Written by Matt Holzapfel
The business case for almost every merger and acquisition includes an assumption of significant cost savings. Unfortunately, achieving these cost savings is often harder than anticipated, which is one reason why 70-90% of mergers and acquisitions fail.
These numbers highlight the challenge of merging the processes and buying power of multiple procurement departments. This problem is most obvious in highly acquisitive companies, but is something all companies with multiple business units struggle to solve.
The business units that suffer the most as a result of this problem are the smaller, higher growth ones that have the least purchasing power. By not leveraging the spend of the entire company to drive down costs, these units are left with less money to invest in growth. This pain is eventually felt by the entire company; the businesses meant to be the future source of profit never reach their full potential, reducing the company’s ability to acquire and launch new businesses.
This problem doesn’t only affect smaller business units. The cost for a supplier to serve a company increases across the board when collaboration is poor within the company. A lack of collaboration means suppliers need to dedicate additional sales and support resources to manage relationships with multiple business units, especially if each business unit has very different processes and priorities. Further, a supplier’s ability to communicate risks and solve customer problems is reduced when it can’t piece together multiple messages coming from within a customer’s organization. Buyers should be conscious of this as they look for ways to be strong partners to their suppliers.
The first step companies should take to solve this problem is getting a holistic view of their spend to understand overlaps in their supply base and purchases. Tools like Tamr make it possible to get this view faster than ever. Once leaders have this view, they can re-design their organization and establish processes to ensure they are capturing the opportunities available from spend overlaps.
Leaders should also incentivize sourcing managers to work across business units to identify savings and manage supplier relationships. Incentives are often overly focused on how well a sourcing manager reduces his or her spend, and do not provide managers with motivation to bundle spend across business units to drive down costs company-wide. Tools like Slack, Yammer, and Dropbox make it easier than ever for teams to communicate across a large organization. These tools should be made available throughout the organization to help team members communicate supplier risks and coordinate savings opportunities.
The failure rate of mergers and acquisitions highlights the need to improve procurement collaboration within companies that engage in M&A or have a diverse set of business units. Procurement leaders who address this need have the opportunity to increase profits for business units hungry to invest in growth, while increasing procurement’s brand throughout the organization.