Sinopec, a state-controlled Chinese oil company, recently announced a 49 percent ownership stake in the gas assets owned by Canadian company Talisman Energy. Sinopec's strategy is to grow through partnerships with Western companies. Partnerships and outright takeovers as done by Cnoc, another Chinese state-controlled oil company, are an effective way to build business more rapidly than through internal growth alone. But partnerships and takeovers require innovation to be successful. Integrating one business with another requires new approaches and new ways of thinking to maximize the knowledge and physical assets that are being acquired.
If you find yourself in a similar situation consider the following:
- Replace: What does the other company do differently? When should ideas and approaches replace those used in your company? A great example of the latter is when Chrysler bought the failing automaker AMC and its Jeep brand in 1987. Prior to the acquisition, like other major auto manufacturers, to develop new autos Chrysler was spending large amounts of money, time, and resources—everything AMC lacked. So it was a mystery to outsiders as to how AMC had been able to develop new vehicles at all. What Chrysler discovered was this: AMC had been using relatively small platform teams—cross-functional groups that worked together in one location. These smaller cross-functional teams allowed decisions to be made much faster and problems to be resolved more quickly. In contrast, the far less efficient and more time consuming silo approach used by rest of the industry involved separate functions and divisions making their own decisions and then trying to reconcile them with the others. Chrysler recognized that they could learn something, even from a seemingly failing company, and adopted AMC’s approach of using platform teams.
- Keep Separate: Every acquisition and partnership is different. Each company brings its own business model of how to think about and execute their business. The key is to compare the models and determine which aspects should be combined and which should be kept separate. For example, one company grew over many years through a series of acquisitions. What they learned over time was that acquired companies were running different types of businesses and required very different sales approaches. One might need feet-on-the-ground talks with individual customers, prospects, and small practices. Whereas another might deal with large organizations that bought in volume and require relatively large account teams with sophisticated negotiating and financial skills to create successful bids. For many years, the acquiring company had one combined sales force. But the businesses suffered since this approach didn’t match their different sales needs. Upon realizing the importance of customizing this function, the sales groups were kept separate.
- Combine: Following an acquisition, the default practice is combining functions to gain efficiencies, economies of scale, and ultimately reduce costs. And there are good reasons to push this model forward. The claim that “we are different and must be kept separate” is strongly advocated internally when companies come together without a clear understanding of how the other works. However, often the best approach is to combine. But using exclusively or predominately a financial perspective to decide when it makes sense to combine without also understanding the nature of the businesses, new skills, and innovations involved, means that what makes short-term financial sense may lead to write–offs down the road. Procurement almost always should be combined to drive down supplier costs. Operations are typically combined too, but this is a more complex and less clear-cut decision to be made. Differing policies, philosophies, and systems can lead to disruption and increased costs. That being said, sometimes the pain and potential risk of failure from combining is worth the expected benefits.
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