The Case for Backshoring

Finally, leaders are starting to recognize that offshoring is not “the magic pill”.  One has to look at the total cost of these offshoring efforts; not just labor cost and rent.  As a LEAN practitioner,  the wholesale transfer of just about any and every service or manufacturing effort has never made sense.  Yes, in some cases its the way to go; but, for a long time there it seemed like it was just the fashionable thing to do…it was a mantra…what all the cool kids were doing.   Whenever I would ask why are you doing that, they would at me like I had two heads. I just wanted to know the info so that I could build a model or rule of thumb for future use (the engineer in me is rearing its head).  Well, we’ll see were this goes; maybe there is hope.

The Case for Backshoring

Which manufacturing operations should return to the United States?

For years, the NCR Corporation simply followed the pack. Like many other large U.S. manufacturing companies, in the past couple of decades the maker of automated teller machines (ATMs) relied heavily on outsourcing to trim factory costs. By hiring Singapore’s Flextronics International Ltd. to make much of its equipment in cheaper offshore locations in the Asia/Pacific region and South America, NCR could slash hundreds of millions of dollars in plant expenses and be reasonably certain that its ATMs met quality standards.

But recently, NCR has rejected this strategy — at least to a degree. In 2009, the company decided to reclaim responsibility for making one of its most sophisticated lines of ATMs from Flextronics in Brazil and instead manufacture the machines in Columbus, Ga., not far from the NCR innovation center, where its new technology is on display. The reason: The company was concerned that outsourcing distanced its designers, engineers, IT experts, and customers from the manufacturing of the equipment, creating a set of silos that potentially hindered the company’s ability to turn out new models with new features fast enough to satisfy its client banks. “I think you’ll see more of this occurring,” says Peter Dorsman, NCR’s senior vice president in charge of global operations, who says he has been contacted by dozens of U.S. companies studying whether they should make similar moves. “You’ll see a lot more people returning manufacturing to America.”

NCR’s change in direction has raised the possibility that U.S. manufacturers are getting serious about “backshoring” some of the production they shifted overseas in the wholesale offshoring movement that started in earnest in the 1990s. General Electric Company Chief Executive Jeff Immelt recently attracted attention for remarks he gave to a West Point leadership conference calling for U.S. companies to make more products at home. Demonstrating Immelt’s commitment, GE announced in the summer of 2009 that it would build two new plants in the U.S. — a factory in Schenectady, N.Y., to make high-density batteries and a facility in Louisville, Ky., to produce hybrid electric water heaters currently made in China. Dow Chemical Company CEO Andrew Liveris similarly has appealed for a renewed focus on manufacturing in the United States.

Backshoring is primarily an American phenomenon, because U.S. manufacturers have been much more aggressive about outsourcing than their Asian or European counterparts. Japanese companies experimented with outsourcing high-end items to factories in Southeast Asia and China, but quickly changed course after growing concerned about the loss of intellectual property and about disrupting the link between research and manufacturing. As a result, Japanese companies generally farm out only the manufacturing of commodity products.

Cynics might conclude that pronouncements about the need for manufacturing in the U.S. are simply aimed at currying favor with the Obama administration, which is worried enough about the issue that it named former investment banker Ron Bloom as manufacturing czar. Moreover, although cases such as NCR and GE are noteworthy, many U.S. jobs are still going offshore. For example, the Whirlpool Corporation recently announced the closing of an appliance factory in Evansville, Ind., amid plans to move less-skilled jobs to Mexico. And in the financial-services and information technology sectors, there is no letup in sight in the rush toward India. IBM, for example, has more than 90,000 employees in its Indian outsourcing operations.

But the logic behind backshoring is compelling enough that it cannot be easily dismissed as a mere short-term aberration. Higher transportation costs as well as rising wages and raw materials prices in China, inevitable by-products of the huge gains that the developing country’s GDP has made despite the global recession, have frightened some U.S. companies away from Asia. An apt illustration: Wright Engineered Plastics Inc., a Santa Rosa, Calif.–based maker of injection molds, has expanded its West Coast plants and decreased its use of Asian facilities because many of its key customers have shifted their own manufacturing operations back to the U.S. in light of prohibitive increases in the prices for raw plastic in China.

Moreover, some companies are amplifying materials and logistics savings from backshoring by modernizing their U.S. plants to outpace Chinese facilities. Such is the case with Diagnostic Devices Inc., a maker of blood glucose monitoring systems. In August 2009, the privately held company based in Charlotte, N.C., announced that it was moving the manufacturing of its Prodigy line of audible glucose monitors to North Carolina, ending a five-year agreement with a contract manufacturer in China under which Diagnostic Devices sent components overseas and then had the finished devices shipped back to the United States. By automating its U.S. factory with robots and other high-tech hardware and software, and by taking advantage of lower shipping fees for a mostly local customer base, Diagnostic Devices reduced its production budget by 40 percent. And there is an added bonus, according to a company spokesman: “We will also have far more control over and protection of our intellectual property, which you don’t have in China.”

NCR’s decision to backshore goes well beyond dollars and cents — and, in fact, may provide the most convincing rationale for the gains that backshoring can produce. The ATMs being made in Columbus now are NCR’s most sophisticated, capable of scanning checks and cash and eliminating the need for the customer to fill out a deposit slip. This feature has provided a welcome revenue lift for NCR — bringing in as much as US$50 million a year, significant for a company with $5 billion in annual sales. But these machines likely never would have been developed had large customers like JPMorgan Chase and Bank of America not persistently prodded NCR to move in that direction. That type of potentially profitable interaction between NCR and its customers is difficult, and launching desirable new products is slowed considerably, NCR’s Dorsman says, when the manufacturing facilities are offshore. “We take our cue from our customers,” says Dorsman. “They are heavily involved in the development process. And with this new approach we’re taking, we can get innovative products to the market faster, no question.”

NCR also found that having Flextronics manufacture high-end ATMs in Brazil — and relying on the vendor’s third-party suppliers, many of which NCR was unfamiliar with — left important internal constituencies in the dark, further slowing and complicating new product launches. Hardware and software engineers, sourcing executives, manufacturing and operations staff, and customer service managers all had trouble applying their expertise throughout the many remote handoffs between separate organizations.

Despite backshoring’s growing appeal, it’s hard to call it a trend yet. Indeed, most Western CEOs remain convinced that offshoring and outsourcing are still the least expensive approach for manufacturing products — and notwithstanding recent anecdotal evidence to the contrary, their position is rigid. For example, Boeing CEO James McNerney Jr. still clings to a radically outsourced supplier model for the company’s wildly ambitious 787 Dreamliner aircraft even though the plane is more than two years late and is facing numerous customer cancellations because of supplier glitches in distant factories. Of course, CEOs are also attracted to offshore destinations because the manufacturing tax breaks offered by governments in many developing countries are more generous than those granted by the United States.

Author Profile:

via The Case for Backshoring.

But what may be at stake in the schism between offshoring and backshoring is a company’s long-term ability to innovate. The making of commoditized staples like shoes, clothing, and consumer electronics will mostly remain in Asia. Backshoring will be more prevalent at the high end of the technology spectrum, in industries such as telecommunications and health care that are sensitive to quality and fast product cycles or in cases in which companies feel they can profit from getting immediate and ongoing feedback from U.S. customers. Those aspects of manufacturing, many experts believe, are where the best opportunities for earnings growth lie. “That’s where we can be competitive,” says Ron Hira, associate professor of public policy at Rochester Institute of Technology and coauthor of the 2005 book Outsourcing America: The True Cost of Shipping Jobs Overseas and What Can Be Done About It (with Anil Hira; AMACOM).

Ford SYNC: stream Pandora and tweet hands-free in your Ford

As they say: “It’s not your father’s Ford.”

A few weeks ago, I did a post about the automobile becoming a new application platform.  Take note in this article that the package includes “OpenBeak for safe and hands-free tweeting while driving“.

For those of you in the corporate tech world.  What will your road warriors and traveling executives expect? (Well,  your execs may not be driving Fords but I’m sure that the other manufactures will follow suit very soon.)

Ford SYNC Will Soon Stream Pandora Radio


Jennifer Van Grove 21

2010 is shaping up to be the year Ford SYNC forever alters how we experience digital content in our vehicles. Today, the automotive company is breaking even more ground with the news that the next evolution of SYNC will support third-party mobile applications. Get ready to stream Pandora and tweet hands-free in your Ford.

Ford is essentially paving the way for running SYNC-supported mobile applications in your car, courtesy of the Ford SYNC API. It will start with support for Pandora () for streaming online music, Stitcher for listening to podcasts in your car, and OpenBeak for safe and hands-free tweeting while driving. The bottom line is that you’ll be able to wirelessly control your smartphone applications in your car via the SYNC system with voice commands and steering wheel buttons.

The remarkable development — scheduled for release in 2010 — is ground-breaking when it comes to technology made available in cars, and certainly outshines the $1,200 Pioneer device with Pandora support. It’s all made possible thanks to Ford’s SYNC API, which will spawn support for the apps mentioned above and also eventually create a much larger application ecosystem.

The development also marks the sophistication and evolution of mobile applications. It seems like a dream to envision all our favorite apps functioning in our cars, and yet it’s a reality that Ford is bringing courtesy of its SYNC system.

via Ford SYNC Will Soon Stream Pandora Radio.

China grew >10% in 2009; about to surpass Japan

While getting gas (petrol for our international readers) this morning, I heard on NPR (National Public Radio) that China released it’s numbers this morning. Their economy grew by over 10%! There was a discussion about whether China would beat-out Japan in 2010 to be the #2 economy in the world; the US being #1. Well, I have to say: not bad for a bunch of communists. Oh, did we all forget? One consistent thing that I hear about China is that things happen gradually. So I’m wondering when their form of government will catch-up to their economy.

Now you may ask yourself: how did the Chinese do that in 2009—the year of pain and intense pucker-factor? Well, their Government pumped $1.44 Trillion (with a capital “T”) into their banks which in turn pushed it into the hands of the consumer and small business. Hey, didn’t we do that in the US? Why yes; yes we did. Except that the US banks horded the cash and kept a tight lid on credit. So, small businesses (which really fuel the economy and have the greatest affect on unemployment) still can’t get any credit, which means that they have diminished working capital and are stuck in survival mode. Also, this morning on the TV I saw a snippet with my idol Warren Buffet . He said that the current US “Stimulus Package” was like “taking 1/2 a Viagara” and that now we need to do the rest. Man, I love this guy!

In the interest of full disclosure; I have owned Berkshire-Hathaway for over 15 years.

Banks Hording Cash as of July 2009

Some Asian companies take a different approach to M&A outside their borders – McKinsey Quarterly

Great article on a different approach.  BUT… it’s important to note that the approach is different because the business strategy and expected results are different.  These companies are seeking to expand into new markets were they have no presence or prior experience.  Also, the business case is not about synergies and reducing cost/increasing margin.  Different underlying strategy drives different tactics.

So, question: “which approach should be used?”

Answer: “it depends”.

Hey… if it were easy, then they would pay you so much.

A lighter touch for postmerger integration

Some Asian companies take a different approach to M&A outside their borders.

When it comes to acquisitions, some Asian companies are forging a novel path through the thicket of postmerger integration: they aren’t doing it. Among Western companies, the process can vary considerably from deal to deal, yet it’s an article of faith that acquirers must integrate quickly. Otherwise, the logic goes, they may lose the momentum of a deal before they can capture the synergies that justified it.

But in Asia, a sizable proportion of acquiring companies aren’t rushing to become hands-on managers. With over 1,900 deals, valued at $145 billion, in 2009 alone, the trend is worth noting.1 In a recent review,2 we estimated that roughly half of all Asian deals deviated significantly from the traditional postmerger-management model, which aims for rapid integration and the maximum capture of synergies. Over a third of the Asian deals involved only limited functional integration and focused instead on the capture of synergies in areas such as procurement, with an overwhelming emphasis on business stability. An additional 10 percent attempted no functional integration whatsoever.

By the standards of developed markets, at least, this approach is counterintuitive. When potential synergies aren’t captured in an initial postmerger shake-up, they become all the more elusive the longer an acquirer waits. Replacing an existing management team person by person through natural attrition, for example, could take years. Delaying integration could risk losing prominent customers to competitors or undermine confidence in a merger.3 So why buy a business and then leave it substantially alone?

The answer is that some Asian acquirers often have priorities that are quite different from those of their Western counterparts. More accustomed to organic growth than to M&A growth, executives at Asian companies are understandably keen to minimize the short-term risk of failure. Their calculus trades the benefits of immediate synergies for the advantages of expanding into new and unfamiliar geographies, product lines, and capabilities. These inexperienced acquirers also gain some breathing room as they learn how to operate effectively in new and unfamiliar situations. In many cases, they are acquiring a complete business in a new geography, so value creation depends on the stability and growth of the business—not, for instance, on broad cost reduction efforts. Yet this Asian approach also leads to the accumulation of some difficult choices around integration.

It is probably too early to judge the implications for value creation. Traditional M&A wisdom dictates that a hands-off approach to postmerger management is seldom the best long-term choice. Later on, Asian acquirers that have taken this approach will probably need to pursue more comprehensive integration programs, which will be all the more challenging as a result of the delay. However, if acquirers do eventually integrate successfully, they will have lowered the short-term postacquisition risks without seriously compromising longer-term benefits.

Different motivations

Companies in Europe and the United States share a common approach to integration, growing out of their need to meet the requirements for adequate internal controls as publicly listed companies and for quarterly reports. Investors typically expect rapid evidence that managers are actively coordinating the integration effort so that it will produce synergies. Slow and cautious are words rarely heard in integration-planning sessions, though a rising debate among Western analysts weighs the risks created by the pressure to demonstrate short-term earnings.

By contrast, Asian acquirers often feel much less pressure to show short-term results to the capital markets. The reason is less frequent reporting requirements or different ownership structures, such as family or state control. Contrary to common perceptions, these deals are seldom purely financial portfolio investments: all but 5 percent of those we examined had a clearly articulated commercial rationale, similar to what might be expected in a Western acquisition, for how they would generate synergies. For half of the deals, the disclosed rationale was expansion into a new market (including a new geography),4 an adjacent business line, or a related business area.5 For a further 20 percent, it was the acquisition of a new organizational capability, and for an additional 18 percent, access to scarce resources, vertical integration to ensure security of supply, or both.

The more hands-off approach allows an acquirer to step into geographies or businesses where it has limited experience and where its managers perceive a high likelihood of difficulties in a full integration. The acquirer therefore faces a difficult trade-off between maximizing returns and minimizing the risk of failure. In all these cases, a prudent acquirer with little or no experience in the target’s geography or industry may well decide that the benefits of rapid integration are outweighed by the risks of damaging the sources of value that inspired the deal.

Consider, for example, a Chinese industrial company’s acquisition of a European business in 2006. Although the track record of active restructuring in past acquisitions in the sector suggested that this one could produce significant synergies, the Chinese acquirer was equally aware of the downside. Its president believed that it was unnecessary to assign a Chinese team to manage the newly acquired company in Europe, observing that many Chinese acquirers that did so had failed in their overseas ventures.

A light touch

Many of the acquisitions we examined follow a similar model: the acquirer attempts to minimize integration activity and disruption to the target, leaving most of its operations and organization intact. As unobtrusively as possible, the acquirer focuses on the few synergies that its managers feel will capture most of the available short-term value. We have observed several core elements of this approach.

A ‘minimalist’ governance structure

The acquirer generally aims to achieve effective oversight of its acquisition rather than to substitute its own judgment for that of the existing line management by micromanaging. Successful examples of this approach have involved the creation of a board or supervisory committee that combines the incumbent’s and acquirer’s management, as well as select external appointees—much as a private-equity firm might restructure an acquisition’s board.

This approach can be implemented in different ways. Consider the following three examples, each an Asian cross-border deal in the telecom sector.

  • The acquirer replaced the acquired company’s board with a newly created advisory subcommittee in its own board. This subcommittee, focusing solely on the acquired company’s performance, consisted mostly of independent directors and the acquired company’s CEO.
  • The acquirer appointed its own country CEO as chairman of the acquired company’s board and otherwise let the acquisition’s top team run the business—none of the acquirer’s other managers were transferred.
  • The acquirer insisted that the CFO of the acquired company report daily on progress in strategic planning. The CFO criticized this approach, feeling that it gave the acquisition no “time to perform.”
Keeping the core top team intact

Asian acquirers usually build the leadership team of an acquired company from its incumbent management, along with select local hires. They avoid inserting their own staff—especially people who lack language skills or local experience—into key roles. In the case of the Chinese industrial company mentioned earlier, the acquired company’s management team remained in place with only very minor changes: indeed, the acquirer asked the team to develop its own business plan independently and to provide input to the overall business unit strategy at the group level. The acquired company’s CEO continues to bear responsibility for developing and delivering its business strategy, though he meets periodically with top executives of the parent company to get input and approval.

A similar approach is evident in the way a major Asian bank acquires smaller ones in other countries around the region. Rather than impose management teams and operating models early on, executives at the bank make a priority of keeping intact the acquired companies’ management teams and planning and management processes. When the major bank replaces top-team members who are not aligned with a deal’s strategic objectives, it searches for local executives rather than parachuting in its own people. As is common in such deals, the bank’s executives manage acquisitions primarily through collaborative discussions with existing management teams. The discussions focus on the performance potential and priorities of the business and avoid intrusive scrutiny or pressure for fast results.

A few key performance indicators

Asian acquirers that take a hands-off approach to deals typically manage them by tracking a very limited set of key performance indicators (KPIs). The integration approach of the Chinese industrial company shows an extreme form of this model. Executives of Asian acquirers focused on a few top sources of synergy, delivering impressive results in a small number of initiatives (such as joint sourcing) rather than dissipating their attention across a broad portfolio of projects. The executives managed the business through only five KPIs, as well as through a broader dialogue over the acquisition’s objectives and strategic direction during the quarterly and annual planning processes.

The amount of data the acquirer monitors depends a lot on the sector: in some industrial deals we examined, a scorecard with as few as five to ten metrics was the basis for performance discussions. By contrast, in some consumer-facing businesses, acquirers used a very detailed and rich scorecard. The extent of the data tracked is perhaps less important than getting clarity early on about what should be tracked. In a 1997 acquisition by one Japanese high-tech company, for example, no clear process was established up front for tracking the business plan. Consequently, when the acquired company’s progress faltered, the parent company’s executives were slow to pick up the warning signs and intervened too late.

Limited back-office integration

Asian acquirers do conduct an initial review of an acquired company’s back-office functions to coordinate KPIs and catch data reliability issues. But the full-scale migration of the acquirer’s enterprise-resource-planning platforms is not the default option. Instead, if a much more limited data extraction system can generate the required management information, Asian acquirers find this approach faster, cheaper, and more likely to succeed.

Light touch does not mean no touch. In most cases, acquirers created teams—made up of both their own and the acquired company’s staff—to examine specific, limited synergy capture opportunities, such as technology transfer or cross-selling. This approach provides an important learning opportunity for both sides, without staking too much on the outcome.

Western readers might ask whether this Asian approach merely produces a transitory structure that will inevitably lead to full integration. At this stage, it’s too early to tell. Of the deals we reviewed, none of those that had limited the initial integration subsequently proceeded to a full-blown, traditional one. Moreover, none had concrete plans to do so—even in some cases where several years had passed since the acquisition. And while all the acquirers in the deals we reviewed were satisfied that this approach had achieved enough synergies to justify their acquisitions, they had implicitly accepted limiting any readily quantifiable upside for the time being. They might conceivably continue owning these businesses indefinitely without fully integrating them—or they might eventually implement full integration. However, given the increasing volumes of cross-border deals by these acquirers, and the greater willingness amongst Asian companies to step outside their borders, we are likely to continue seeing more such deals.

About the Authors

David Cogman is a principal in McKinsey’s Shanghai office, and Jacqueline Tan is a consultant in the Hong Kong office.


1 In 2008, $680 billion worth of deals were completed within and emanated from the region. Of those, 2,300 were outbound acquisitions valued at $208 billion.

2 We conducted in-depth case studies of 120 acquisitions for controlling stakes from the beginning of 2004 through the third quarter of 2008. The analysis was stratified to ensure a representative sample of the Asian acquirers by deal size and country of origin.

3 See Martin Hirt and Gordon Orr, “Helping China’s companies master global M&A,”, August 2006.

4 China Mobile’s 2007 acquisition of Pakistan Telecom, for example.

5 Such as the integrated petroleum company Petronas’s 2003 acquisition of the shipping company American Eagle Tankers (AET).

via A lighter touch for postmerger integration – McKinsey Quarterly – Corporate Finance – M&A.

M&A teams: When small is beautiful – McKinsey Quarterly

A nice summary of different approaches to staffing for M&A integration. The two biggest take aways that I would stress are:

  1. Conducting  the infamous/notorious “lessons learned” or debrief session is vital. So few do it and those that don’t are doomed to repeat the past. I’ve been lucky in having spent my early years in the Aviation/Defense engineering world.  Why?  Because in that world — where you are pushing the envelope of man, material, and machine — you are brainwashed from day-one to always improve, always capture root causes (not symptoms), and to share so that others learn.  It’s one thing to make a mistake but its a total failure not to learn from it.  For those that never lived in that world, it may be surprising to learn that there was a high tolerance for taking calculated risk and for honest, competent mistakes; but, there no tolerance for repeating mistakes or “cover-ups”/”white-washing”.
  2. There needs to be an investment decision as to the degree, if any, of integration and that has to be communicated. I’ve seen way too many episodes where that was all a fog. Result: a dysfunctional organization with infighting and “us vs them”.  Worse yet, pre-M&A operations get damaged.  In the end, you burn a lot of capital (money and people).  Keep you eyes pealed for another M&A debacle in the entertainment provider/distribution world.

M&A teams: When small is beautiful

Large M&A departments aren’t essential for making successful acquisitions.

It’s not surprising that executives planning for M&A often look to acquirers with track records of success for insights. After all, effective deal making can be a source of superior corporate performance, and the capital markets tend to reward companies that have executives with experience in planning, carrying out, and integrating mergers and acquisitions.1

Attention typically focuses on companies that have large, standing M&A teams with as many as 30 to 40 members, who can meet all the contingencies that deal planning might require, such as initial screening, legal structure, and finance. Because such teams can manage deals from beginning to end, they are the most efficient way to screen potential targets (as many as eight to ten for each acquisition planned), particularly if a company intends to acquire a lot of small businesses in a fragmented industry.

Executives at companies that don’t have large, standing teams may wonder if they are really essential for successful deal making. We don’t think they are. If the essentials for the governance and execution of M&A are in place, many companies can carry it out successfully with a small, experienced team that pulls in resources project by project. In an ongoing series of executive interviews on M&A, we’ve run across a number of companies that have small M&A teams—with as few as two to three core team members, led by the head of M&A—which take this kind of project-driven approach.

Indeed, it may even be more suitable than the use of large, standing teams—at least for companies in certain industries, depending on the number of strategic M&A opportunities. Consider, for example, the difference between the utility industry and the broad software industry. In the former, few potential M&A targets turn up in a given year, so assembling a project-based team will be sufficient to assess the opportunities. These utilities also have less need for a highly formalized M&A process, because their normal investment process can deal with M&A sufficiently. This approach provides a relatively clear decision point even if a utility has no formalized M&A playbook to generate and screen deals. By contrast, in the software industry, there are many hundreds (if not thousands) of potential targets for a larger company, depending on the scope of its growth strategy. For such companies, screening must be an ongoing process using more formalized tools in a more centralized and disciplined way.

Not surprising, executives we’ve spoken to from relatively consolidated industries tend to prefer project-based teams. Companies that rely on them, however, must also have the essential M&A discipline of the more systematic approach. These companies need to employ the basic tools of successful M&A, such as a relatively standardized discounted-cash-flow analysis to identify key elements (including intrinsic and synergy value), due-diligence checklists, and integration team charters. There are also unique challenges in several key areas.

  • A link to strategy. A tight link between the strategy of a company and its M&A program is critical for success, regardless of what kind of merger team it uses.2 In particular, companies using the project-driven approach must identify out-of-scope deals early on so they can be put aside, freeing up scarce resources.
  • Governance. No matter which approach a company uses, it must have an explicit path toward decision making so that it can move in a quick, fact-based way when competing for acquisitions. Companies with large, standing M&A teams typically have a formalized approach to M&A decision making—an approach different from the one for standard investment decisions. Often, a specific M&A committee controls and steers the flow of deals and makes go-no-go decisions at various points.

Companies that use the leaner, project-driven approach tend to have a less formalized procedure. Often, they forego the M&A committee and use the standard investment decision process instead. This can work well and may even expedite decision making so long as there are few deals or the deals considered are small enough for management to address on the business unit level. One European consumer company, for example, handles all M&A decisions just as it would other capital expenditure or investment decisions. This ensures that each deal’s value creation potential receives scrutiny, since all such decisions must compete for the same scarce resources.

  • Organization. Large corporate M&A teams can work through deals more quickly, but they can sometimes get so focused on finding the next one that they lose a clear connection to the strategies of the business units. We have observed organizations where even business unit managers directly affected by a deal come to the table relatively late.

In contrast, for the project-oriented approach it’s critical that the small core team include highly experienced deal makers who know the process and which other specialists should be included. Such executives can bring a team together quickly because they have established connections to the support functions and the business units. As a result, they can expand their capacity to assess opportunities by bringing in experts from the business units; the legal, IT, HR, and sales functions; and external resources, such as tax and legal specialists.

In addition to functional experts with deal experience (who are brought in if they meet preselected criteria), such teams inevitably have some members without a background in M&A. The process may therefore be somewhat inefficient initially, but it will also be flexible; these team members will bring types of expertise directly related to an acquisition’s strategic or operational rationale. This approach also tends to engage more of a company’s people in a given deal. Eventually, almost every manager will have served on a deal team and will be able to take M&A into account when thinking through strategy. This aspect of small teams is a long-term advantage—one we would expect to change the tone of strategic conversations about future acquisitions throughout an organization.

  • Early integration planning. In our observation, most companies require some element of formalized integration planning before final deal approval. Yet they often fail to provide for any explicit connection between the deal-making process and the target’s eventual integration. This disconnect may undermine an acquisition’s strategic and operational advantages. All companies, regardless of their approach to M&A, should assume that they need to have a clear deal “owner,” as well as an integration manager who is responsible for providing focused leadership—from well before due diligence through far into the integration effort.3

Given the typically lower deal volumes of companies using the project-based approach, these elements are even more critical, since often there is no standing integration team. Insisting that discussions on integration should start early in the process is critical to avoid surprises later. At one banking institution in Europe, for example, the head of M&A established a separate unit for integration to ensure that it received sufficient attention early in the process. As a result, the team could raise a deal’s integration approach in very early discussions. This has important implications for the due diligence or structuring of a deal, which can look very different depending on whether the acquirer aims for full integration or plans to leave the target more or less untouched.

  • Continuous learning. The ability to learn from previous deals through a formal educational process, such as postdeal or postintegration workshops and updated playbooks, matters more than does the mere experience of doing deals. Indeed, the performance of companies that have a formal postdeal and postintegration learning program is higher, both by qualitative metrics and total returns to shareholders, than the performance of companies that don’t.4 Yet very few companies, we’ve found, have formal learning mechanisms in place.

Postdeal learning is one area where the less formal, project-oriented approach can work against companies. They may have an advantage for informal learning, given the broader inclusion of executives across the organization. But they still need a more formal way that is less dependent on individual deal team members if they are to communicate key insights from one deal and integration effort to the next. Project-oriented organizations might hold workshops, for example, after each step in the acquisition process in order to develop some degree of continuity among deals by formalizing and documenting what teams have learned and observed along the way. One chemical company in Europe, for example, held workshops 12 and 24 months after the closing of an acquisition to discuss key lessons—both the quality of the process and the business goals reached—and recorded the team’s observations in what will eventually become the company’s M&A playbook.

With the necessary elements in place, companies that want to grow through acquisitions don’t necessarily need a large corporate M&A group. They can instead build up a smaller nucleus of experienced deal makers who can scale teams up or down as needed. The result—in addition to the value created by M&A—can be a more agile and experienced organization.

About the Authors

Patrick Beitel is a principal in McKinsey’s Frankfurt office, and Werner Rehm is a consultant in the New York office.

The authors would like to thank Robert Uhlaner and Andrew West for their contributions to this article.


1 See Richard Dobbs, “Creating value from mergers,”, November 2006.

2 See Robert T. Uhlaner and Andrew S. West, “Running a winning M&A shop,”, March 2008.

3 See Robert T. Uhlaner and Andrew S. West, “Running a winning M&A shop,”, March 2008.

via M&A teams: When small is beautiful – McKinsey Quarterly – Corporate Finance – M&A.

4 David Fubini, Colin Price, and Maurizio Zollo, Mergers: Leadership, Performance, and Corporate Health, New York: Palgrave Macmillan, 2006.

The unspoken truth about managing geeks |

My favorite exerpts:

  • “IT is a team sport, so being right or wrong impacts other members of the group in non-trivial ways.”
  • “IT pros complain primarily about logic, and primarily to people they respect.”
  • “Good IT pros are not anti-bureaucracy, as many observers think. They are anti-stupidity.”
  • “Creativity is the most valuable asset of an IT group, and failing to promote it can cost an organization literally millions of dollars.”

I don’t agree with his “How To Fix It” segment as solution for all levels of IT leadership.  What Jeff describes is appropriate for a small shop or for departmental leadership. At some point, just like in any other function, management needs to become more strategic.

Opinion: The unspoken truth about managing geeks

By j.ello

September 8, 2009 02:15 PM ET

Computerworld – I can sum up every article, book and column written by notable management experts about managing IT in two sentences: “Geeks are smart and creative, but they are also egocentric, antisocial, managerially and business-challenged, victim-prone, bullheaded and credit-whoring. To overcome these intractable behavioral deficits you must do X, Y and Z.”

X, Y and Z are variable and usually contradictory between one expert and the next, but the patronizing stereotypes remain constant. I’m not entirely sure that is helpful. So, using the familiar brush, allow me to paint a different picture of those IT pros buried somewhere in your organization.

My career has been stippled with a good bit of disaster recovery consulting, which has led me to deal with dozens of organizations on their worst day, when opinions were pretty raw. I’ve heard all of the above-mentioned stereotypes and far worse, as well as good bit of rage. The worse shape an organization is in, the more you hear the stereotypes thrown around. But my personal experiences working within IT groups have always been quite good, working with IT pros for whom the negative stereotypes just don’t seem to apply. I tended to chalk up IT group failures to some bad luck in hiring and the delicate balance of those geek stereotypes.

Recently, though, I have come to realize that perfectly healthy groups with solid, well-adjusted IT pros can and will devolve, slowly and quietly, into the behaviors that give rise to the stereotypes, given the right set of conditions. It turns out that it is the conditions that are stereotypical, and the IT pros tend to react to those conditions in logical ways. To say it a different way, organizations actively elicit these stereotypical negative behaviors.

Understanding why IT pros appear to act the way they do makes working with, among and as one of them the easiest job in the world.

It’s all about respect

Few people notice this, but for IT groups respect is the currency of the realm. IT pros do not squander this currency. Those whom they do not believe are worthy of their respect might instead be treated to professional courtesy, a friendly demeanor or the acceptance of authority. Gaining respect is not a matter of being the boss and has nothing to do with being likeable or sociable; whether you talk, eat or smell right; or any measure that isn’t directly related to the work. The amount of respect an IT pro pays someone is a measure of how tolerable that person is when it comes to getting things done, including the elegance and practicality of his solutions and suggestions. IT pros always and without fail, quietly self-organize around those who make the work easier, while shunning those who make the work harder, independent of the organizational chart.

This self-ordering behavior occurs naturally in the IT world because it is populated by people skilled in creative analysis and ordered reasoning. Doctors are a close parallel. The stakes may be higher in medicine, but the work in both fields requires a technical expertise that can’t be faked and a proficiency that can only be measured by qualified peers. I think every good IT pro on the planet idolizes Dr. House (minus the addictions).

While everyone would like to work for a nice person who is always right, IT pros will prefer a jerk who is always right over a nice person who is always wrong. Wrong creates unnecessary work, impossible situations and major failures. Wrong is evil, and it must be defeated. Capacity for technical reasoning trumps all other professional factors, period.

Foundational (bottom-up) respect is not only the largest single determining factor in the success of an IT team, but the most ignored. I believe you can predict success or failure of an IT group simply by assessing the amount of mutual respect within it.

The elements of the stereotypes

Ego — Similar to what good doctors do, IT pros figure out that the proper projection of ego engenders trust and reduces apprehension. Because IT pros’ education does not emphasize how to deal with people, there are always rough edges. Ego, as it plays out in IT, is an essential confidence combined with a not-so-subtle cynicism. It’s not about being right for the sake of being right but being right for the sake of saving a lot of time, effort, money and credibility. IT is a team sport, so being right or wrong impacts other members of the group in non-trivial ways. Unlike in many industries, in IT, colleagues can significantly influence the careers of the entire team. Correctness yields respect, respect builds good teams, and good teams build trust and maintain credibility through a healthy projection of ego. Strong IT groups view correctness as a virtue, and certitude as a delivery method. Meek IT groups, beaten down by inconsistent policies and a lack of structural support, are simply ineffective at driving change and creating efficiencies, getting mowed over by the clients, the management or both at every turn.

The victim mentality — IT pros are sensitive to logic — that’s what you pay them for. When things don’t add up, they are prone to express their opinions on the matter, and the level of response will be proportional to the absurdity of the event. The more things that occur that make no sense, the more cynical IT pros will become. Standard organizational politics often run afoul of this, so IT pros can come to be seen as whiny or as having a victim mentality. Presuming this is a trait that must be disciplined out of them is a huge management mistake. IT pros complain primarily about logic, and primarily to people they respect. If you are dismissive of complaints, fail to recognize an illogical event or behave in deceptive ways, IT pros will likely stop complaining to you. You might mistake this as a behavioral improvement, when it’s actually a show of disrespect. It means you are no longer worth talking to, which leads to insubordination.

Insubordination — This is a tricky one. Good IT pros are not anti-bureaucracy, as many observers think. They are anti-stupidity. The difference is both subjective and subtle. Good IT pros, whether they are expected to or not, have to operate and make decisions with little supervision. So when the rules are loose and logical and supervision is results-oriented, supportive and helpful to the process, IT pros are loyal, open, engaged and downright sociable. Arbitrary or micro-management, illogical decisions, inconsistent policies, the creation of unnecessary work and exclusionary practices will elicit a quiet, subversive, almost vicious attitude from otherwise excellent IT staff. Interestingly, IT groups don’t fall apart in this mode. From the outside, nothing looks to be wrong and the work still gets done. But internally, the IT group, or portions of it, may cut themselves off almost entirely from the intended management structure. They may work on big projects or steer the group entirely from the shadows while diverting the attention of supervisors to lesser topics. They believe they are protecting the organization, as well as their own credibility — and they are often correct.

Credit whoring — IT pros would prefer to make a good decision than to get credit for it. What will make them seek credit is the danger that a member of the group or management who is dangerous to the process might receive the credit for the work instead. That is insulting. If you’ve got a lot of credit whores in your IT group, there are bigger problems causing it.

Antisocial behavior — It’s fair to say that there is a large contingent of IT pros who are socially unskilled. However, this doesn’t mean those IT pros are antisocial. On the whole, they have plenty to say. If you want to get your IT pros more involved, you should deal with the problems laid out above and then train your other staff how to deal with IT. Users need to be reminded a few things, including:

  • IT wants to help me.
  • I should keep an open mind.
  • IT is not my personal tech adviser, nor is my work computer my personal computer.
  • IT people have lives and other interests.

Like anyone else, IT people tend to socialize with people who respect them. They’ll stop going to the company picnic if it becomes an occasion for everyone to list all the computer problems they never bothered to mention before.

How we elicit the stereotypes

What executives often fail to recognize is that every decision made that impacts IT is a technical decision. Not just some of the decisions, and not just the details of the decision, but every decision, bar none.

With IT, you cannot separate the technical aspects from the business aspects. They are one and the same, each constrained by the other and both constrained by creativity. Creativity is the most valuable asset of an IT group, and failing to promote it can cost an organization literally millions of dollars.

Most IT pros support an organization that is not involved with IT. The primary task of any IT group is to teach people how to work. That’s may sound authoritarian, but it’s not. IT’s job at the most fundamental level is to build, maintain and improve frameworks within which to accomplish tasks. You may not view a Web server as a framework to accomplish tasks, but it does automate the processes of advertising, sales, informing and entertaining, all of which would otherwise be done in other ways. IT groups literally teach and reteach the world how to work. That’s the job.

When you understand the mission of IT, it isn’t hard to see why co-workers and supervisors are judged severely according to their abilities to contribute to that process. If someone has to constantly be taught Computers 101 every time a new problem presents itself, he can’t contribute in the most fundamental way. It is one thing to deal with that from a co-worker, but quite another if the people who represent IT to the organization at large aren’t cognizant of how the technology works, can’t communicate it in the manner the IT group needs it communicated, can’t maintain consistency, take credit for the work of the group members, etc. This creates a huge morale problem for the group. Executives expect expert advice from the top IT person, but they have no way of knowing when they aren’t getting it. Therein lies the problem.

IT pros know when this is happening, and they find that it is impossible to draw attention to it. Once their work is impeded by the problem, they will adopt strategies and behaviors that help circumvent the issue. That is not a sustainable state, but how long it takes to deteriorate can be days, months or even years.

How to fix it

So, if you want to have a really happy, healthy and valuable IT group, I recommend one thing: Take an interest. IT pros work their butts off for people they respect, so you need to give them every reason to afford you some.

You can start with the hiring process. When hiring an IT pro, imagine you’re recruiting a doctor. And if you’re hiring a CIO, think of employing a chief of medicine. The chief of medicine should have many qualifications, but first and foremost, he should be a practicing doctor. Who decides if a doctor is a doctor? Other doctors! So, if your IT group isn’t at the table for the hiring process of their bosses and peers, this already does a disservice to the process.

Favor technical competence and leadership skills. Standard managerial processes are nearly useless in an IT group. As I mentioned, if you’ve managed to hire well in the lower ranks of your IT group, the staff already know how to manage things. Unlike in many industries, the fight in most IT groups is in how to get things done, not how to avoid work. IT pros will self-organize, disrupt and subvert in the name of accomplishing work. An over-structured, micro-managing, technically deficient runt, no matter how polished, who’s thrown into the mix for the sake of management will get a response from the professional IT group that’s similar to anyone’s response to a five-year-old tugging his pants leg.

What IT pros want in a manager is a technical sounding board and a source of general direction. Leadership and technical competence are qualities to look for in every member of the team. If you need someone to keep track of where projects are, file paperwork, produce reports and do customer relations, hire some assistants for a lot less money.

When it comes to performance checks, yearly reviews are worthless without a 360-degree assessment. Those things take more time than a simple top-down review, but it is time well spent. If you’ve been paying attention to what I’ve been telling you about how IT groups behave and organize, then you will see your IT group in a whole different light when you read the group’s 360s.

And make sure all your managers are practicing and learning. It is very easy to slip behind the curve in those positions, but just as with doctors, the only way to be relevant is to practice and maintain an expertise. In IT, six months to a year is all that stands between respect and irrelevance.

Finally, executives should have multiple in-points to the IT team. If the IT team is singing out of tune, it is worth investigating the reasons. But you’ll never even know if that’s the case if the only information you receive is from the CIO. Periodically, bring a few key IT brains to the boardroom to observe the problems of the organization at large, even about things outside of the IT world, if only to make use of their exquisitely refined BS detectors. A good IT pro is trained in how to accomplish work; their skills are not necessarily limited to computing. In fact, the best business decision-makers I know are IT people who aren’t even managers.

As I said at the very beginning, it’s all about respect. If you can identify and cultivate those individuals and processes that earn genuine respect from IT pros, you’ll have a great IT team. Taking an honest interest in helping your IT group help you is probably the smartest business move an organization can make. It also makes for happy, completely non-geek-like geeks.

Jeff Ello is a hybrid veteran of the IT and CG industries, currently managing IT for the Krannert School of Management at Purdue University. He can be contacted at

via Opinion: The unspoken truth about managing geeks.

The unspoken truth about why your IT sucks |

Jeff has nailed the hot topics in IT leadership with some terrific honest insights.  I’m not just saying that because we’re members of the Iconoclast Club.

Opinion: The unspoken truth about why your IT sucks

Version 2.0

By j.ello

December 1, 2009 09:44 AM ET


Back in the fifth grade, I was in a school musical, The GIGO Effect, in which the evil Glitches attempted to corrupt a computer named Mabel with “dirty power.” The point of the show was that technology is unable to produce intelligent results without intelligent direction, a truism encapsulated in the formerly popular computer acronym GIGO, “garbage in, garbage out.”

I don’t think any business leaders are inclined to get their insights on running IT from a bunch of singing fifth-graders, but they could do worse (and generally do, to tell the truth). Intelligent direction is a product of competence, which IT professionals view as a mix of technical knowledge, creativity and judgment.

Everyone prefers competence. Everyone wants to do the right thing. But just as IT pros act and react logically according to their perceptions, so do the executives who employ them. Both approach IT with the same intention, but the outcome — for lack of a better term — sucks. And it sucks more as time goes on.

Don’t take my word for it; ask your own IT pros or someone else’s. Read any IT or CIO survey over the past couple of decades and you’ll find that the same problems reported this year have been reported every year. Do a little more research and you’ll find that IT morale is disturbingly low, stress is ridiculously high, and the best people are lost to burnout while the worst are rewarded. Project success rates are as comically low as the average term of a CIO is conveniently short. IT is assaulted by snake oil salesmen and extremists from the churches of IT outsourcing, insourcing or whatever-sourcing who promise that their latest buzzword will save everyone in tidy, graphable ways.

But there is a bright side. Organizations that do IT very well are no different than those lost in the sucking vacuum of the GIGOsphere. But they have a tool that allows business leaders and IT professionals to speak, at least in part, the same language. Be it subconscious or by epiphany, they have stumbled upon a definition.


“Engineering” is a term that is thrown around in “advoun” form — not quite adjective, verb or noun, and meaningless out of context. We differentiate mechanical vs. electrical, civil vs. nuclear, even train vs. sanitation. The all-encompassing IT industry, however, can’t even decide what to call itself decade to decade, much less what to call many of its unique disciplines. So, you can’t really blame the executives for wielding the term “IT” with the same level of precision as “dude.”

But I have observed that where IT is done well, it is referred to in very narrow organizational terms. I have done my best to reduce these to a definition:

Information technology is the art of managing an organization’s processes by establishing and maintaining computing frameworks.

I know this is not the Wikipedia definition (feel free to add it). This definition has an advantage, by clearly distinguishing IT’s ultimate role in an organization from all of the highly computer-dependent tasks that organization may undertake. And that helps executives and IT professionals come together on many perplexing topics, such as:


Imagine a CPA firm with five staff accountants handling the finances, and 100 CPAs who work with customers. They are all accountants, all doing “accounting work,” but with respect to the organization, only the five staff accountants are the company’s accountants, because that’s the role they fill. Pretty obvious, right?

Yet few think twice about counting everyone whose work primarily involves a computer as an IT person, no matter what role they fill. Hiring a person to design a public Web site for your company, for example, is an advertising job. Having a group of people develop an iPhone app is production work. Having your DBA pull financial reports because he’s a whiz at writing SQL queries simply means a portion of his FTE now belongs to the business office rather than IT.

Lumping clearly divergent roles into IT is a real problem, whether done naively or intentionally. Executives know the importance of such distinctions, but without a definition, they just don’t recognize them. Thousands of companies make the same type of mistake, so the error artificially deflates the job numbers of other industries, artificially inflates the ranks of IT, and logically causes executives to make truly costly IT decisions on bad information.


Any MBA can tell me what the unit of production is for a CFO. They can tell me the difference between FA, AR, etc. with pretty certain terminology. Not because they are accountants, nor because accounting is easy, but because there are definitions to guide them.

Can anyone tell me what the unit of production for a CIO is?

In the absence of fact, we find the simplest analog. IT looks like a customer service organization, so that is how it is treated. Call with a problem, get a solution. We measure satisfaction, number of incidents, time of completion, etc., and over time this is defines IT. When an executive comes under fire, it’s not because the IT group has failed to make a tweak that would save the organization a million bucks in wasted time; it’s because someone complains that “the Internet is down” — which translates into “The cable is unplugged.”

It gets worse: The more efficient, effective and pure of purpose IT is, the more invisible it becomes. The more invisible it is, the more people question why it exists. If the executives are uncertain about what IT is supposed to do, then anyone with an opinion, something to sell or an ax to grind is taken seriously. To quiet the critics, IT is compelled to divert its resources to non-IT work and ill-conceived projects. Over time, those are the things by which IT is measured, and all of the proactive, strategic endeavors that could create capabilities or save massive amounts of time, money and work are all but forgotten.

From a business sense, is it more sad that IT pros often understand this, or that executives often don’t?


Alignment is a really dumb concept that works like this: Your organization has goals, and IT has goals. Alignment is the act of making those goals align. CIOs consistently report this as a No. 1 priority, year after year. That’s a lot of aligning.

IT pros look at the explosion of technology options with giddy optimism, but they don’t always recognize the cost of innovation. Executives, on the other hand, perceive steady innovation as an expensive, confusing diversion from their business and don’t always recognize the cost of standing still. They’ve got tight budgets that don’t flex with the ebb and flow of IT, and innovation doesn’t lend itself to simple calculation. Executives have an anxiety about IT that is instinctively soothed by favoring more agreeable IT management, not realizing there is a price paid in technical competence that makes it even more difficult to bring IT ingenuity to real business problems.

Secretly, IT shares an adversarial relationship with the organization, forced to do the visible things it shouldn’t and having to “trick” the organization into doing the strategic things it must. Without a definition, IT is always out of alignment, because it will never be rewarded for doing the things that only IT can do. That causes friction in ways that are universally counterproductive, making a dumb activity like “alignment” a No. 1 priority.

Faith, assumption, truthiness

Without a definition for IT, business executives are targets for all manner of coercive argument. They are made to feel as if the rest of the world has conquered the IT beast, and if they don’t get on board with the latest trend, they will look stupid.

Should IT reorganize? Centralize? Decentralize? Outsource? Insource? Is it too big? Too small? Do we need ITIL? Should we provide service X? Why are we doing Y?

These are business questions whose answers often break down along what can seem like religious lines, in that everyone has an opinion and selects only the data that appears to validate it. The bigger the organization, the more militant the debates become, and the more false simplification takes over.

For example, ITIL is a self-described set of “best practices for IT Service Management.” Many companies have spent many millions implementing ITIL-based processes, despite the lack of any science confirming its efficacy. The logic of ITIL is hard to argue with. But while each new faithful implementation shows short-term promise, I have yet to see a mature ITIL-based organization that isn’t oversized, misshapen and grossly inefficient.

It’s not that ITIL doesn’t work — in fact, it works exactly as one should expect. ITIL groups are acutely aware of their costs and processes, which is a primary goal of following the ITIL program. On paper, it’s very convincing. But ITIL organizations develop a resistance to pragmatic, incremental innovations that others quickly, if sometimes recklessly, adopt. This not only frustrates existing innovators; it makes hiring innovators a contrary act. Over time, that leads to an overall shift in staffing, with deficiencies in key roles that further deteriorate the group’s ability to keep up, much less lead. While others race by on an uncertain diet of cheaper, faster, better, stumbling every so often, ITIL groups are typically forced by the weight of their own bureaucracies to stagnate, then belch changes in massive, expensive eruptions.

Who would willingly do that to their organization? Well, I would, for one. That is, if no one could tell me what IT was supposed to do, if I viewed IT like a dry cleaning service, and if the world was telling me I could just pay a set fee and have no more worries, that would be hard to resist.

These things don’t happen without strife, but it’s tough to compete with faith. In 20 years, I have yet to see the results of an IT review contradict the opinion that spurred it. Whether it was the review that outsourced IT or the review that re-insourced it, the review always makes perfect sense. In the absence of a definition, anything makes sense.


This is the collision of two different realities. Executives see savings in budget line items and value in a bill of services. IT sees savings in the things no one has to do anymore and value in the things no one could do before.

Reconciling the two is a big challenge. If I were in the CEO’s shoes, I would be begging for someone to just tell me everything’s OK in IT-land. I would be seeking out a smooth talker who could take the heat. That this is something that many CEOs want was made all too clear to me when I saw a survey of CIOs, CTOs and directors. Asked to check all the skills pivotal to their success, 70% checked “ability to communicate effectively” and 58% marked “strategic planning,” while only 22% ticked “thorough knowledge of technology options.” You have to wonder, what could a CIO possibly be communicating or planning without a thorough knowledge of technology options? Those numbers should horrify CEOs, who make big-money decisions based on the CIO’s authority in only one area — technology.


It comes down to this: Even if you don’t know how to turn on a computer, having a useful definition will help you count IT. It will help you measure IT. It will help you avoid the prophets who say they can solve your IT woes with numeric simplicity. It can even change the qualities you look for when hiring, and how you cope with ever-present uncertainty.

Having a definition brings a little discipline to the thoughts of all who use it, so that even the most opposite-minded people can approach a problem together, with competence. Competence produces intelligent direction, and as any fifth-grader can tell you, intelligent direction prevents the evil glitches from corrupting the system with dirty power.

Jeff Ello is currently “engaged in the art of managing organizational processes by establishing and maintaining computing frameworks” for the Krannert School of Management at Purdue University. He can be contacted at

via Opinion: The unspoken truth about why your IT sucks.

55% of Medical Device Industry Professionals Looking for New Job in New Year

I’m using the author’s headline.  The stats are 28% are “unemployed/actively looking” (aka me) + 28% are “Strong Possibility”  = 54%.  Still, that’s a lot of people that may go into play.  We won’t know until confidence picks-up.  It’s easy to say that you’re “out the door” but it’s another thing to actually walk out that door.

[I made the charts as big as I could so that you can read the data, sorry if it doesn’t look pretty]

Orlando, FL – January 8, 2010

55% of Medical Device Industry Professionals Looking for New Job in New Year
27% of Medical Device Industry Executives Will “Definitely” Pursue New Employment in 2010; 28% Indicate “Strong Possibility.”  Only 22% are committed to staying in current role.

According to a poll of 2000 medical industry professionals randomly surveyed January 4-7, 2010, more than half are looking at 2010 as the year to make a job change.

The study posed the question: “What is the likelihood you will change jobs in 2010?”

Overall, 26% of the respondents polled answered that that were either “unemployed” or “actively looking.” Thirty-one percent answered that they were happy in their current situation bur are keeping their options open.

Most telling may be the final category: only 11% expected no change in their employment under any circumstances in 2010

Paula Rutledge, President of Legacy MedSearch, a retained search firm working exclusively in medical device recruitment, was not surprised by the results.  “For the past eighteen months, professionals in all aspects of the medical industry have had to work harder – many times for less pay and with fewer resources – to make up for reductions in staff.  I’m not certain if this trend is sustainable with the first glimmers of hope in medical starting to become evident.  Many pharmaceutical and large capital equipment companies will continue to contract through 2010, evidenced the Pfizer (400) and Merck (500) layoffs announced January 7. However, with all the ‘fat’ cut away from most companies, there will be a slight increase in hiring, particularly in the customer-facing functions (sales & marketing), and those professions associated with patient-issues (quality, regulatory, compliance, and clinical affairs).”

Bureau of Labor Statistics January Report Shows Mixed Results
Even with a slight edge up in the January 2010 initial jobless claims (up 1,000 from the previous week of 433,000), the 4 week moving average continues a downward trend and jobless claims in twelve states, including California, actually declined. The unemployment rate still hovers at over 10%,1

That said, the medical device industry, with a higher employment pool of college graduates more likely mirrors the overall unemployment rate of 4.6% posted for management, professional and related occupations 2

Medical Device Sales Executives “Most Discontent”
In a breakdown of the poll results by Title, a mere 9% of healthcare sales professionals are completely satisfied with their current position – and this excludes pharmaceutical sales representatives who have seen mass lay-offs for nearly three years.

Age Makes a Difference
One anonymous respondent who had been laid off in 2009 commented: “Over 80% of the people using outplacement services were at least 50. It’s all about companies saving salary & pension dollars and so many of us are not ready or able to retire.”

In terms of the perception of job prospects, the baby boomers are split down the middle, with 51% actively looking or choosing to keep their options open.

Those options include uplifting roots and relocating to the right stable job, says an anonymous Graphics Designer.  “I am a technical designer and was laid off 3 times in 17 months. It is simply getting ridiculous. I finally found a job, but took a huge step back. I’m at the point where I’d relocate to a job (in a desirable area) if it had a stable future and the sky was the limit.”

Legacy MedSearch plans to keep the poll active through January, and the poll results can be seen here.

About Legacy MedSearch
Legacy MedSearch is a retained recruitment firm focused exclusively on Medical Device & Technology with an emphasis on Engineering, QA/RA and Clinical Affairs, Product and Marketing Management, R&D and Sales.

via 55% of Medical Device Industry Professionals Looking for New Job in New Year « Legacy MedSearch blog.

Angel Investors – The Good, Bad and Very Ugly | Dr. Earl R. Smith II

Here is another blog about start-ups, PE/VC, and entrepreneurship that I thoroughly enjoy. I would like to share it with you. Dr Smith has a wealth of info and his reader’s comments are also very useful.  Please go to his site and read the comments.

Angel Investors – The Good, Bad and Very Ugly

Posted by Dr. Earl R. Smith II

There is a tendency among entrepreneurs to chase money wherever they find it. The pressure to find the financial resources so necessary to build a business can be over-mastering. Most of the time the partnerships which form between founders and angel investors are productive but, in a few cases, I have seen it turn very destructive. Companies that should have realized success have been held back by investor partnerships that have severely limited their potential or, in some cases, doomed them to failure.

Look Beyond the Checkbook

It may be hard to be discriminating when you are in the heat of the ‘money hunt’ but the sins of omission you commit while chasing investors can return ten-fold to destroy any chance of success. The problem become acute because of the incredible range of circumstances, experience and interests that angel investors bring to the table. Their having money to invest in not enough. You need to understand their basic motivations and what is driving them to act as an angel investor. You also need to understand that all investment money is not the same. Some money will help you succeed while other investments will be a poisoned pill that will reduce your chances of building the business you envision. Here are some ‘sacred cows’ that you need to slaughter:

  • Angel investors are in it for a return on their investment: Well, how can you argue with that? You would assume that the primary driver is always a return on investment. But, as you will read further on, that is not always the case. I know angel investors who are simply bored and looking for something to do and others who are frustrated CEO-wannabees. For some investors, it is all about a return but for others the return is secondary. You need to sort these two groups out. Do not listen just to what they say; it is what they do that is important.
  • They have money they; must be smart: This is another fallacy. Some of the dumbest and most self-destructive people I have ever met are wealthy. I have found only a weak correlation between wealth and intelligence and a slimmer one between wealth and wisdom. Many a destructive hubris has been built on a fat bank account. Investors have an important role in start-ups but pretense, omnipotence or omniscience can warp an investor’s understanding of that role. Smart investors play their part in a highly professional and constructive manner. Seek them out; they are most likely the winners you want to associate with.
  • They have been successful in business so they will know how we can be: Past success is not always a good indicator of wisdom going forward. In fact, great success can be counter-productive when they decide to work with start-up companies. I know one investor who continually regales his CEOs with stories of how he ran his company. Of course, the company was running over one hundred million annually when these stories took place. The CEOs, wanting to emulate his success, take steps that are entirely premature. The result is wasted resources and a dysfunctional corporate culture. Past business success is not a good indicator of professional performance as an investor. Remember, you are seeking an investor, not a shadow CEO.
  • They will become my close personal friends and advisers: Not a good idea; the correct focus of investors should produce a tension in the relationship with management. If you want a friend, buy a dog.

The Bad and the Very Ugly

The problem with writing about angel investors is that they come in an amazing variety. I have met lots of them and there is always something different about each. The ease of entry into the field may have something to do with it. The only real entry requirement is wealth beyond current needs. That’s all it takes to become an angel investor. There are no educational requirements, courses to take or certifications to merit. Only a bank account and a decision to ‘invest’ are required to hang out a shingle and open up for business. Watch out for the following:

  • The Shadow CEO: I have met investors who purposefully pick weak or inexperienced CEOs to work with. Their real agenda is to run your company from the back seat. These investors are very intrusive and will push you to make decisions and commit resources that will put your company at risk. They are mostly successful entrepreneurs who have built and sold a business. In the process, they have lost touch with the necessary energy levels and passion that is essential to building a start-up into a going business. Mostly they remember the later stages of their company and the extended staff they had. Then they turn the CEO into a kind of executive assistant and attempt to run the company by proxy. Most of the companies in the portfolio of this type of investor remain very small. They generally have very complex Excel spreadsheet projections and poor records in meeting them. Stay away from the Shadow CEO; they are very dangerous investors.
  • The Crazy, Rich Uncle: This is probably the most dangerous type of angel investor because they are so easy on the management team. They are mostly retired and living comfortably. Their mission in life is to ‘give back to the younger generation’. A clear indication of this type is the total lack of performance metrics and a weak statement of expectations. They can be very seductive to entrepreneurs but there is a dark side. Without stiff set of performance metrics, the company can develop a culture of permissiveness. That will feel good until the money runs out. A key indicator of this type is the feeling that the amounts of money involved are, at least initially, not sufficient to cause them concern. The expenditure patterns are not carefully monitored and discussions do not turn serious until the money is spent and the wolves are at the door. As an entrepreneur, you need to seek out investors who will be hard on you; insisting on strict performance metrics and precise definitions of roles. Take the easy way out and you will be in for a ride to nowhere with a crazy, rich uncle. Sure you will enjoy the ride but, in the end, you will be let off the bus in the middle of nowhere with a tarnished reputation for failure.
  • The Gaggle: Remember the old saying about a camel being a horse designed by a committee? These gaggles are fond of that kind of engagement. The investments that they make are very often selected in a very casual way and supervised fairly loosely. The problem comes as the group itself is very loosely organized. Different participants might have significantly different understandings of what it mean to be an investor and what that status entitles them to. The can range from complete indifference to total immersion in the management of the company. This situation can result in lots of pulling and pushing of the management team without an overarching strategic vision. Investments should be made based on clear and concise understandings codified in a detailed investment agreement.
  • The Bottom Feeders: You will meet some investors who are really only interested in your intellectual property. They ‘drag the bottom’ of the entrepreneurial community looking for weak teams with good ideas. Mostly they insist that their funding be used to develop the technology rather than developing revenues. Once the money runs out, they regretfully inform management that they are closing the company down and talking the intellectual property as compensation for their investment.
  • The Lead Broker: I have seen these lead brokers promote themselves into central roles in companies without putting much of any of their own money on the line. The net result is that the bulk of the investor group gets involved without much direct knowledge of the business or the management team. In one case, such a broker put together an investment in excess of one million dollars without making any investment of his own. He still managed a seat on the board and a dominate role in the management of the company. Be particularly careful of the broker who can invest but does not. This situation can turn nasty if expectations are not met. Finger pointing and recriminations can come to dominate the relationships among the investors. This could seriously damage chances of follow-on investments by the group.

The Good

Good angel investors always take a highly professional approach to the process and their portfolio companies. They generally focus in industries that they are familiar with. It is a good idea to avoid angel investors whose portfolio companies do not fit a close pattern. The best angel investors will often forgo the option of claiming a board seat and, instead, insist that an independent board member with professional experience be appointed. Beware of investors who seem to see investment in your company as an opportunity to enhance their reputation by sitting on yet another board. Here are some positive things to look for:

  • Success Breeds Success: There are angel investors who have the knack to help their portfolio companies thrive; while others seem to doom them to failure or stagnation. I know of one angel who specializes in little deals and has a well developed ability to keep them that way. Other investors seem to have the opposite skill. Their companies grow and prosper. It is a good idea to do some diligence on the track record of the investor. Go with the successful ones even if the deal terms are less generous.
  • The Investment Agreement: There ought to be a detailed investment agreement agreed to before any funds are transferred. This agreement should be very specific when it comes to the roles and responsibilities of each party. The best agreements provide for an earn-in by management based on performance. It also sets the ground rules for further investment. Good angel investors will require this as a matter of course. The worst ones will simply require a term sheet and then write a check. Remember that the absence of planning is the road to failure. Think of the investment agreement as a strategic plan for the relationship.
  • Strategic Agreement on Roles and Responsibilities: Good angel investors will insist that the roles and responsibilities for each party be very well understood from the very beginning. These roles will be codified in the investment agreement and specify the actions that each party will be able to take under a range of possible outcomes. Although such an agreement can complicate initial negotiations, it will help greatly when performance does not meet expectations and realignment become necessary.
  • Use of Proceeds: I have seen investors write rather large checks without insisting that there be an agreed upon use of proceeds. You can imagine what happened then. Entrepreneurs initially like the freedom to simply take the money and spend it as they see fit. But, more often than not, this leads to waste and spending on things that do not connect directly to the success of the company. One company, upon receiving funds in this way, spent a lot of the money on new laptops and cell phones with expensive service plans. They replaced very serviceable units. Another CEO kept paying his salary, even through results fell far below projections, and failed to pay suppliers. The result was a law suit that is almost certain to shut down the company. It is good business practice for the angel investors to insist on a detailed use of proceeds and for control over the spending of their money.
  • Insistence on Performance Metrics: As a CEO you should be insisting on performance metrics for every member of your team. That is just good management. Your investors should take the same approach. It may seem initially easier to deal with angel investors who are very lax about this, but it is far from best practices. I am not just talking about Excel spreadsheet metrics. They have to be much more detailed than that. Good performance metrics detail the responsibilities of each member of the management team and the way their performance will be measured. Everybody from the CEO to the receptionist should have a job description with metrics attached. And the metrics should be sufficiently detailed to drive evaluations based on performance. Performance should be the driver in determining both compensation and earned-in interest in the company. Performance metrics are a sign of a professional and productive organization. Start-ups with that culture have a much higher chance of success.
  • Focus on Governance Issues and Oversight: “Who’s minding the store?” If the answer to that question is “nobody but us entrepreneurs”, consider that a red flag. In the short-term, it may feel good to be free from oversight but, in the long-term, you are guaranteed to make more mistakes and waste more opportunities. The board of directors has a very important role to fill in any corporate structure and it is not just making sure that the investors get to a liquidity event as soon as possible. Good governance means overseeing the strategic planning process, dealing with issues of succession, audit and compensation, and providing for the protections and expansion of shareholder value. This fiduciary relationship with the shareholders is an important part of the corporate structure. Without it, management is under no effective supervision and the investment looks more like a roll of the dice than an investment.

Keep This In Mind

An angel investment creates a relationship that will help determine how successful you are going to be. Your skill in crafting that relationship is a test of how dedicated you are to the success of your company and team. If you take the easy way out, your chances of success will drop significantly. If you opt for the limp relationship with an inattentive investor, your prospects will suffer. Angel investors, the good ones, bring much more than money to the table. The good ones have helped their companies succeed and will help you do the same.

© Dr. Earl R. Smith II


The Elusive Right Path to Offshoring Engineering

First it was IT and transactional functions. Now its Engineering’s turn.  Same horse, different rider. If you have followed the whole offshoring conversation, there is nothing new here but this article is a tight and tidy summary of the pitfalls and some of the considerations.

I’m a Total Cost of Ownership (TOC) fanatic, so I tend to remind folks that is not just about the immediate cost.  Always step and look that the big picture and the affect of “collateral damage”, remedial activity, governance, contingencies, insurance, additional overhead, etc…  All those costs are part the decision and the cost in going offshore.

Now if you’re really super-cool, you’ll also do some formal risk analysis and weigh the cost of failure(s) and value key intangibles into your decision model.  Heh, but that’s for the advanced class…

BTW, I thoroughly enjoy reading strategy+business, strongly recommend.

The Elusive Right Path to Engineering Offshoring
Farming out product design and development can be a risky venture, as many organizations have learned the hard way. Here are five steps to making it work.

Few companies today would hesitate to outsource routine operations like IT services, call centers, or back office functions, but farming out engineering and product development is difficult or off-limits for most companies, and rightfully so. By their very nature, engineering and R&D are mission critical. What comes out of these units — the hits or misses, the innovation or lack of it — often determines the future of the larger organization. Letting another company, particularly an enterprise thousands of miles away, handle engineering tasks could be an invitation to disaster. Everything from knowledge transfer — dispensing a company’s design and development procedures and preferences to an outsourcing firm — to quality of work may suffer when the supervision of far-flung engineers in offshore locations is left to vendors often woefully ill-equipped to manage complex projects or adequately meet the client company’s needs.

Yet, despite its clear downside, engineering outsourcing has been slowly gaining in popularity over the past decade and is expected to be a business worth US$150 billion a year by 2020, which would make it five times larger than it is today. In most cases, companies are seeking to cut costs for an expensive activity. Engineering R&D can run anywhere from 3 to 10 percent of revenues, depending on the industry.

Western companies are also increasingly interested in tapping local engineers in emerging nations to develop products suited in culture and language to the needs of consumers in areas of the world where sales are growing. When companies fail to outsource these activities to regional operators, wasteful errors occur that would be laughable if they weren’t so expensive to mitigate. For example, a German machine tool company recently attempted to design, entirely in Europe, a product destined for the Brazilian market. As a result, drawings, service manuals, and equipment tags were improperly translated. One instruction was supposed to read, “Advance the ram,” but was translated into Portuguese as “Squeeze the goat.” That mistake and many similar ones ended up costing the German company dearly in reworking tags, text boxes, callouts, and service manuals and hindered sales of the new product in Brazil.

The largest engineering offshoring country is India, with about 25 percent market share, but China is also a big player and its influence in the sector will increase in the coming years; together, India and China graduate more than 800,000 new engineers each year, most of whom are willing to work at pay scales far below those enjoyed by their Western counterparts. The Philippines, Malaysia, Thailand, Brazil, Hungary, Ireland, and the Czech Republic are also notable engineering outsourcing countries. As for client firms, North American companies are the primary engineering outsourcers, accounting for 70 percent of the business, with Europe and Japan responsible for the rest.

Given that more and more companies will likely see the financial virtues in engineering outsourcing, which will overtake their hesitation about entering into such an arrangement, it’s worth considering what it takes to do it right. A successful program is predicated on doing five things well.

1. Choosing the Right Project
The best candidates for offshoring are engineering jobs whose scope, roles and responsibilities, and hardware and software needs are clearly delineated; that require minimal face-to-face interaction between clients and offshore resources; that require no interaction between offshore resources and end customers; that have carefully documented task maps and testing procedures; and that do not involve proprietary or classified activities.

Many companies make the mistake of picking projects to offshore by cost or complexity — the most expensive and tedious are farmed out. Unfortunately, it is only by luck that these criteria can produce successful projects. This was borne out recently when a consumer goods company decided that only the most costly engineering activities should automatically qualify for outsourcing, in part because the company believed their high price indicated that they were arduous and difficult to manage internally. But the project failed, producing no cost savings, precisely because the company was unable to grasp that managing the complexity of the engineering tasks required significant in-person interaction between client and vendor, as well as substantial vendor-supplied on-site resources. Moreover, the offshore vendor was attempting these difficult engineering tasks for the first time, adding a greater dimension of risk to the project.

2. Identifying the Appropriate Business Model
Typically, offshoring models for IT services or business processes are either vendor-run operations or captive arrangements, in which a company opens up its own offshore subsidiary. However, because engineering is a core function, many more models are possible that give companies a bigger stake in the remote operations and more control over the R&D activities. Besides vendor and captive sites, other approaches include captive with staff augmentation resource (a company has its own remote engineering facility that employs some staff from outside vendors); closed JV (a joint venture that exists only to serve the client company); tripartite JV (a joint venture among three companies — the client, the outsourcer, and an engineering design firm); open JV (a joint venture that serves the client company as well as other outfits); BOT (build, operate, and transfer — a vendor builds, runs, and staffs the outsourcing operation for the client for a period of time before selling it to the company); and reverse BOT or R-BOT (the client builds, runs, and staffs the outsourcing operation for a period of time before selling it off to a vendor to continue to operate it).

Each model has its pros and cons. For example, although concerns about protecting intellectual capital can be allayed by choosing the captive or the closed JV model, the level of investment and management to oversee either of these arrangements is often significantly higher than a straight vendor-run approach. As a result, companies that choose vendor-run models often do so for strategic value, such as tapping into the outsourcer’s mechanical engineering skills or to get access to an emerging market. In those cases, to the greatest degree possible, the client company would likely allow only in-house personnel to access intellectual property.

3. Teaming Up with the Right Vendors
The capabilities of the engineering services company should matter even more than price in selecting outsourcing partners. A low bid by itself is a poor predictor of whether a vendor can actually meet the requirements of the project. Companies considering engineering outsourcing should do a capabilities assessment through a carefully designed request for quotation (RFQ) or request for proposal (RFP) that includes questions about the vendor’s expertise in supporting the engineering processes required in the project; the number of full-time employees and the skill sets they possess; employee attrition; the vendor’s business model, experience, and pricing structure; and the anticipated number of resources needed on-site at the client’s facilities to learn the culture and tasks and transfer them to the outsourcing location (if many people are needed to support this aspect of the venture, it could raise the cost of the project significantly).

In a perfect example of how not to put together an RFQ/RFP, a U.S.-based Tier One automotive supplier distributed a skimpy, single-page questionnaire to seven offshore and onshore engineering vendors. Because the company showed little eagerness to have the vendors detail their true capabilities in a uniform way so they could be compared with one another, the exploratory process had little value. As a result, incumbent onshore vendors that were well known to the client won the bid and offshore companies that were considered the top experts in the field were shut out.

But the RFP is just one step in picking the right vendor. Once the top five vendors are identified through the questionnaire process, a robust interviewing and negotiating effort must follow. Companies should closely review vendor presentations related directly to the job at hand, visit vendor sites at offshore locations, and have numerous rounds of discussion relating to process, task completion, price, and ability.

4. Creating Iron-Clad Performance Metrics
Just as employees on the job are evaluated, the performance of contract companies must also be assessed. Surprisingly, in only rare instances do clients and vendors establish specific criteria for measuring performance, and when they do, the criteria are hardly ever enforced. Two approaches to metrics should be employed: service-level agreements (SLAs), which include incentives for good performance and penalties for underachievers, and key performance indicators (KPIs), which lack incentive plans. In general, it’s best to limit the SLA to three or four tangible and measurable items, such as project timing and scheduling or budget performance. By contrast, KPIs should reflect aspects of the job that can be readily monitored, such as employee attrition or the length of time it takes to resolve a problem. If improvements are needed in KPIs, they should be negotiated in collegial, not legalistic or contentious, discussions.

To their detriment, many companies define SLAs loosely and leave too much to interpretation, making these agreements difficult to enforce. Alternatively, client companies feel that negotiating or determining the best metrics to track is too time-consuming, so they choose easily achievable benchmarks or agree to the performance levels proposed by the vendors. Either way, the relationship sours when a couple of projects fail and the client company attempts to penalize the contracting outfit for failing to live up to the SLAs.

It is critical that SLAs and KPIs are planned, negotiated, and agreed on before the contract is signed. Contracts should include clear and concise definitions of expected work and performance levels; quantifiable and measurable benchmarks; who tracks performance, when, and how; how frequently these agreements are reviewed and perhaps renegotiated; and, in the case of SLAs, incentives and penalties.

5. Establishing a Strong Governance Structure
Governance is the most important pillar. Strategic and cost initiatives, including engineering outsourcing, are better managed when they are supervised by an executive who champions the project. In the case of engineering, the vice president of engineering or product development is the likely candidate to take on this job.

But the governance structure must go beyond just a single individual assigned to the effort. The most effective setup for an engineering outsourcing initiative includes a steering committee composed of key executives from both the client and vendor companies; a program management office made up of senior managers from IT, finance, engineering, and purchasing, among others, to review the project monthly or quarterly; and at the bottom of the pyramid, execution teams, including the client’s project managers and the vendor’s project team, to oversee daily and weekly activities.

One of the common mistakes that companies make in engineering outsourcing is failing to create a separate governance structure. More often than not, these initiatives are led by a vice president with multiple responsibilities and little time to pay much attention to the offshoring program. As a result, outsourcing-related issues are dealt with perhaps once a quarter under the umbrella of an operational meeting, which includes a slew of other organizational issues. The amount of time spent discussing any of these issues is usually driven by the urgency of the matter — projects in crisis get the most attention — and not its long-term importance. Such omnibus operational meetings are the wrong venues for granular discussions about outsourcing and whether it is delivering the anticipated value to the company.

A clear governance process not only increases the efficiency of sourcing initiatives but also ensures that objectives are met and financial benefits are realized. In addition, it can ensure that disputes and conflicts involving the engineering outsourcing agreement are resolved quickly, with little strain on the organization, and that the long-term relationships with contract companies are strong.

Clearly, engineering outsourcing comes with an array of risks that make it unpalatable for some companies. However, used wisely, engineering offshoring can give a company significant leverage over competitors, not only in lower labor costs but also in product and process innovation and through gaining a foothold in emerging markets. But given how critical engineering is to product design and development, offshoring and outsourcing cannot be taken lightly. By following the right steps, a robust and productive offshore engineering initiative can be built that will deliver the right outcome.

Author Profile:

  • Vikas Sehgal is a partner with Booz & Company based in Chicago. He specializes in product strategy, innovation, emerging markets strategy, and globalization for automotive, transportation, and industrial companies.
  • Sunil Sachan is a principal with Booz & Company based in Chicago. He specializes in engineering offshoring, globalization, product development, and innovation, with a focus on emerging markets.
  • Ron Kyslinger is general manager of manufacturing and director of corporate strategy for Comau Inc. Previously he was the senior manager of business strategy for Chrysler Corporation reporting to the office of the chairman.

via The Elusive Right Path to Engineering Offshoring.

  • Also contributing to this article were Heral Mehta, an associate with Booz & Company in Mumbai, and Sreedhar Vangavolu, a contractor with Booz & Company in Detroit.