exponential manufacturing and ma integration

"Exponential Manufacturing & M&A" We will begin soon...

Presenter: Thomas H Kessler, Partner – Global PMI Partners Germany

Moderator: Ana Hasbun Marketing Manager Midaxo

Exponential Manufacturing and Mergers and Acquisitions

September 2016

Thomas H Kessler German Partner

+49 172 255 9788 thomas.kessler@gpmip.com

Why is understanding

“Exponential Manufacturing”

important for M&A Integration?

Why is “Exponential Manufacturing” important for M&A Integration?

“Exponential Manufacturing” is a concept that

demonstrates how any

industry can create value

‘exponentially’

Creating growth & value

are two fundamental

concepts of

Mergers & Acquisitions

Therefore we need to ask us the question

How will we handle exponential growth in M&A Integrations?

M&A Value creation is linked to exponential growth

4

What is “Exponential” growth!

The development steps of each and every exponential growth trend

The 6 D’s of any Exponential Framework

6

Source:SingularityUniversity;PeterDiamandis

From Deceptive to Democratization

Deceptive and Disruptive

Growth

Dematerialization

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Demonetization Making it digital means that the marginal cost

of replication and distribution is almost zero

Democratizing by following the exponential path we can

reach all over a sudden 1 bn customers

Source:SingularityUniversity;PeterDiamandis

IoT

8

Results:65%par/cipa/on

•  18%implementedit

•  29%startedit•  53%startedtoexploreit

… THAT WILL IMPACT Exponential Manufacturing

THE 8 ACCELERATING TECHNOLOGIES …

Network computing

Artificial Intelligence

Robotics (incl. Sensors)

Material science

Nanotechnology

Energy (Solar specifically)

Biotechnology

Medicine

9 Source:SingularityUniversity;PeterDiamandis

Democratization multiplies the value creation options!

10

WHEREWILLYOUDEMATERIALIZEANDDEMONETIZEBEFORE

SOMEONEELSEDOESITTOYOU?

Case: The GE Appliance

approach to “Exponential

Manufacturing”

Traditional vs. exponential approach

How does GE Appliances use exponential manufacturing to renew itself?

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Traditional

OPTIMIZATION

Exponential

INNOVATION

Source:GEAppliances;KevinFNolan

Innovation at the edge of the company

13 Source:GEAppliances;KevinFNolan

Learnings from making a Pizza Oven Innovation at the edge of the company

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How is it made?

o  Traditionally a USD 10 - 15 mn investment

¨  The tools (FLEXIBLE TOOLING) spent for this pizza oven have been USD 150

o  The first one sold is generating returns, this is all about LOW VOLUME, VALIDATION, LEAN and PULL

¨  No product is made until there is a purpose or an order

o  Even the WORKFORCE it is PULL

¨  ’1B-fistbuild’ is 80% student run

o  Fabrication is all programmable and flexible

¨  1B has capital invested in a maker space; but it is not dedicated; its all about flexible machines

o  Implementing 6 sigma 1B went back to the very basic concepts

¨  It is about speed, flexibility and low cost

o  Validation thru sales: Create the idea, Launch a competitive web based design challenge, Sell via Indiegogo

Lessons learned

Source: GE Appliances; Kevin F Nolan

Results:

T2M extremely short, platform approach transforms an engineered product into a scalable (democratized)

end product

Learnings from

“Exponential Manufacturing”

for M&A Integration

What can we learn from ‘Exponential Manufacturing’ and GEA

How to bring “Exponential” to M&A Integration

If we can innovate at the edge of the company …, like GEA to

exponentially accelerate new product introduction while

reducing the cost of innovation dramatically, …

… then we need to think about M&A integration at the edge of

the company to accelerate value creation exponentially

Therefore we need to ask us the question, …

Why, When and How can we create exponential value in M&A Integration?

16

This framework can be used across several industries

How to bring “Exponential” to M&A Integration

Questions to answer:

Why integration at the edge is important!

When to integrate at the edge?

How to integrate at the edge?

What are the ‘must do’s’ for integration at the edge?

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18

Results:70%par/cipa/on

•  16%organic

•  37%acquisi/on+standard

•  47%acquisi/on+tailored

Why integrating at the edge is important

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Operational Excellence

Product Leadership

Customer Intimacy

Major value can be destroyed when the target operating model is implemented without taking note of the acquisitions existing value generation capability

Successful firms differentiate themselves by focusing relentlessly on a single value discipline, while achieving at least industry average in the other two – never seek the ‘mediocre middle’

Achieved by offering of the best products to the market by focusing on product or service innovation.

Achieved by a deep and detailed under-standing of customer drivers and values the cultivation of lasting relationships with customers, and striving to satisfy their unique needs

Achieved by product and service provisions at the lowest cost and with the least inconvenience by focusing on cost management and operational effectiveness

Why integrating at the edge is important

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Ne

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Depth of integration

Imp

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Unimportant Important

Retention

•  Strategic capabilities linked to specific organizational units

•  Development of capabilities requires a stable environment

•  How can sufficient value be generated to justify the purchase price of the acquisition?

Merger

•  Complete consolidation of operations/organization/ culture

•  Key is complete removal of boundaries

•  What time is best for complete integration?

Partial integration

•  Initial coexistence, then increasing interdependence

•  Balance between transfer and interdependence

•  Define ideal time horizon & path to mutual dependence? •  Brand management •  Sales channels •  R&D

•  Decision making freedom

Value chain extension

•  Complementary sales channels

•  Complementary research and development

•  Special, non-transferable competitive advantages (e.g. modularization of intellectual property)

Functional extension

•  Research and development •  Sales channels •  Customer relationship

management

Functional consolidation

•  Economies of scale (e.g., capacity utilization)

•  Procurement •  Sales channels •  Shared Service Centers Question the strategic

reasoning of the deal

Gro

wth

foc

us

Cost / investment reduction focus

Imp

ort

ant

U

nim

po

rta

nt

Unimportant Important

Major value can be destroyed when you select the wrong integration approach, e.g. when you stifle the targets growth engine and / or its organizational autonomy

Why integrating at the edge is important

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Major value can be destroyed when the target operating model is implemented without taking note of the acquisitions existing value streams

Value stream mapping

steps

Process steps

Information flows

Process data

Time line

Inventory optimization

Multiple suppliers and

customers

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Results:69%par/cipa/on

•  30%M&AStrategy

•  70%M&AStrategy,Integra/onStrategy,andIntegra/onPlanpre-signing

When to integrate at the edge (checklist)

q  You recognize that the acquisition will fill a very important gap in your strategy

q  You buy the business especially for its IP and talent

q  The acquisitions organizational and management structure varies significantly

from yours

q  The acquisitions business processes contrast yours

q  The acquisitions talent resource capacity is not sufficient for a large scale

integration

q  You understand that the acquisitions cultural environment is very different from

yours

q  You observed that the communication within the acquisition and between the

acquisition and its stakeholders is very different from yours

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How to integrate at the edge (ToDo’s vs. Don’t do’s)

Keep the target’s operating model running! q  Keep the nimble structures and

existing business processes alive q  Keep autonomy, responsibilities,

span of control, decision making freedom

Leverage IP and talent q  Adopt the spirit q  Become part of the team in a non

controlling, learning way q  Leverage knowhow / approach

into acquiring organization through beachheads

Foster success culture q  Identify and continue to foster the

culture that lead to success prior to the acquisition

Continue communication style q  Retain internal communication style

to support the success culture q  Connect with customers and suppliers

using the established communication style

Define value streams and docking points for value exchange q  Identify the best approach to channel

the value created within the acquired company to the operating units of the acquirer

q  Take extra care to define the exact point in time

Lean, pull and leverage q  Leverage the success through

additional investments that enable the value generation to scale while protecting the nucleus, eg. the business approach

q  Ensure full responsibility is clearly delegated to the leadership team of the acquired company

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What are the ‘must do’s’ for integration at the edge?

At the time of acquisition ENSURE:

o  Financial integration (financial / tax accounting)

o  IT integration (only within clearly defined parameters so that it does not stifle growth, hinders proven business processes etc.)

o  Legal integration (legal framework: tax and corporate laws, code of conduct, confidentiality & insider rules, etc.)

o  Implementation of key communication rules of acquirer with stakeholders other than employees, customers, suppliers; e.g. shareholders, press, government authorities

After 24 – 36 months of successful value transition:

o  Test stronger operational and value stream integration to shift overall organization towards more agile business processes

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Results:62%par/cipa/on

•  89%Yes

•  11%No

What our clients have said about us

“GPMIP greatly exceeded my expectations”

“You understood our culture, how we operate, how we work – you just got it”

“You weren’t just consultants, you were part of the team”

“Consulting differently is what we experienced. You are not a typical

consulting firm”

Our clients’ results are our currency, so we really care what they have said about us:

In the next section, we show you more specifically how GPMIP could work with you on a European integration programme.

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Books & academic

Since 2009, GPMIP Partners have delivered knowledge through:

social networks (LinkedIn)

conferences (MergerMarket, HEC, DFCG, CSOEC, …)

university lectures (ZHAW, Pepperdine, Tilburg, TAU, Wharton, …)

dedicated corporate seminars and trainings (Ericsson, Airbus, Mölnlycke, …)

podcasts, newsletters

conferences (China Outbound M&A conference in Beijing, January 2016,

Global M&A Summit – Silicon Valley in Palo Alto, CA USA, October 26th 2016)

Next Training: M&A Integration Essentials for Executives - Stockholm

books (Wiley)

Our approach benefits from our academic and training activity.

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Q&A

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The Berlin Airlift is a symbol for cultural is described by many as the birthplace of the Industrial Revolution.

The United Kingdom continues to build on its long history as a global leader

in engineering, R&D and innovation of all kinds, be it technology, life sciences, media, financial services, consulting or law.

The Berlin Airlift integrated two seemingly separate parts of Germany. It build the cornerstone for the reunification of East and West Germany and thus created significant cultural and financial development.

A global consultancy specialized in pre and post merger

integration separation and transformation

Thomas Kessler Partner GPMIP Germany +49 172 255 9788 thomas.kessler@gpmip.com

Thank you for your attention!

Contact us: team@midaxo.com Thomas H Kessler thomas.kessler@gpmip.com

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