Capturing Revenue Synergies

Zebra acquiring Motorola

Zebra, does everything that has something to do with barcodes today. By 2014, Zebra made over half of the barcode printers in the world which are different from the printers that you use for office purposes.

It was a billion-dollar company and had a bold vision to acquire the other parts of the barcode ecosystem.

So in 2014, Zebra, a 1.2 billion dollars acquired a part of Motorola. Motorola was in the process of transforming itself, spinning certain pieces out, and sold off a two and a half billion dollar piece. Two things that made this unusual 

1. It was small, acquiring large. 
2. The acquired entity was a carve-out.

When you're carving something out of an existing entity that brings with it a whole lot of complications, which are both operational in nature. Your functions are integrated like finance or IT, but ultra cultural in nature where you're transitioning from one culture, a relatively big and mature culture, to a different one. 

Preventing Culture Clash

First, it's important to disaggregate and understand what is culture clash. What are people really concerned about when they're coming in? I would perhaps break it into three pieces. 

1. Will they squash us?

This is the biggest concern that we always hear and usually a concern for the acquired company. But because of this David and Goliath situation, it actually was a concern that existed on both sides.

The traditional Zebra ended up being more concerned than the Motorola. So I made it a big priority to run an objective and transparent process for how we do the integration. This involved both frequent communication and clear methodologies and structures for integration. 

2. Will we be losing strength over time?

Both organizations bring strengths to the table, will they fade away because we're not paying attention to them anymore? 

Zebra was excellent and is excellent today at going to market through channels. Whereas, Motorola really was very strong at building direct relationships in particular with large customers.

We wanted both of those capabilities so we decided that we would need to do some things to preserve those strengths and those capabilities. We did that by creating centers of excellence that were really there to preserve the knowledge for a long time. 

The notion of specialized teams with a clear path to transition out of those, that's also important because that's what it means to integrate over time. But preserving those for a set period of time was an important way to preserve our strengths. 

3. Will the differences between our organizations end up tearing us apart? 

That was a big concern. The people, for example, in Motorola had a culture that was very direct and relatively hierarchical. Whereas Zebra had a very consensus-oriented culture and one that would spend much longer time in discussing problems before making decisions. 

How do you bring those two together? We decided that the answer was to build our own culture. We actually worked with a third-party firm that broke the whole business up into small groups and each group got together in workshops.

The entire population went through these workshops and started establishing basic principles of culture. 

Having a workstream around culture is important. In some cases, that may be overkill. If there's any indication that the cultures that you're bringing together are meaningfully different, and those are strong forces that will pull on your population, it's worth having a work stream that thinks about that.  - Joe Heel.

The Culture Workstream

Get an understanding of:

• What's the difference in cultures?
• How do people really feel? 
• What is important to them?
• What differentiates their current culture? 
• Is it a difficult thing to get to understand?
• Am I going to use one of the cultures that exist?

It might be that you feel you have a very good and strong culture and you want others to benefit from that. We would probably say we feel that way today. But if you don't, then building a new culture is certainly not something I've seen a lot of.

I think we did one of the few experiments on this front that was successful. So if you do that, I think it is well worthwhile sort of understanding how to do that, who else has done something like that, and maybe getting some help. 

Go-to-market Integration

While the Motorola acquisition had big complexities with it, we were having two similar companies coming together when it comes to the level of maturity. When we're buying smaller companies, all of which we're less than a hundred million in revenue and Zebra is likely to be about $6 billion.

We've experimented with several different approaches to doing these integrations. Some were more successful than others, but I think the most important thing that we've learned from all of this is:

The number one thing you should try to do upfront is to understand what is this source of value creation. How will this acquisition create more value than the sum of these two parts? - Joe Heel.

So once you've determined that, it will be a good guide for you presumably as to where the integration should fit organizationally.

Since it's a small organization, you'll probably want to put it within one of your existing organizations. 

And if I just take the two different types of acquisitions I mentioned earlier; go-to-market leverage versus a technology tuck-in, you might say, I want this to be relatively integrated into the sales organization. So I get that leverage, the existing salespeople will pay attention to this product and sell it. 

If it's an engineering company, I might say to put it into one of my engineering groups or we might say to keep it as a standalone entity for some period of time. And making this decision was surprisingly difficult for us.

And that had to do with the fact that we underestimated the difficulty of having a less mature business inside a more mature business. 

So how does a less mature business manifest itself? Well, one good example would be that it's difficult to, and this is one that we've certainly encountered, it's difficult to scale the product. 

You might have a product that's been sold to a dozen customers, maybe three dozen customers. But the way that you got there is that product was customized heavily and that's what makes them very happy. 

If the product isn't scalable, that doesn't do very much for you. You can create a lot of demand and interest, but you won't be able to fulfill it, or at least you won't be able to fulfill it to the satisfaction of the customers. 

So what you need is for the sales organization that is seeing the activity out in the marketplace to collaborate with the product organization that is developing and evolving the value proposition.

They now have to be able to work together in an integrated way to make this solution scalable. And that's something that calls much more for a standalone entity. Let me call it an incubation approach until the business has reached a certain level of maturity.

You have to gauge the maturity of the solution, especially for go-to-market-driven acquisitions. Can it be sold through the larger go-to-market machine? And if not, choose an organizational structure approach for integration that allows you to achieve that before you let it loose on the big go-to-market machine. 

Bringing new capabilities to the sales team

This is a challenge that I've seen many companies, especially as they got larger and they expanded their portfolio to include a much broader range of value propositions and capabilities. 

There's still a set of value propositions that far exceeds the ability of an individual salesperson to sell everything. There's no way one salesperson can know and understand all of the capabilities that a company like IBM has. 

So you are quickly faced with a challenge as a sales leader of how do I present that complexity into the marketplace? 

That isn't a complexity driven by M&A, but it is one that occurs every time you add in another piece into your portfolio, you make that problem worse. 

And so, you're faced with the question of how do you deal with that problem? Now this will go into many questions of corporate strategy, which is, should I have separate business units or divisions that have separate salesforces? 

The situation that we are still in where we believe we should have one sales organization, that we are solving problems holistically for our customers. And we want to bring the different value propositions together to solve customer problems.

In doing so, what we are needing to do is to find a way to have one interaction point with a customer so we can address their problems but be able to represent the complexity of many different technologies, products, and capabilities to that customer which before we said a single person could not do.

So, this has led us to an approach that many sales organizations have embraced as well, which is you have a representative into the customer. 

His or her job is to maintain the relationship with that customer, ensure that we solve that customer's problems overall and achieve the outcomes that they want. They rely in turn, on a set of specialists. And those specialists are grouped around the types of solutions you are trying to deliver to the customers. 

So you have the specialist and the account manager that now need to work together to drive those solutions. And every time so far, we have acquired companies that have this pattern for their go-to-market, that's what we've done is we've created another specialist team that represents that capability and allows us to bring the complexity, yet still deliver an integrated solution for the customer. 

The most difficult one is making the right decision upfront. And we've certainly had our share of instances. It was not hard to make that decision upfront but it was easy to make a mistake. Where you need to do the most work is then in executing. So if it's a matter of work, executing is the challenge. 

How do you get such a salesperson to pay attention to selling this and even giving that specialist any amount of their scarce time?

That is what I would call hard, so it's a combination. What do you do in order to accomplish that? There's a lot of communication over and over and over again. 

There is of course incentives. You have to have a clever incentive structures that draw attention to this strategically important offering while still achieving your overall dollar objectives for the company. You just have to deliver the quarterly revenues. 

And then, of course, things like training. The other one that often gets underestimated is sales management. What does the sales manager do? There are sales management activities that need to occur. And so, I think we sometimes underestimate those because those aren't necessarily as easy to track and put a checkmark against on a project management chart.  

Planning the Integration with go-to-market in mind

Ideally, the strategy for the acquisition should be done well before the actual closing, where you decide in particular on which space you want to occupy strategically, where you want to be, what the acquisition adds and how you will create value.

That needs to be decided by the senior leadership of the company in a relatively small circle.

So that's the foundation. Once you have that foundation and again, before ideally you close on the deal or you even sign the deal, you would have an understanding and agreement on how the acquisition will be integrated. 

Because once you sign the deal, the clock is ticking. Everybody knows in particular, the employees of the acquired company will know that they're now being acquired and they're waiting.

They're waiting for you to tell them what you're going to do. And if you are spending that time after the signing, figuring out what you want to do, you're wasting precious time, and you're losing people. 

In the technology space, the minute you announce the intent to acquire, search firms will call the best salespeople, the best engineers in your company, and you want to head that off. 

So you want to be there on day one with a very clear message about what you're going to do and on what timeline you will do it. 

You don't have to announce the comp plan yet for the sales team, but you have to tell them we're going to have one salesforce or it's going to be a separate salesforce, it's going to be an integrated salesforce and you will have your position and your comp plan on this day. 

That is important to say because otherwise, you're going to lose people. And then to spend whatever time you have between the signing and the closing to make clear and definitive plans that you can put into motion on day one. 

Speed is always of the essence in M&A. And you want to be in a position to have as many of the operational decisions ready to go on day one. - Joe Heel 

Diligence Plus 

Before signing, you have to have your management team on the same plate and pulling on the same rope to say what you're planning to do.

That then informs the second piece, which is your plan to integrate this organization. You should not delegate the decision-making process or even the process of acquiring that information to a corporate development or a consultant team or a third party. 

You need to involve your own people. You have to send your people into the acquired company and typically, acquisition processes allow for this, it would be called due diligence. So the simplistic due diligence where you basically go and you have a data room and you get a bunch of data, and then you interview a bunch of the people within the company is not sufficient. You also need to do work in the market. 

So for example, interviewing customers or partners of the company you're looking to acquire or customers or partners that you're looking to reach once you've acquired the company, maybe they aren't customers yet, but you're thinking of going to them.

I call this due diligence plus. You need to have a functionally driven due diligence plus, and we don't delegate this to a corporate development function, you have to do that. So I have people on my staff who run that process, but we then also recruit people, ad hoc, from practitioners, salespeople.

We tell them to take the next four weeks, spend two days a week going out to interview these customers or go out to meet the people in this company under NDA, of course, to have preparatory discussions for the acquisition. 

Then you enlarge that process and involve to the extent you possibly can, the company that you're acquiring between signing and closing. 

So many people say, oh, between signing and closing, we're still separate companies. There are anti-competitive restrictions, we can't do anything with them. And that's false, that's not the case. There are restrictions on what you can do with a company that's not a part of your entity.

You can't remove competitive restraints, you can't share pricing. There are certain things you can't do. And you should definitely have your lawyers instruct all of those involved very carefully on what they can and cannot do, but there's a lot that you can do.

You can plan pretty much everything. You can plan what you will do after closing. And so, we now have intensive workshops between the acquired company and the acquiring company where we sit down and we talk about 

• Which customers we are going to sell to? 
• Which product should we offer and when?
• If we have a product and the acquired company has a product, which one do we sell in which case? 

We have those plans already being worked on together. Both companies come together to do that. 

That has to be done by the practitioners in the functions, not by corporate development. Corporate development can facilitate that process and run an integration office of some sort.

But the practitioners have to be front and center. And as a functional leader, you have to be intimately involved. So I spend a lot of time on these things, ensuring we think through all of these topics.