive onboarding: The New Leader’s 100-Day Action Plan.