Strategy: The evolving M&A, and architecture built for speed

Mike Rocha

When it comes to the expansion of brands and businesses, acquisitions and partnerships have long been a mechanism for achieving rapid growth in scale and stretch and—with varying levels of success—creating shareholder value. 2015 has seen huge levels of M&A activity: At the current run rate, total deal value could reach close to an unprecedented $4.5 trillion globally this year, a near figure not seen since the record-setting, pre-financial-crisis figure of $4.29 trillion in 2007. This activity is creating a rapidly shifting marketplace as players rearrange and reform, and it’s impacting how organizations adapt internally to meet the new demands of the market.

M&As and partnerships are nothing new for ambitious companies, but in the Age of You, their purpose is not just to deliver growth: They are increasingly about speed and agility. Portfolios now must be at once fluid and focused, designed so organizations can operationally flex with changing demands, assembled to quickly and deftly craft the experiences their audiences seek, and agile enough to embrace and adapt to new and emerging platforms. It’s how organizations can move at the speed of life.

Focus: Striking the perfect balance

When businesses become too diversified, disconnected siloes and teams emerge, posing one of the greatest threats to true market responsiveness. Lack of integration leads to misused budgets, duplicated efforts, unfocused R&D, and fragmented customer experiences: Shareholder value is trapped within unfocused business portfolios.

Business structure has to start with a clear, future-focused purpose that guides how to streamline and build its portfolio. GE is one such business that made divesting decisions based on clarity around its core purpose and business model, rather than just spinning off underperforming units. In an effort to become a “simpler, more valuable industrial company,” GE announced plans to sell $200 billion of its capital assets and divested its private-label credit business—Synchrony Financial—a highly profitable and high-performing part of its portfolio, actively choosing to no longer act as a banking/manufacturing hybrid.

Real focus takes ruthless introspection and clarity of vision. In some cases, it means rigorous cleanup and internal realignment, rather than the sell off of businesses. It means the simplification of structure, focused roles, integration of capabilities, and the demise of conflicting siloes. Microsoft’s recent undertaking of such efforts is showing early success—rising on this year’s Best Global Brands Top Ten—by aligning engineering teams with the company’s core strategy, shifting leadership responsibilities to span multiple units so they work in greater harmony, and consolidating marketing efforts. P&G not only divested brands that lacked growth or fit, it also instigated a major cleanup of agencies and vendors. For Google, the creation of Alphabet meant creating focus for the Google brand in order to unlock greater value, and creating opportunities for other brands in its portfolio.

Internal cleanup and integration requires a high degree of discipline, challenging the way things have been done. Without it, the risk is a slow and heavy organization that struggles to keep up with more agile competitors and changing market demands.

Importing: unexpected partnerships

Then there are times when broadening a brand’s positioning or capability is not possible through M&A alone — when expansion or market response is simply too time, infrastructure, or cost prohibitive. In the Age of You, unwieldy operational shifts cost an organization more than it could gain—moving too slowly to respond to what audiences need, and pulling focus away from what the organization does best. This is when a partnership model is ideal.

Far from a mere marketing initiative, partnerships can help rapidly expand associations and expose brands to new audiences, however, risk lies where the equity flow between partnerships is not equal or where the partnership confuses audiences and what they expect from a brand. This needs to be managed carefully from the outset.

While GE was divesting Synchrony, it was also pursuing vastly different partnerships—from content to innovation. Its partnership with The Economist, a content play, led to Look Ahead which was designed to surface high-quality and high-value insights for global business decision makers. And with AT&T, GE is creating the next generation of smart energy solutions—combining its innovative smart meters and wireless solutions, including jointly developed communications hardware, with AT&T’s secure cellular technology.

Partnerships can also borrow from different sources and talents to create impact. CVS and IBM Watson teamed to limit medical emergencies for chronic disease patients. The pharmacy will use Watson, IBM’s cognitive computing technology, to predict chronic-disease patients in danger based on red-flag behaviors. In the U.K., McLaren partnered with GSK and KPMG, leveraging their data analytics, data processing, and high-tech expertise. With McLaren, GSK is fine-tuning their manufacturing, R&D, and nutritional research into more efficient systems. And for KPMG, McLaren is lending its predictive analytics and technology services to help improve KPMG’s audit and advisory services. By borrowing much-needed expertise, each company can quickly advance without reinventing their entire operations.

And sometimes, it’s about the acquisition of skills and talent to build new internal competencies. Both GE and IBM, for example, have actively recruited new skills, including teams from design studios, to foster creativity and innovative problem solving. Brands across the board are importing and nurturing new in-house groups, in order to meet new customer demands.

To move at the speed of life, it now may require borrowing, rather than extensive internal development. By aligning with complementary partners, each organization can strengthen its core offering, extend its positioning, accelerate innovation, and create new experiences for customers. Selecting these partners takes great care, but the value creation can be exponential.

Migration: bringing the best together

For larger organizations, restructuring and importing can offer a chance to act more like start-ups, and for smaller, innovative businesses, backing gives them access to greater resources in order to expand on what they do best. Regardless of the objective, one thing remains critical: the way any changes are communicated, integrated, and hardwired into the organization. This must be managed with the utmost care.

A migration or transition strategy is not just about what name an acquisition will take, but the impact on culture, people, processes, systems—and ultimately the customer experience.

In every case, people are key. While acquisitions bring in assets, technology, and innovation, they are powered by the people who built them. For both talent that is imported and talent that exists, there’s one fundamental question: What does this mean for me? Here’s where purpose continues to play a critical role—and where clarity is vital. Every move is a new chance to reinforce a vision, and to give everyone in the organization a role and reason to help the organization get there. That’s how the market will understand it too.

And then it’s how brands, products, and systems are integrated so they each play the right role. Every brand’s portfolio structure has to be uniquely engineered for the organization it serves—it’s not about matching logos, but about complementary offerings, coordinated and choreographed in such a way that, together, they create amazing experiences. They don’t pull equity from where it should reside; instead they constantly reinforce it.

So what does the brand architecture of the future look like? Much like the brands they reflect, they must be dynamic in order to keep pace, placing different bets, borrowing from unexpected places, and restructuring in unique ways. Whether portfolios are realigned, expanded, or streamlined, the ultimate result is still growth—but they must be designed for unprecedented speed.

Global Director, Brand Valuation