Earlier this year the CPO community came together to debate the role procurement must play during mergers, acquisitions and divestitures. It was a frank and insightful conversation attended by a large group, some of whom had recently been through an M&A experience, some of whom were in the middle of one; and others, it has since transpired, were about to embark on one.
Last week, the community again delved into the subject, but this time from the perspective of Chandranath Chakraborty, the former Asia-Pacific procurement head at The Walt Disney Company.
Chakraborty shared the lessons he learned from his involvement in Disney’s $71.3bn acquisition of 21st Century Fox, a deal that had been identified to achieve around $2bn of synergies at the time.
He started the session by posing three questions that an integration asks of procurement, together with offering thoughts about what can often go wrong with each of them. They offer a helpful framework for other CPOs to think through when involved in such a situation.
The first, and perhaps rather obvious, question relates to the synergies themselves: where are they and how are they being validated. Because, Chakraborty argued, savings targets are usually set before the combined spend is fully understood, teams can spend time and effort trying to achieve a target or “goal” rather than going after the right number. This can lead to suboptimal decisions and actually erode value rather than create it.
The second question concerned structure and what the combined operating model should look like. Creating a single organisation from two culturally distinct teams, with different supply bases, geographical footprints and approaches is never going to be easy. What can derail things further is that louder, more established voices win out simply because they are louder and more established, not because they are communicating the most elegant solution.
The third question he shared related to the people themselves – who will be leading and how are decisions being made over the composition of the team and human capital. Again, the people component of a major integration can be extremely challenging, and those at the top of their game are often the first to leave if clarity isn’t provided early.
Three simple questions, maybe, but CPOs embarking on complex M&A would be well advised to start with the basics.
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