VMerger and acquisition (M&A) activity in the consumer packaged goods industry

appears to be gaining steam in 2010. The resulting M&A integration activities, however, are not the only major programs

that enterprises are undertaking. A number of companies are undergoing major business

transformation programs at the same time. To achieve M&A synergies—as well as innovation in their business models, processes, products, and

services—companies are leveraging an ecosystem of service providers.

Successfully managing concurrent M&A and business transformation activities Handling complexity to ensure success

Viewpoint paper

business value and synergies.

CA EHI E

Table of contents

M&A activity on the rise ...........................................1The complexity of managing business transformations and merger integrations simultaneously .......................2Enterprise governance: A key component of successful M&A integration programs .........................7Dealing with the realities of a multisourcing environment .........................................9Conclusion ........................................................... 11About the author ................................................... 13

1 Sources: Annual reports, company websites, and press releases, SEC filings and/or publications (such as The Wall Street Journal); HP analysis

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Managing such a complex environment requires successfully adopting a multivendor enterprise governance framework. This paper examines some key considerations for implementing such a framework and delivering the value that shareholders and business end users want.

M&A activity on the riseAfter showing some softness in 2009, M&A activity in the consumer packaged goods (CPG) industry appears to be gaining steam in 2010. Figure 1 shows major merger, acquisition, and joint venture activities in the CPG sector from 2007 through the beginning of 2010.

Companies are not just using acquisitions and divestitures to expand global reach, enter new markets, and focus on their core brands. In some cases, they are also making acquisitions to vertically integrate and optimize their supply chain operations and routes to market (for example, Pepsi and Coke). Whatever motive or scale, it’s always done based on

Figure 1Select mergers, acquisitions, and joint ventures in the consumer goods industry (2007–2010)1

Year Companies Involved Deal Size Synergies Estimates Time to Full Synergy Realization

2007 • Nestle • Gerber (Novartis)

• $5.5B • $95M • Four years

2007 • Groupe Danone • Royal Numico NV

• €12.3B • €60M • N/A

2007 • Constellation Brands, Inc. • Fortune Brands

• $885M • $30M • Three years

2008 • InBev • Anheuser Busch

• $52B • $1.5B • Three years

2008 • SAB Miller • Molson Coors

• N/A • $500M • Three years

2008 • Pernod Ricard • Vin & Sprit (V&S)

• €5.7B • €125M—€150M • Two to four years

2008 • Heineken • Scottish & Newcastle (S&N)

• $15.3B • $235M • Four years

2008 • Smucker’s • Folgers (Kraft Foods)

• $2.95B • $80M • N/A

2008 • Bunge Ltd. • Corn Products International

• $4.8B • $100M—$120M • N/A

2008 • Groupe Smithfield Holdings • Campofrío Alimentación, S.A.

• €680M • €40M • Three years

2008 • Altria • UST Inc.

• $10.4B • $250M • Three years

2009 • PepsiCo, Inc. • Pepsi Bottling Group Inc. • Pepsi Americas, Inc.

• $7.8 B • $300M • Three years

2010 • Coca Cola • Coca Cola Enterprises

• $12.2B • $350M • Four years

2010 • Kraft Foods • Cadbury

• $19.6B • $675M • Three years

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the assumption that significant advantage or synergies can be gained by combining the entities in question. The timeframe to reach such synergies? Typically three to four years.

To be fair, M&A activities have long been part of CPG company playbooks. In fact, many of the major companies in the sector grew to their current size through acquisitions (see Figure 2). There are, however, some differences with today’s M&A activities.

A number of companies—after years of running multiple disparate brands and business units—are proactively trying to integrate their new acquisitions while consolidating their current operating company holdings. This parallel set of activities will drive up the level of complexity significantly for companies. It will require their best in terms of program management and execution to achieve the forecasted synergies.

Figure 2 Sample M&A activities at a major CPG company2

Kraft Foods, Inc.1980—1989• General Foods Corporation acquires Oscar Mayer & Co.• Nabisco, Inc. merges with Standard Brands (founded in 1929) to become Nabisco Brands.• General Foods Corporation is acquired by Philip Morris Companies Inc.• R.J. Reynolds merges with Nabisco Brands, creating the largest consumer goods company in the U.S.• Kraft, Inc. is acquired by Philip Morris Companies Inc.• The food products divisions of Philip Morris—General Foods and Kraft—are joined (Kraft General Foods).

1990—1999• Kraft General Foods acquires Jacobs Suchard, making the company number one in the European roast

and ground coffee market and a leader in confectionery.• Kraft General Foods acquires the U.S. and Canadian ready-to-eat cereal business from RJR Nabisco.• Kraft General Foods is reorganized and renamed Kraft Foods, Inc.2000—2009• Kraft Foods’ parent company, Philip Morris Companies Inc., acquires Nabisco Holdings, a world leader in

cookies, crackers, and snacks. The Nabisco brands are integrated into the Kraft Foods business worldwide.• Kraft acquires United Biscuits Iberia, reclaiming rights to the Nabisco name in EMEA.• Kraft Foods completes its acquisition of Groupe Danone’s global biscuit business.2010• Kraft acquires Cadbury.

2 Source: Kraft Foods website

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Figure 3Potential areas of opportunity for M&A synergies in the CPG value chain3

• New product pipeline

• New consumer insight• New patents

• R&D rationalization 

• Advertising spend optimization• Marketing function rationalization• Promotional spend optimization

• Leverage-added scale• Supplier rationalization• Procurement function rationalization• Ingredient rationalization

• Manufacturing plants consolidation

• Sales force rationalization• Distributor network rationalization and optimization• Route optimization

• A/P and A/R function consolidation and rationalization

• Customer care function consolidation and rationalization

• Carrier rationalization• Warehouse rationalization, consolidation, optimization

• New services• New BI capabilities• Multichannel

• New production technologies

• New customers• New route to market• New geographies

• New geographies

Marketing &Promotions Production

CustomerManagement

Logistics &Transportation

Billing &PaymentCollection

Sales &Distribution

ProcurementNew ProductDevelopment &

Introduction

Illustrative

Back-office rationalization and optimization (finance, HR, etc.)

IT (applications & infrastructure) rationalization and integration

• New cross-marketing and cross-promotional opportunities• New social media solutions/strategies

3 Source: HP analysis

The complexity of managing business transformations and merger integrations simultaneouslyOne way to identify the areas a company can tap into to help deliver M&A synergies is to take a look at the CPG value chain and its supporting functions. Figure 3 provides a high-level overview of the functional areas and levers along a CPG value chain that can be used to deliver market enhancement, as well as cost-savings benefits.

Tapping into an area of opportunity and optimally using a lever will usually require business process consolidation and optimization, as well as IT rationalization and optimization. It’s important, therefore, that both business stakeholders and IT leaders be involved in any M&A activity as early as possible. Ideally, this is from the moment a potential acquisition candidate has been identified to the

4

moment all due diligence and post-merger integration activities have been completed. Figure 4 provides a high-level overview of the suggested role IT should play in all acquisitions.

By participating early in the process, IT can create a more accurate and prioritized road map than if

engaged after the due diligence stage. In addition, because IT-enabled business process consolidation and optimization are key elements of a typical M&A synergy plan, IT will have to play a key role in helping business line executives enable the transformation and deliver the forecasted synergies.

Figure 4The role of IT in M&A and post-merger integration

IT Imperatives to Meet Analyst Commitments

M&A Strategy Day-1 Integration Cost Synergies Strategy & GrowthRepresentative Opportunities

M&A Strategy, Due Diligence & Business Case Development

Business—IT Alignment

Enable Day-1 Infrastructure

Statutory and Performance Reporting & Analysis

Supply Chain & Business Process Consolidation

Leverage Scale & Technologies

Product, Market, & Geographic Expansion

New Route to Market & Channels

Required IT Enablers

• Develop an early view of the required IT capabilities to support the business mode of the merged entities

• Assess gaps in IT capabilities

• Contribute to business and synergy planning in support of the acquisition

• Provide rapid integration of voice and email systems

• Establish global communication links and intranet access

• Enable integration of business reporting and decision support information

• Integrate customer experience systems and processes to present a single face to the customer

• Support facility closure and consolidation

• Support supply chain and business process consolidation

• Capture IT synergies and cost reductions

• Align IT strategy to revised business unit strategies

• Refine route-to-market as well as multichannel strategies and implementation plans

• Expand e-business capabilities from customer interface to underlying infrastructure

Illustrative

Illustrative

Illustrative Illustrative Illustrative

Lessons Learned

• HP analysis has identified under-communication as the number one problem in post-merger integration programs.

• Speed of integration is essential to achieve synergies.• Action is more important than perfection; create a

sense of urgency.

• Disparate systems and processes can result in degradation of service quality and customer or end- consumer satisfaction, resulting in loss of market share.

• Inattention to personnel and organizational issues can lead to low service levels and permanent loss of experts and functional specialists.

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In most cases, IT must help rationalize the multiple solutions enabling a particular business process that needs to be consolidated and optimized. IT would also help implement the new solution in areas of the merged businesses that did not use the

selected business process and underlying, enabling technologies. Figure 5 provides an overview of all such activities aggregated into a sample M&A integration road map for a CPG company.

Figure 5 High-level overview of a sample CPG M&A integration plan

Illustrative

Year 1Q2Q1 Q1 Q1Q3 Q3Q3 Q4 Q4 Q4Q2 Q2

Year 2 Year 3Select FunctionalAreas

Sales andMarketing

Supply Chain Opsand Procurement

InformationTechnology

Enterprise ProgramMgmt. Office

Finance, HR,Performance Mgmt.

Distributor and sales force rationalization

Master data integration Reverse logistics consolidation

Procure-to-pay integration and optimization

Applications rationalization and modernization

In-flight projects/programs consolidation, analysis, prioritization, and rationalization

End-to-end enterprise program management (inc. benefit realization reporting)

Other/new programs (IT org transformation, acquisitions, joint ventures, BPO, etc.)

Ongoing transition & organizational change management

Consolidate infrastructure, outsourcing, and maintenance

Consolidate networks

Day 1 activities

Other back-office integration and BPO

Strategy planning integrationHuman capital mgmt. integration

Enterprise perf. mgmt.Finance integration and BPO

Finance foundation

MES and warehouse mgmt. integrationOrder-to-cash integration and optimization

Plant maintenanceSC planning and optimization

Marketing integration and advertising spend rationalization

Route accounting/DSD roll-outCommercial data integration

Data synchronization consolidation, BPO, and roll-out

• Companies should analyze the demand on resources (SMEs and service providers) to support multiple, related, and concurrent programs.

• Companies need to be able to manage and integrate the effort of multiple vendors and internal organizations.

• Companies need to analyze who the recipients of new processes, policies, procedures, and systems will be to determine if the organization can digest the changes.

• Governance and organizational change management are essential.  

Key Points

Source: HP

6

Integration projects in each of the areas are critical to delivering the target synergies by year three; however, they typically are not the only major programs the company is undertaking during the same period. Figure 6 provides an overview of the type of activities we have seen many of our clients undertake while starting M&A activities. See projects/programs under the category of “Various Areas (Acquiring Company).”

Further complicating matters is the fact that merging entities often have different consultancies supporting key projects, as well as business and IT processes. So it is not only vital that merging companies consolidate their business processes; they must also sort through the consolidation of, in some cases, a large number of business process consulting and IT service providers. More importantly, merged companies will need to carefully orchestrate the resulting set of strategic service providers into a collaborative ecosystem that

Figure 6High-level overview of a sample combined M&A integration and in-flight business transformation programs plan4

Illustrative

Year 1Q2Q1 Q1 Q1Q3 Q3Q3 Q4 Q4 Q4Q2 Q2

Year 2 Year 3Select FunctionalAreas

Sales andMarketing

Supply Chain Opsand Procurement

InformationTechnology

Enterprise ProgramMgmt. Office

Finance, HR,Performance Mgmt.

Distributor and sales force rationalization

Master data integration Reverse logistics consolidation

Procure-to-pay integration and optimization

Applications rationalization and modernization

In-flight projects/programs consolidation, analysis, prioritization, and rationalization

End-to-end enterprise program management (inc. benefit realization reporting)

Other/new programs (IT org transformation, acquisitions, joint ventures, BPO, etc.)

Ongoing transition & organizational change management

Consolidate infrastructure, outsourcing, and maintenance

Consolidate networks

Day 1 activities

Other back-office integration and BPO

Strategy planning integrationHuman capital mgmt. integration

Enterprise perf. mgmt.Finance integration and BPO

Finance foundation

MES and warehouse mgmt. integrationOrder-to-cash integration and optimization

Plant maintenanceSC planning and optimization

Marketing integration and advertising spend rationalization

Route accounting/DSD roll-outCommercial data integration

Data synchronization consolidation, BPO, and roll-out

Various Areas(Acquiring Company)

Global SAP applications—blueprint, realization, go-live, roll-out

Demand signal repository implementation

HRO process design/implementation

Spin-off activities

High-risk period for the merged company

4 Source: HP analysis

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is capable of delivering the synergy commitments. It’s not hard to argue that a good portion of the three years following an acquisition is a high-risk period for the merging companies. During this time of complex and competing initiatives, companies will need to: • Analyze the overall demand on resources (subject-

matter experts, as well as service providers) to support multiple related and concurrent programs

• Manage and integrate the effort of multiple vendors and internal organizations

• Analyze who will be the recipients of new processes, policies, procedures, and systems to determine if the organization can digest all of the proposed changes

• Ensure that governance and organizational change management are seen as essential to the success of the M&A program and staff them accordingly

Inability to deliver will cause value leakage and prevent a company from realizing its commitments to the investment community. Figure 7 provides an overview of a synergy savings model for a CPG company and the effects three- and six-month delays would have on its ability to achieve synergy goals. Not only would the company in the model not make its three-year synergy goals, it would also lose tens of millions of dollars in potential savings.

Enterprise governance: A key component of successful M&A integration and business transformation programsHaving to support and staff a large and sometimes interdependent set of projects or programs can severely strain internal business and IT organizations. This is especially true in an economic environment that has pushed companies to adopt lean staffing models across the board. Companies faced with this challenge will need strategic partners and service providers to help them through the lion’s share of the integration activities and a framework to manage it all.

But having capacity constraints is only one of the many factors that can delay the realization of M&A and business transformation value.

Other factors include:

• Delayed roll-out of an enterprise governance model— According to Forrester, 17% to 32% of companies don’t have a program management office6

• Lack of business and IT alignment • Insufficient resources to focus both on operations

and transformation initiatives• Delayed or slow initiative starts (for example, due

to slow decision-making processes or the use of multiple “vendor procurement” cycles)

• Inefficient initiative and/or vendor integration

Figure 7Sample cumulative synergy savings model and the potential effects of delays in enabling it*5

5 Source: HP analysis 6 The State of the PMO, Forrester, 2010 (multi-industry data)

$250

$200

$150

$100

$50

$0

$ M

illio

ns

Y1 Q1

3-Month Delay 6-Month DelayBaseline

Y1 Q2 Y1 Q3 Y1 Q4 Y2 Q1 Y2 Q2 Y2 Q3 Y2 Q4 Y3 Q1 Y3 Q2 Y3 Q3 Y3 Q4

* Note: Based on assumption that IT projects/programs affect approximately $200M in annualized synergy goals

Baseline

3-Month Delay:Loss of ~$50M in Cumulative Synergy Value

6-Month Delay:Loss of ~$99M in Cumulative Synergy Value

Illustrative

The speed of integration and therealization of synergy expectations

will be dependent upon the mitigation of value attainment inhibitors.

8

Figure 8Leveraging an enterprise program management framework to manage M&A and business transformation programs7

7 Source: HP Analysis

• Sales & distribution• Logistics & transportation• Billing & payment collection• Customer management

• New product dev. & intro.• Marketing & promotions• Procurement• Production

M&AIntegrationActivities

• Spin-off activities• Global SAP applications• HRO process design/implementation• Demand signal repository implementation

SampleBusiness

TransformationActivities

IllustrativeEnterpriseGovernance(Planning Board)

Processes

SupportedActivities

Oversight Program and project management

Business andIT leadership

Sr. Executive

End-to-endenterprise PMO

Organizational change management COEProgram/project management COE

End-to-end program oversignt

Scop

e m

anag

emen

tC

omm

unic

atio

nm

anag

emen

t

Prog

ram

mon

itorin

g

Fina

ncia

l man

agem

ent

Vend

or m

anag

emen

t

Qua

lity

man

agem

ent

Risk

man

agem

ent

Issue

s m

anag

emen

t

Reso

urce

man

agem

ent

Bene

fits

man

agem

ent

9

Companies that face these challenges should consider adopting an enterprise program management framework to help guide them through combined M&A and business transformation programs. An enterprise program office (see Figure 8) can provide the standardized methodologies, tools, techniques, and best practices needed to support complex program and project management.

According to Giga, good governance and program management practices can deliver a 20% reduction in project cycle time and a 30% to 35% increase in successful projects.8 In addition, Forrester research shows that organizations with well-run, mature program management offices report improvements of more than 10% in managing schedules and over 15% in cost performance over organizations with immature ones.9

But the enterprise management framework must be able to deal with the realities of multisourcing environments.

No single service provider is the best at everything, so it’s no surprise that multivendor environments are a reality. Especially if one considers a broader spectrum of sourcing areas above and beyond the typical IT outsourcing, applications management, and business process outsourcing categories.

Optimum business performance is often driven by “full-stack” integrated solutions—from business process to applications and all the way down to infrastructure. So one can argue that areas such as systems integration, business process, and organizational change management also require sourcing decisions that should be managed as part of a multivendor governance framework. Multivendor governance can enable companies to seamlessly integrate the work of multiple service providers (including internal organizations) and deliver measurable business value to the end user.

8 Designing an Enterprise Project Management Office to Improve Organizational Project Management Efficiency, Giga, 2002

9 Leverage PMO Skills to Build Program Management Competency, Forrester, 2009

10

Figure 9 provides an overview of what a multivendor enterprise program management framework might look like for a large-scale M&A integration program. In these situations, it’s advisable to fill the most senior governance role with a business executive (such as the chief integration officer). Steering committees should include both IT and business leaders to ensure: • Proper alignment between the two groups• Full support of all IT-enabled business transformation

projects • Cross-functional and full stack integration

Companies that temporarily need to supplement their staff and capabilities—or need help establishing a multivendor governance framework—can leverage a strategic service provider to help create, staff, and manage a multivendor environment. The role of such a service provider would be one of a “prime contractor” or a multivendor integrator.

The multivendor integrator would:

• Ensure there is alignment and integration of business, IT, and outsourcing strategies (see Figure 10, “the solutions value chain”)11

• Unify the management of all service providers • Deliver communications transparency across all parties• Help manage the risk profile• Optimize the number and type of vendors

providing services• Provide the systems, tools, approaches, and

experience to seamlessly integrate complex multivendor environments

• Enable near-real-time visibility to performance through portal technologies (“command center”)

Figure 9Multivendor enterprise program management framework10

IllustrativeChief IntergrationOfficer

Steering CommitteesBusiness, IT leaders,

and key partners

EnterpriseMultivendor

Program Office

Business-IT Alignment and Cross-functional Integration

Org. ChangeManagement

Visibility to performanceagainst business value andsynergy targets

M&A and BTDashboard

“Full Stack”Integration

Cross-Funtional Program Oversight

Performing Vendors

Internal Org A

Operational Level Agreements

Performing Vendor A

Performing Vendor B

Performing Vendor C

Performing Vendor D

Program Office Processes

Organizational Change Management Center of Excellence (CoE)Program/Project Management CoE

Program and Project Management

Process Owners(incl. Sourcing)

M&A and Business Transformation(BT) Command Center

Sales &Marketing

M&A and Business Transformation ProgramsBusiness Processes

Applications

Data

InfrastructureVendor Management & Integration

Supply Chain,Mfg. Ops.,

Procurement

Finance, HR,Back-Office

ITInfrastructure

& Apps

VendorMgmt.

10 Source: HP analysis 11 Ibid.

11

Using a prime contractor or multivendor integrator does not mean a company gives up control. The company still decides what to outsource, who the suppliers are (relationships remain intact), and what the vendor contract strategies will be.

Choosing a prime contractor or multivendor integrator should be based on a supplier’s proven ability to:• Create and manage a successful multivendor ecosystem• Recognize that it is not the best at everything• Use metrics to ensure that the focus is on client benefit• Manage complex governance and decision-making

frameworks required by multivendor environments

ConclusionVirtually all major companies use multiple suppliers to deliver on their business transformation and integration programs. So business and IT executives are increasingly interested in learning how their companies can leverage frameworks, tools, and techniques to successfully manage their complex multivendor environment.

There is no “standard” approach for implementing and managing a multivendor governance strategy. Successful ones, however, tend to share a number of key success factors or characteristics (see Figure 11).12

12 Source: HP

Figure 10 The solutions value chain

Business

Requ

irem

ents

Busi

ness

Sol

utio

nsRetained

Outsourced

Performing Vendors

Multivendor ManagementModel

• Business strategy• Business requirements

• Has control• Owns contracts and overall program management• Manages interfaces to business client• Owns cost-effectiveness

• Design• Build/integrate• Test• Deploy• Operate

• Standard processes, tools• Common language• Performance measurement• Effectiveness and improvement

12

When all of the success factors and proper executive sponsorship and support are present, program office frameworks can help address the complexities, mitigate the risks, and optimize the costs associated with

managing a multivendor ecosystem. All of these elements will enhance an organization’s ability to deliver business value to its end users and achieve the forecasted M&A synergies by the required deadline.

Figure 11Success factors in multivendor management

• Establish a strong enterprise program management framework and office (PMO).• Implement a supplier portfolio strategy.• Competition is the intention, but should not be a distraction.• All vendors must be prepared to handle new levels of complexity.• Clear delineation of roles and responsibilities is key.• Ensure common languages, processes, standards, and tools are used.• Foster open, honest business relationships between vendors.• Performance measurement tools should be in place from the start.• Install a unified billing approach.• Leverage organizational change management.

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About the authorWill RuizWill Ruiz is the U.S. leader of HP’s Consumer Industries Consulting and Solutioning practice. He has more than 20 years of experience in the areas of new product development, manufacturing operations and strategy, IT strategy, and business process innovation. His background includes a broad range of operations and order fulfillment engagements in the consumer packaged goods, wholesale distribution, quick-service restaurant, food retail, and manufacturing industries.

Before joining HP, Ruiz was a principal with IBM’s Business Innovation Services group. Previously, he was a manager with Ernst & Young’s Management Consulting Performance Improvement practice and a senior manufacturing engineer with Analog Devices.

Will Ruiz holds an M.B.A. (high honors), as well as a master of science degree in manufacturing engineering from Boston University. He also completed the Strategy Value Creation Programme at the London Business School.

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© Copyright 2010 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. The only warranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.

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