Many mergers fail to deliver the results expected at the outset. In this case, part of the problem was an imbalanced diligence process. All acquirers do extensive due diligence on the target company prior to moving forward with a transaction and this acquirer had accomplished this. But few go so far as to benchmark the acquirer and the target side by side as a starting point for their integration plans. That’s what this acquirer did, with surprising results.

The acquirer, which is owned by a private equity (PE) firm, is a security company with a high reliability wired network. The target has a wireless network. The idea was to move the wireless network under the wired company. But the integration was not going smoothly. Six months into it, the PE firm and the company used IC Rating™ to benchmark the intellectual capital of the two operations.

The results showed surprising differences in management, innovative capacity, internal processes and controls at the two companies. The results also showed that the client base of both companies was confused about the merger—doing damage to both brands.

The bottom line—the information gained through this IC Rating led to dramatic shifts in the integration strategy and ultimate results of this merger. There was much greater respect for some of the practices and strengths of the acquired company, which led to knowledge transfer upstream to the acquirer. It also led to more specific plans for brand strategy and cross-selling. It’s a simple lesson but one rarely applied—an acquirer should look at itself as closely as it does its target to develop the most effective integration plan.
 

A large communication company wanted to divest five business units. None of the units had any significant hard assets—rather, their future depended on intellectual capital, including human, structural and relationship capital. They went to market and didn’t get a single bid. The buyers couldn’t “see” the value and were afraid of the unknown.

The company withdrew the companies from the market and performed an IC Rating™ on each of them. The findings were generally good, helping to demonstrate their value. The findings also highlighted weaknesses in the units. But that didn’t hurt. All five were sold at a 20% premium to the earnings multiples of comparable sales.

The buyers attributed the premium to the information contained in the ratings. Transparency is very important in M&A. Realistic business people know that there are both strengths and weaknesses in every company. But there is value in knowing what they are. In this case, being able to provide concrete information about intangibles saved the deal and made the company a lot of money.

A public entity has a monopoly in its market. But its existence is still dependent on the revenue that it produces—revenue that funds a number of important services provided by the government. So when its revenue began declining, it was an important problem.

The entity did its first IC Rating™ in the middle of the downturn. The key takeaway was that the entity’s brand was very weak. Brand is actually a very important barometer for any entity, public or private—it reflects the total of everything you are doing in the market. It was also clear that the staff needed to improve its “business skills.” Management got to work and with training and new branding efforts, engineered a turnaround that got the entity back on track. They also launched new technology with the potential to radically improve their business model.

Two years later, the entity repeated the rating process. The new rating confirmed that the brand and the underlying business recipe had strengthened. Although the benefit of initial training in business skills was evident, it was equally clear that there was a need for additional training in order to fully exploit the potential of their new technology. The new rating also highlighted the need for a next step in the development of staff business skills—to build stronger relationships with the private sector business partners that help the entity deliver their services.

Branding, staff development, technology and business recipe—these factors are as important to public entities as they are in the private sector. But, like their private sector counterparts, leaders of public entities struggle with the fact that these factors are intangible, difficult to measure, and hard to manage. So getting concrete information and feedback from stakeholders can be a critical catalyst in “seeing” what must happen to get an organization to the next level.

A highly successful non-profit had become the leader in its field. Its brand appeared unassailable and its future was bright. But its visionary leader was worried. He saw participation in their programs leveling off. He also saw new players taking different approaches to the market. He worried that his organization would lose its leadership position.

The findings from the IC Rating™ confirmed some of his suspicions. The brand was strong, but there were threats on the horizon. In light of this, two other major findings were especially worrisome. The first was that the company was not preparing its employees for the expected market changes (the highest overall score was for employee current skills, and the lowest score was for training efforts for future skills). The second major finding was that the Founder was still at the center of too much of the organization’s brand, relationships and operations. The organization was at a risky point.

But the findings also showed the path to success. The human capital issues could be solved with training and new hires. The story of the findings and the organization’s new plans helped to fuel a new fundraising drive. Even greater future financial resources were identified in the incredible untapped intellectual property that the organization had always controlled but had never seen as an asset. Getting better information helped move this organization from intangible doubts and fears—to tangible solutions.

A large entertainment company had an imbalance between costs and results among several business units. But their dilemma was a common one—how to rebalance costs without jeopardizing their underlying businesses.

Performing an IC Rating™ on each unit enabled the company to compare and contrast their current status as well as their future outlook. It became clear that there were, indeed, significant differences between the units. There were five major areas that were identified as candidates for cross-learning and opportunities for improvement. The best practices of individual units were then leveraged across the other units.

The overall improvements led to cost cuts of more than 30 million Euros. Management was very comfortable that the cost cuts did not jeopardize the value offering of the company. In fact, these changes left them better prepared for the future. They were only able to accomplish this because their benchmarking went beyond tangible, financial metrics. The company’s competitive position depends on intellectual capital so the right solution had to include intangible assessment via IC Rating™.

A global IT services firm had grown quickly. With 3,000 employees and locations in several countries, it was developing nicely. But its management team was not content to maintain the status quo. They wanted to continue to grow and improve. They also had their sights on an IPO and wanted to develop a vocabulary and set of data that would help them tell their story.

The stakeholders of the company were energized by the IC Rating™ interview process. The feedback had much good news for the company—management received a very high rating. But risk was identified in its business recipe—up to that point, the team had not done a good job of differentiating the company in a busy marketplace. Specific opportunities for process improvements and middle management empowerment were also identified.

After reviewing the results with the senior team, executive management rolled out the results to over 1,500 employees. The discussion and initiatives that it inspired helped the company climb to new heights. Since this exercise, the company has tripled in size, and they had one of the most successful IPO’s ever in their market. The raw material of a service company is its intellectual capital. By explicitly measuring its IC, this company was able to go from good to great.

A mid-sized national stock exchange realized that the small and mid-cap companies that list with them are generally undervalued. They felt that a key limitation on valuations is the lack of information communicated to investors and the market about intellectual capital. Today, it is difficult for investors to understand the relationship between intellectual capital—human, structural knowledge and networks—and the earnings performance of the companies.

The first stage of their project involved a self-assessment tool to measure intangibles based on IC Rating™. This stage gave the participating companies a clearer language and a consistent way to describe critical intellectual capital value drivers. The next stages will involve multi-respondent assessments and IC Reporting for investors.

The stock exchange is distinguishing itself by seeking to help its listed companies increase their value. It is recognizing the fact that there is a huge information gap between the information that investors receive today and the information that they require to truly understand companies in today’s knowledge-based economy.

Four years ago, a global technology company was undergoing a corporate restructuring. They were looking to establish a baseline for their Balanced Scorecard (BSC) effort and decided to perform an IC Rating™. As time went on, a number of units moved to annual rating cycles. One of the key benefits that they saw in the Rating is the candid comments from external stakeholders about their own business as well as those of competitors. This feedback has helped to keep them grounded as they have moved from year to year.

In the most recent cycle, the Rating compared the company’s brand with those of several competitors. They also used the Rating as a way to understand what customers and partners expect from them in the face of changing market conditions. The findings helped clarify the mindset of the market and the company’s strengths and weaknesses. Using workshops, the findings were discussed broadly throughout the organization to lay the groundwork for change.

This annual rating discipline is part of what helps this company to maintain its number one global market position and makes it possible to watch for and respond to changes in its market. The Rating consolidates the views and feedback from customers and employees spread around the globe and provides a shared vocabulary that makes it easier to build and leverage intellectual capital. Annual IC Ratings test the assumptions of the company’s strategy, enabling them to adjust and continuously improve performance.

This consulting division of a multinational technology company had always been seen as an adjunct to its parent’s core business. Today, as has occurred in so many technology companies, the consulting group is now seen as a core offering that will drive branding and sales for the entire organization. With this mandate and opportunity, corporate and divisional management wanted to jumpstart significant global growth of this consulting business.

The management team needed to make sure that the organization had the capabilities to deliver on this new vision.What better time to take stock of your intellectual capital? The team contracted an IC Rating™ that surveyed internal and external stakeholders of the division around the world. The findings were supportive of the overall strategy but found that the message had not been fully embraced in the many, but very significant, regional offices across the globe. There were also challenges related to competence development, marketing and sales.

These findings were a surprise to many in senior management. According to their internal standards, they thought they were right on track. Having the ability to look at their full intellectual capital portfolio filled out the picture for them. Although they had a sense of some of their barriers to success, their organization is diverse and dispersed. The Rating made it absolutely clear that there were gaps in both capabilities and alignment. As with most challenges, accepting the need to take action has to come first. This company has saved itself time and trouble by getting started now on their major challenges and getting their growth plans underway.

Two years ago, an internet unit of a large entertainment group was facing problems. They were losing members of their management team and finding it hard to attract new people at all levels. The challenges were showing up in lackluster results. Something needed to change.

Other units in this group had used IC Rating™ so it was a natural to do one here. The Rating made it clear that the culture of the organization was very hierarchical and closed. This meant that employees were not involved in important decisions and lacked an understandig of the group’s strategy. It was also clear that the group did not have a clear understanding of the skills that were required to keep up with the ever-changing world of the internet.

The management team attacked these problems decisively. They held meetings and worked to improve communication throughout the organization. They also developed competency inventories and addressed weaknesses through training and new hires. Positive financial results followed. The group is now growing quickly. A new IC Rating showed that culture, management and business recipe—aspects of a business that are notoriously hard to change—had all improved. This business unit demonstrated that intangibles management can lead to tangible results.

In last month’s New Case on IC Management, we talked about an organization that had made huge strides after performing its first IC Rating™. Most of the gains were internal, leading to better communication, increased alignment and improved results. But a second rating showed much less progress in the management of its external network.

The organization depends on distributors to reach its ultimate clients. But the rating found that communication with this critical network was poor, and there was a general feeling that the organization did not care about these important partners. In response, the organization inaugurated a regular meeting with partners from specific market segments. The agenda includes value-added content for the distributors but also leaves plenty of time for conversations to build relationships and share knowledge. The organization feels that its understanding of both its distributors and its ultimate customers has grown significantly.

In today’s economy, more and more companies outsource key parts of their business to external partners. Distributors are not a new phenomenon but the tool to measure the strength of this relationship is new. Intangibles evaluation tools can give managers a new perspective on the strength of this kind of crucial network relationship. In this case, identifying weaknesses in the network led to concrete action and improved revenue...and an improved bottom line never goes out of style.