BY MARK FAGAN
With Patrick Gallagher
As CEO, delegating tactical responsibilities to others and creating a culture that motivates your employees to execute the day-to-day activities effectively is easier said than done.
But to do so successfully will allow the CEO more time to spend on strategic planning and projects ”” of which there is no shortage.
As operating and structural improvements are made within an organization, that firm (and its CEO) will begin to see more options and opportunities.
Those can include the addition of a new product or the elimination of an unprofitable product or service, relocations or lease renegotiations, succession planning, franchising or the hiring of additional staff in response to an unmet need.
Two other strategic opportunities that might seem overwhelming, but shouldn”™t be overlooked, are acquisitions and the development of international markets.
Acquisitions: Managing an acquisition is about choosing the right target, performing due diligence, integrating systems and, most importantly, knowing when to walk away from a bad deal.
Ӣ Choosing a target: Acquisitions are all about adding value on multiple levels. First, the target should enable lower costs through economies of scale and better cost management. Second, it should create more market power by bringing together additional products or services under your brand name. Third, the target should help your organization change the competitive dynamic, whether by taking out a competitor, becoming more vertical or adding products and services to your portfolio.
Ӣ Due diligence: The objective of this stage is to ensure the target acquisition would be a strong fit and to identify potential deal-breakers. Here, itӪs important to examine the targetӪs market position, determine whether its products and/or services fill a unique niche and identify any potential threats or weaknesses to its product/service line.
It”™s also important to understand the cost of integration, from production to marketing and IT. How easily will you be able to integrate their operations and systems into yours?
Finally, don”™t forget about the people involved. The CEO or owner of the target is accustomed to being in charge. It”™s important to define his or her future role, as well as those of the target”™s key staff. Pay close attention to people issues: from management down to the rank and file. Most acquiring companies fail to pay enough attention to the cultural factors. If people are not going to buy into the culture of your organization or are not united around your vision and goals, don”™t go any farther.
Ӣ Integration: Integration is an ongoing process, not a short-term activity, and requires a well thought-out plan with roles and responsibilities clearly defined prior to the start. To reduce customer attrition, visit the targetӪs important customers and explain how they will benefit from the acquisition.
The key is to deliver on what was discussed and promised to the firm being acquired, and its employees, on a timely basis. The new employees will likely feel vulnerable and insecure. They are going to be looking for evidence that this was a good decision, but a lack of communication and delays during the integration stage will only serve to sow doubt.
Going international: With a stagnant economy, more and more businesses have entered into new markets by necessity rather than choice. Regardless of which category your firm would fit into, here are some basic tips:
Ӣ Prepare a business plan: Evaluate your needs, costs and set goals. To bring your products and services into new markets is to form a new unit of your business, so it is essential to assess your readiness and commitment to grow just as you would with any other new venture.
Ӣ Identify and understand your markets: Is your target market familiar with your product or service? Will it mesh with the local culture and customs? The U.S. Department of Commerce is an excellent source of information on foreign markets, as is Export.gov, which brings together resources from multiple cabinet-level departments.
With international ventures, the importance of understanding cultural differences cannot be overstated. As a CEO looking to expand beyond the U.S. markets, you need to understand and be comfortable with the cultures of the markets you are seeking to access.
Ӣ Evaluate and select distribution methods: This means opening a foreign subsidiary, working with agents or setting up joint ventures. Each method has its advantages and disadvantages depending on the country, so itӪs important to understand the legal and tax ramifications of each before choosing.
Ӣ Be aware of taxes and pricing: You should be aware of import duty taxes and transfer pricing requirements, as well as the pricing of your competition. Some countries have black markets for certain goods that are large and sophisticated enough to limit your ability to profit.
Ӣ Understand the availability and costs of financing: ItӪs important to know what options are available to financing capital investments and startup costs. One alternative is the U.S. Export-Import Bank (ExIm.gov), but it is generally more expensive than domestic lending.
Mark L. Fagan, CPA, is the managing partner of Citrin Cooperman”™s Connecticut office. He can be reached at mfagan@citrincooperman.com or (203) 847-4068.
