Apes and the Origins of Leadership!!!!

In considering some of the basic The Origin and Psychology of Leadership, Richard Wrangham and Dale Peterson (Professors in Biological Anthropology at Harvard University), made a study in Demonic Males: Apes and the Origins of Leadership.

 

The study present evidence that only humans and chimpanzees, among all the animals living on earth, share a similar tendency for a cluster of behaviors: leadership, violence, territoriality, and competition for uniting behind the one chief male of the land.

 

Many of you might think and argue that many animals beyond apes are territorial and exhibit violence, and have a social structure controlled by a dominant male (lions, wolves, etc.).......which is all true. This is where Wrangham and Peterson's evidence point that there is a difference of their competitive urge and drive to lead.

 

The study concludes that leadership has something to do with being competitive! The reason I like this is that in the coaching work I do with so many executives, I meet a lot of executives who are more mangers instead of leaders. And I believe this points very much out the missing aspects that many times these administrators (mangers) miss.

 

Regards – Mark von Rosing

 

 

NLP and how it can be applied to leadership

I have a lot of Executives asking me: what is NLP (Neuro-linguistic programming) and what can they do with NLP and can it be applied to leadership!? The simple and short answer is: Programming the language of your brain and yes, it can be applied to leadership! Some might ask themselves what possible good that can be!? Even though the practical process is complex, the answer is simple: Outstanding results can be achieved by producing specific communication to and through the nervous system. Which basically means that, NLP is an interpersonal communication model and an alternative approach to psychotherapy based on the subjective study of language, communication and personal change! Therefore it can only influence you, they way you communicate and thereby your leadership process. It was co-created by Richard Bandler and linguist John Grinder in the 1970s. The initial focus was pragmatic, modeling three successful psychotherapists, Fritz Perls (Gestalt Therapy), Virginia Satir (Family Systems Therapy), and eventually Milton H. Erickson (Clinical Hypnosis), with the aim of discovering what made these individuals more successful than their peers. In leadership this is very relevant as in most companies, the leaders receive the same basic training and learn the same leadership method and techniques. These individuals are managing the same people, products or services at the same prices as their fellow Executives. They are usually working with similar demographics and more or less equal territories. Given all of these similarities, how are some leaders able to become great leaders and help their people they lead/manage grow as well as the companies gain market share, while so many other leaders struggle just to make their minimum quota?

 

The conclusion has to be, that the success of a leaders goes beyond having good employees, products and services, knowledge of those products and services, and knowledge of leadership methods and techniques. The success of excellent leaders goes beyond having good employees, products and services, knowledge of those products and services, and knowledge of leadership techniques. Excellent leaders literally see the world differently.........they have a different mindset.

 

This is one of the reasons that today the predominant patterns of NLP, the application of those patterns, and many variants of NLP are found in many leadership seminars, workshops, leadership books and audio programs in the form of exercises and principles intended to influence change in self and others (for example a customer). Watch out when buying some of these offers, there is a great deal of difference between the depth and breadth of leadership training and standards, and some disagreement between those in the field about which patterns are and are not "NLP" and how it applies to leadership. I know this sound scary, however while the field of NLP is loosely spread and resistant to a single comprehensive definition, there are some common principles and presuppositions shared by its proponents. Perhaps most generally, NLP aims to increase behavioral choice by the manipulation of personal state, belief and internal representation either by a practitioner/trainer, or by self-application. Therefore it is for the performance of the leadership professional very important.

 Some of the main ideas from NLP, imported from existing counseling or psychotherapy practice, include:

• Problems, desires, feelings, beliefs and outcomes are represented in visual, auditory and kinesthetic (and sometimes gustatory, olfactory) systems.

• When communicating with someone, rather than just listening to and responding to what a person said, NLP aims to also respond to the structure of verbal communication and non-verbal cues.

• Certain language patterns such as the meta model of NLP can help clarify what has been left out or distorted in communication, to specify thinking and outcomes, reframe beliefs, and set sensory specific goals. In contrast, the Milton model language patterns are intentionally non-specific and metaphoric to allow the listener to fill in the gaps and make their own meaning from what is being said and find their own inner resources and solutions for problems.

• The actual state someone is in when setting a goal or choosing a course of action is also considered important. A number of techniques in NLP aim to enhance states by anchoring resourceful states associated with personal experience or model states by imitating others.

 

So the real question and conclusion a NLP coach or practitioner should come to is:

1. How and what should you do to produce optimum leadership results.

2. How can you duplicate leadership excellence in a short period of time.

 

As already mentioned short, in NLP, modeling is the pathway to leadership excellence. The very idea is that if you identify the traits and habits, and pay the price of time and effort of a successful athlete, friend, parent or leadership professional, you will become a successful athlete, friend, parent or leadership professional. From business we all know that successful Executives make money by determining what is successful in one leadership and thereby decision situation and duplicating it in another. Take a proven system and duplicate it, and maybe improve upon it, in terms of effectiveness, efficiency or innovation. As this idea is the basis of Business Process Management (BPM), it might sound too simplistic for you, but there is scientific proof that, people who do this are virtually guaranteed success. NLP in its very basics believe that the difference between those who succeed and those who fail isn't what they have – it is what they choose to see and do with their resources and experience of life. I guess this why it has become so prominent the last 30 years. For NLP is a tool to develop your own insights and strategies and help you change what you need.

 

This might sound very complex and difficult, but let's look at it a little more simplistic: you can teach a dog patterns that will improve his behavior. From psychological as well as a behavioral science view, you can actually do the same with people (yourself). What is the message with that - as my brother always puts it (and lives it): "seize excellence, and make it your own". Let's face it, isn't it true that building from the successes of others (seeing what works) is one of the fundamental aspects of most learning! Technology – every advance in technology is based on the foundation of earlier discoveries and breakthroughs. This however doesn't change the fact that for many, NLP and its basic principles are really a way of thinking, an epistemology — the study of knowledge — of how we know what we know. As an Engineer, I however have to say that in considering NLP as a science, it is important to recognize that the epistemology of NLP is more 'subjective' and 'systematically' oriented than many 'hard' sciences, which tend to be more 'objective' and 'deterministic'. That is the patterns explored and identified by NLP are often necessarily contextual and influenced by the perceptual filters of the observer. As a scientific approach, then, NLP tends to be more 'qualitative' than 'quantitative' and more 'structuralist' than 'materialistic.......but since this is deep psychological and mindset approach, it is argued that this is scientifically speaking valid. It has been analyzed and proven that there were a few common traits expert leadership communicators and successful Executives have – whether top executives or top leaders– all seemed to share (study by Bandler and Grinder, 1979):

• Everything they did in their work, was pro-active (rather than reactive), directed moment to moment by well-formed outcomes rather than formalized fixed beliefs

• They were exceedingly flexible in approach and refused to be tied down to using their skills in any one fixed way of thinking or working.

• They were extremely aware moment by moment, of the non-verbal feedback (unconscious communication and metaphor) they were getting, and responded to it - usually in kind rather than by analyzing it.

• They enjoyed the challenges of difficult ("resistant") clients, seeing them as a chance to learn rather than an intractable "problem"

• They respected the client as someone doing the best they knew how (rather than judging them as "broken" or "working")

• They had certain common skills and things they were aware of and noticed, that were intuitively "wired in"

• They worked with precision, purpose, and skill

• They kept trying different approaches until they learned enough about the structure holding a problem in place to change it

 

They summarized their findings in the following ways:

You need only three things to be an absolutely exquisite leader and communicator and change to be successful. I have found that there are three major patterns in the behavior of every leader I've talked to. The first one is to know what outcome you want. The second is that you need flexibility in your behavior. You need to be able to generate lots and lots of different behaviors to find out what responses you get. The third is you need to have enough sensory experience to notice when you get the responses that you want [...] (Bandler and Grinder, 1979)

 

This is very important for that is a scientific proof that leadership excellence can and is made. The success of excellent leader goes beyond having good employees, products and services, knowledge of those products and services, and knowledge of leadership techniques. Excellent Leader literally see the world differently, because leadership superstars have a different mindset.

The hard reality is that whenever your leadership performance is below where you know it should be, examine your mindset.

 

Many leaders underestimate the difficulty of developing a "leadership success mindset".  They confuse a mindset with the simplistic positive thinking movement ("Every day, in every way, I am getting better and better.")

 

So what is the right or the wrong  "leadership success mindset?

 

The answer is that we all act in accordance with the way we see ourselves to be.

–         We always act as we see ourselves. People who see themselves as intelligent do the things that intelligent people do.

–         People who see themselves as athletic do the things that athletic people do.

–         What takes effort is acting contrary to your self-image—and it usually ends in defeat.

–         If you think you do something good…..can or will you then improve?

 

Therefore if your self-image is not that of a leadership success mindset, you will not engage in the leadership behaviors that can make you and your company highly successful.

 

In NLP, here are the 3 very basic and fundamental ingredients that must be duplicated to form any form of human excellence and thereby leadership excellence:

1. Belief System (read about how to change your belief system: www.xing.com/app/forum?op=showarticles;id=7371165)

2. Mental Syntax – organise thoughts, and understand how other people organise their thoughts. "Unlock the code"

3. Physiology – the way you breathe, hold your body, posture, your movements, determines what state you are in.

 

Now how this is done and put to everyday life, comes in slightly different versions of what coaches or practitioners consider to be the basic principles or presuppositions of NLP, but there is a fairly high degree of agreement on those most central to NLP. So here are some generalizations used as working guides (maybe it can help the one or the other).

• Behind every behavior there is a positive intention. Even a seemingly negative thought or behavior has a positive function at some level or in some other context. (presupposition)

• There is no failure, only feedback. (presupposition)

• The meaning of the communication is the response it produces, not the intended communication. (presupposition)

• One cannot not communicate: Every behavior is a kind of communication. Because behavior does not have a counterpart (there is no anti-behavior), it is not possible not to communicate.

• Choice is better than no choice. An idea from cybernetics that holds the most flexible element in a system will have the most influence or choice in that system.

• People already have all the internal resources they need to succeed. (presupposition)

• Multiple descriptions are better than one

Sorry for making this a long article, but this subject is deep and this is really just scratching the surface and in ending, here is my very practical advice: Your behavior and actions are a result of your state of mind. The ancestor of every action is a thought (which creates your mindset)......but this is nothing new, already in the teachings of Buddha, the Torah, the Qur'ān and in the Bible it is stated the same basic principle "beware of your thoughts, they are the gateway to your actions". So, if one changes ones mindset/beliefs, one can achieve huge results. There is simply no power like the power of a resourceful state of mind, for the kind of behavior people produce is the result of the state they are in. How they respond to the state they are in is based on their models of the world (there believe system). Most leaderstake little conscious effort to direct their mindsets. Mindset change is what most leadersare after, when they want success.

 

So let me end, in saying, if you want something real practical to start to work with NLP in leadership, here is something you should start working with:

1. Control your thoughts they become your dreams/visions and thereby directions

2. Control your dreams/visions they become your actions

3. Control your actions they become your habits

4. Control your habits they become what you will be made of as a leaders...............your destiny and hopefully your success

 

I know these are very psychological soft skills we are talking about and as you can read from my article I strongly believe that leadership excellence is made, not born. That's why I actually wanted to create this forum and I'm personally dedicated to understand the process of mastering this difficult task.

I hope you enjoyed what you read.

 

Regards your moderator Mark

Emotional Intelligence - a leadership mentoring and coaching performance framework

In this blog I would like to take you to the exciting topic of Emotional Intelligence and with this present a leadership mentoring and coaching performance framework. There are several types of intelligence that human beings are equipped - with some more, with some less. Most leaders believe that the logical-mathematical type of intelligence (the IQ rating that many people focus on) has the most impact on whether you have success in their leadership. That is absolutely wrong. If you want to do something that can really help you improve the quality of your leadership style (in every way) - there is one thing that comes first: strengthen and cultivate your emotional intelligence as much as you possibly can.

Research has revealed that being successful or being a peak performer can be learned. We know that many organizations have a small number of peak performers carrying the main responsibility for revenue targets for the entire team or company. Peak performers can be made and replicated. Their skills, attitudes, and habits can, by mentoring and coaching be taken to new heights. We initiated exploratory research with 1500 leaders: one-third executives, another third directors or managers, and the rest primarily business owners and consultants.

The research revealed our findings of average emotional intelligence scores for different job titles. The sharp decline for director titles and above reveals the incredible deficit in emotional intelligence among senior leadership in organizations.

For every title above, emotional intelligence has more influence on job performance than any other skill. Furthermore did the research revealed three important things:

1. The personalities of leaders directly and significantly influence employee satisfaction and job performance

2. When employee satisfaction is high, positive business outcomes result

3. When employee satisfaction is low, negative business outcomes result

In addition we asked participants to choose the five most and least valued leadership competencies from a list of twenty, which included items that reflect both Emotional Intelligence and general leadership competencies. This study finds that leaders consider Emotional Intelligence competencies (such as Relationship Building and Adaptability) more important to leadership success than traditional leadership competencies (such as Planning and Financial Acumen).

Major Findings
Striking Agreement

Participants in this study were asked to evaluate a set of standard leadership competencies, including both Emotional Intelligence competencies, such as relationship-building and self-awareness, and non-Emotional Intelligence leadership competencies, such as execution and financial acumen.

l Vision topped the list of critical leadership competencies – across nearly all levels, experience, and personality types. Also ranked in the top five are Strategic Thinking, Relationship Building, Execution, and People Development. Our respondents, then, view successful leadership as a combination of Emotional Intelligence and non-EI skills.

l Emotional Intelligence competencies are viewed as essential to successful leadership, especially the complex competencies of Vision, Relationship Building and People Development.

l Of the remaining items, leaders rated all the EI competencies– including Adaptability, Optimism, Empathy, and Self-awareness – as more important than all other general leadership competencies presented.

Findings: What’s Important to Successful Leadership
All Respondents (n=1500)

Some Notable Differences

We did find, however, that differences in job classification and level, leadership experience, personality type, and gender reveal important distinctions regarding the competencies seen as crucial to successful leadership.

· Experienced leaders rated certain competencies somewhat differently than leaders at earlier stages in their careers. For example, the more experienced the leader, the more value placed on Change Leadership and Optimism and the less value placed on Execution.

· Women and men ranked items quite similarly, with just a few differences. Women rated Strategic Thinking and Relationship Building more highly than did men, who rated Achievement Drive more highly.

· While participants from all job levels valued EI competencies, they varied in which ones they consider important. For example, of all job levels, far more Executives (34%) valued Optimism as a leadership competencyy than did Managers/Directors (14%), Founder/ Owners (18%), or Consultants (13%). At the same time, far fewer Executives (31%) valued Relationship Building than did Managers/Directors or Consultants (50-70%).

Our study found a strong correlation between business performance and EI, but no information on how leaders themselves view elements of EI relative to other aspects of leadership and thereby how your managers and executives mentor and coach their team.

Here some other research examples that come to the same conclussion:

· 70% of employees’ perception of the organizational climate is associated with the emotional intelligence of the leader (Goleman, 2008)

· Positive mood of the leader promotes worker productivity and retention (George & Bettenhausen, 2003)

· Team members tend to share moods whether positive or negative with more positive moods associated with increased performance (Totterdell et. Al, 2008)

· A study by National Insurance Company found that agents low in EI sold policies of $54,000 compared to those high in EI worth $114,000 (Hay McBer, 2009)

For your company culture of how your managers and executives mentor and coach their team and how your teams perform, is symbiotic. It will be illustrated how each part of value the enterprise delivers to a customer, employee or shareholder, comes from how an manager and executive has mentored and coached their employees to handle or optimize the processes. There is scientific proof between the relationship of poor employee, team, department and company performance. This is reflected in a recent study by the International Coach Federation. The report documents improvements for those who received professional mentoring and coaching from their managers:

· Increased productivity awareness 68%

· Enhanced communication skills 40%

· More balanced work life 61%

· Lower stress levels 57%

· Enhanced innovation 53%

· Increased employee satiesfaction 52%

· Improved quality/less mistakes 43%

· Better goal setting/operationel excellence 62%

All in all mentoring and coaching from the leader is reported to produce more than a 500% return on investment and significant intangible benefits to the business as well.

The factors that Makes a Leader:

1. Effective Leaders are distinguished by a high degree of EI


2. Identifying individuals with the “right stuff” is more an art or a science


3. Without EI, a person can have the best training, an incisive, analyitical mind, and an endless supply of smarts but still won’t make an effective leader.


4. The list of ingredients for highly effective leaders ranged in length from 7 to 15.

- Intellect was a driver of outstanding performanc

- Cognitive skills such as big picture thinking and LT vision were important

5. The erhe rank of a person considered to be a star performer, the more EI capabilities showed up as the reason for their performance.

6. Star performers compared to average ones had 90% more attributes of EI.

7. EI increases with age and experience; sincere desire and concerted effort

• Self Awareness- the ability to recognize and understand your moods, emotions and drives as well as their effect on others. Self confidence, self assessment, sense of humor

ü Will be frank in admitting to failure

ü Are comfortable talking about their limitations/ weaknesses as well as their strengths

ü Have a thirst for constructive criticism ( thick skin)

ü Can be easily recognized

• Self regulation- the ability to control or redirect disruptive impulses and moods; to suspend judgment; think before acting. Trustworthiness, integrity, OK with ambiguity

ü Everyone has bad moods and impulsive emotions at time but find ways to control them

ü Are able to create an environment of trust and fairness easily

ü Politics and infighting are sharply reduced

ü T/O in the organization is sharply reduced

ü Enhances integrity this strengthening the organization

• Motivation- a passion to work/ achieve for reasons that go beyond $ or status, hi energy, strong desire to achieve, persistent, does not fear failure

ü The one trait ALL effective leaders have

ü The drive to achieve beyond expectations is “over the top”

ü Forever raising the performance bar for themselves and the organization and keeping score

ü Always remain optimistic regardless of the situation

• Empathy- the ability to understand the emotional make-up of others. Sensitive to others needs/ emotions

ü Is the most easily recognized

ü Thoroughly consider EE feelings along with all other factors when making decisions

ü Important for the growing need to develop and retain good people

ü Cross cultural dialogue can sometimes be easily misunderstood

ü Creates an effective ability to manage relationships

• Social Skills- proficiency in managing relationships & build a strong network. Change agent, lead people where you want them, wide circle of acquaintances

ü Friendliness with a purpose

ü have a wide circle of influence

ü get work done thru people

NO LONGER A “NICE TO HAVE” IT IS NOW A “MUST HAVE”, for increasing your Emotional Intelligence can truly help you improve in all areas of leadership; in all aspects of communication, negotiation, and objection handling as well as the important motivational abilities.

I know that when we talk about the Leadership mentoring and coaching performance framework, that these are very psychological soft skills we are talking about and as you can read from my different article, do I strongly believe that leadership excellence is made, not born. That's why I actually wanted to create this Blog and Forum and I'm dedicated to helping you leadership grow beyond where you are today. If you need help in better understanding and exploit your potential in order to turn you into action mode and help you break through self imposed limitations that are holding you as an organization or leader back from the power, balance, growth, and success that you strive for. Let’s us talk about how I can help you explore how it is possible to build new levels of performance - helping you to remove the mental and emotional obstacles that are limiting your leadership and professional growth, power and leadership development.

If you are interested in a course that can strengthen this ability this could be an option:
1) www.rosenteam.com/leadership-performance/emotional-intelligence-in-leadership/

2) www.rosenteam.com/leadership-performance/become-a-mentor-and-coach/

3) www.rosenteam.com/leadership-performance/advanced-leadership-coaching-program/

If you have any questions please feel free to contact me via email: mvr@rosenteam.com

Regards your moderator

Mark von Rosing

Recession Sales Strategy

A recession is possibly the best time to launch a new business or to sell more through your sales people and your partners in an existing one. I know this sounds counter-intuitive, so let me x’splain.

 

As we all know………first, the media goes nuts during a recession. They turn a little bit of negativity into a mountain of pessimism and then it really starts to get going. This makes a lot of companies financially paranoid. Both companies and individual people become socially conditioned to expect the worst.

 

If you buy into this social hysteria, you become a victim too………..you might really get stuck - please read some of these articles to get out of that trap: http://personaldevelopmentforum.blogspot.com/

 

But if you tune out such negative traps and maintain a grip on rational and emotional thought, you’ll can build some amazing sales opportunities for your sales people and your partners.

 

How……..well, during such times people get scared and start cutting back on expenses. We have already seen this happening as we see companies cut some of the fluff away. They stop buying so much stuff they want, but don’t need. So what really happens is that they go away from “want” based buying to only “need” based buying).

 

This causes some of your sales people and your partners sales people to do poorly, especially salespeople that don’t provide stuff the prospects really need or are not able to package it in a way that the prospects think they need it. We all have acted in this way…………. as we all can live without new credit cards, shoes, cloths and gas-guzzling SUVs for a while. Those non-essentials can be put off for some time.

 

We also become more sensitive to receiving genuine value. When we spend money, we want to make sure we’re getting a fair deal in buying what we believe we need (even if we don’t need it).

 

Consequently, your sales people and your partners sales person that provides genuine value in his sales process can actually do better during a recession. More people will flock to those your sales people and your partners sales people in tough times, while the fluff your sales people and your partners sales person and channel businesses will become more and more paranoid.

 

Instead of focusing on trying to make more money as a Partner Manager, put your time and energy into making sure that your partner will sell real value to the  customer (the sales process). Find a way to give people what they want (which in these times is what they believe is there need).

 

Take note that the keywords here are CREATE and DELIVER VALUE – which for many small your sales people and your partners is not what they do.

 

Creating value means expressing your unique talents and skills in a way that can potentially benefit others. Delivering value means ensuring that your customers are actually receiving and benefiting from the value you’ve sold (so don’t oversell).

 

If your partner is not doing both in some fashion, then it’s going to be hard for you to generate sustainable sales income, especially during a recession. I’ll explain why.

 

If your partner oversells and thereby they have only create value but didn’t deliver it, then their value isn’t being received by anyone – at least that is what the customer feels. Believe it or not……this is what the your sales people and your partners have difficulties in adapting to in such times.

 

What is money? Money is simply a medium for exchanging value. Money is what you receive in exchange for the value you create and deliver. If you can increase your outflow of value creation and delivery, you can increase your inflow of money received.

 

If, however, your partnertries to increase the inflow of money without increasing the outflow of value, they are trying to get something for nothing and that strategy does not work, especially in these recession times . This approach is untenable and will ultimately collapse – as we see in so many your sales people and your partners and channels.  

 

It doesn’t matter what happens to the economy — if you get your sales people and your partners to sell need based value. in the recession times, you’ll do just fine.

 

I just thought that I wanted to share this, especially since we are in troubling times. Times where your sales people and your partners need to do more in the sells process. As a consequence, here’s the principle: Your sales people and your partners salespeople who can present their products or service (a need) in the way that their prospect wants to perceive it will be more likely to make the sale. That is Recession Selling, let’s put it another way: Prospects are more likely to buy what they need from prospects who understand what they really want, for then they fell you can provide them with value.

 

You as an Executive must have seen it many times………the most effective sales professionals or partners help clients fulfill their values. So your sales strategy should be to help your sales people and your partners differentiate them self’s in selling Need Based Value - not want based value as in growth times.

 

Regards your Moderator – Mark

PS:I hope this has provided some value (little smile)

 

Mergers and acquisitions is not strategy

Based on the many customer engagement I work with in the field of Mergers and Acquisitions, I would like to write about some of the ideas, benefits, critical success factors and pitfalls. However let me start with saying that  M&A is not strategy in and of itself, but a vehicle for executing a strategy and delivering shareholder value. A Merger and Acquisition is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. There are 15 different types of actions that a company can take when deciding to move forward using M&A. Usually mergers occur in a consensual (occurring by mutual consent) setting where executives from the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. Acquisitions can also happen through a hostile takeover by purchasing the majority of outstanding shares of a company in the open market against the wishes of the target's board. In the United States, business laws vary from state to state whereby some companies have limited protection against hostile takeovers. One form of protection against a hostile takeover is the shareholder rights plan, otherwise known as the "poison pill". Historically, mergers have often failed (Straub, 2007) to add significantly to the value of the acquiring firm's shares (King, et al., 2004). Corporate mergers may be aimed at reducing market competition, cutting costs (for example, laying off employees, operating at a more technologically efficient scale, etc.), reducing taxes, removing management, "empire building" by the acquiring managers, or other purposes which may or may not be consistent with public policy or public welfare.

 

M&A is buying smart and integrating successfully. Although they are often uttered in the same breath and used as though they were synonymous, the terms merger and acquisition mean slightly different things. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals". Both companies' stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.

 

In practice, however, actual mergers of equals don't happen very often. Usually, one company will buy another and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it is technically an acquisition. Being bought out often carries negative connotations, therefore, by describing the deal euphemistically as a merger, deal makers and top managers try to make the takeover more palatable.

 

 

M&A is challenging and requires focused  and sustained effort. The dominant rationale used to explain M&A activity is that acquiring firms seek improved financial performance. The following motives are considered to improve financial performance:

Synergies: This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins.

Increased revenue/Increased Market Share: This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices.

Cross selling: For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products.

Economies of Scale: For example, managerial economies such as the increased opportunity of managerial specialization. Another example are purchasing economies due to increased order size and associated bulk-buying discounts.

Taxes: A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. In the United States and many other countries, rules are in place to limit the ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an acquiring company.

Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders (see below).

Resource transfer: resources are unevenly distributed across firms (Barney, 1991) and the interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources.

Vertical integration: Vertical Integration occurs when an upstream and downstream firm merge (or one acquires the other). There are several reasons for this to occur. One reason is to internalise an externality problem. A common example is of such an externality is double marginalization. Double marginalization occurs when both the upstream and downstream firms have monopoly power, each firm reduces output from the competitive level to the monopoly level, creating two deadweight losses. By merging the vertically integrated firm can collect one deadweight loss by setting the upstream firm's output to the competitive level. This increases profits and consumer surplus. A merger that creates a vertically integrated firm can be profitable.

 

However, on average and across the most commonly studied variables, acquiring firms’ financial performance does not positively change as a function of their acquisition activity.Therefore, additional motives for merger and acquisiiton that may not add shareholder value include:

Diversification: While this may hedge a company against a downturn in an individual industry it fails to deliver value, since it is possible for individual shareholders to achieve the same hedge by diversifying their portfolios at a much lower cost than those associated with a merger.

Manager's hubris: manager's overconfidence about expected synergies from M&A which results in overpayment for the target company.

Empire building: Managers have larger companies to manage and hence more power.

Manager's compensation: In the past, certain executive management teams had their payout based on the total amount of profit of the company, instead of the profit per share, which would give the team a perverse incentive to buy companies to increase the total profit while decreasing the profit per share (which hurts the owners of the company, the shareholders); although some empirical studies show that compensation is linked to profitability rather than mere profits of the company.

 

The failure rate among M&A deals is very high:

·         58% of mergers failed to reach goals set by top management (Survey by AT Kearney)   

·         Deal costs were recovered within 10 years in only 23% of all transactions (The Economist Survey)

·         In almost 60% of all cross-border transactions, the acquiring company did not earn back its cost of capital (Business Week Research)

·         50% of transactions result in same or lower profits (Business Week Research)

·         Of 150 recent deals about half destroyed shareholders wealth (Business Week Research)

 

I have looked over the numerable M&A projects I have worked with and have come to the overall conclusion that M & A failure occur during different stages of the transaction^:

·         About 30% Strategy development, candidate screening, and due diligence

·         About 20% Negotiation and closing

·         About 50% Post-merger integration

 

The classic M&A challenges:

 

Rewards:

• Produces rapid growth
• Adds capabilities
• Builds scale
• Expands geographic markets

 

Regrets

• Adds significant risk
• High probability of failure
• Very expensive
• Effects on management

 

Effects on management:

A study published in the July/August 2008 (Mergers and Acquisitions Lead to Long-Term Management Turmoil Newswise) issue of the Journal of Business Strategy suggests that mergers and acquisitions destroy leadership continuity in target companies’ top management teams for at least a decade following a deal. The study found that target companies lose 21 percent of their executives each year for at least 10 years following an acquisition – more than double the turnover experienced in non-merged firms. In order to change that, three major assumptions determine the content of the change management work streams:

1.    Strategic rationale behind a merger has to determine the focus of the post-merger transition and integration tasks

2.    Merger is never one merger, but made up of tens of hundred of mini-mergers. Each mini-merger needs its own reconciliation process

3.    Cultural clashes and differences in management processes and styles reflect different mind-sets of two organizations. Recognition of this fact and the necessity of professional expertise in addressing these problems is blocked by perception of their vagueness and invisibility

 

However often forgotten is that there has to be a link between change management and the critical value drivers (critical success factors). E.g. here are six critical success factors to make a Merger and Acquisition a success:

1.    Wisdom of the deal - as seen by the marketplace and the merger partners

2.    Soundness of the due diligence - understanding what you face

3.    Preoccupation with driving the value of the deal

4.    Moving as fast as possible

5.    Thoroughness of the post merger integration programme and its implementation

6.    Utilisation of scarce leadership talent: effecting the merger while leading the existing businesses

 

In order to get these and other important critical success factors throughout the M&A lifecycle in place, real success demands a value-creating approach. I have over the years developed such a  M&A value-creating approach/method and if you need help in better understanding and exploiting such a value-creating approach. Let’s talk about how I can help you explore the levels of value creation you are looking for in your merger and/or acquisition.

 

If you have any questions please feel free to contact me via email: mvr@rosenteam.com

 

Regards your moderator

 

Mark von Rosing