For forty years or more it has been known that 60% of acquisitions fail; some put the failure rate as high as 80%. The problem does not lie with the due diligence. By and large they are carefully and professionally done.
Rather, it resides in what the due diligence does not address at all: The root cause, the origin, the driver, of all performance and results, the Operating Dynamic of the company, its very Will to Compete. This is the stuff success (or failure) is made of; the stuff on which an acquisition should be based; the stuff with which a merger should be carried out. Yet is it almost never measured.
Why this is so, is simple enough: It is widely believed that the operating dynamic is something not measurable, something mystical, something almost spiritual; perhaps also because looking at the exposed soul of a company might be embarrassing.
But the operating dynamic is measurable - in great detail. And its measures PREDICT performance long before that shows in the financials. An article on this, first published in the CEO Refresher, may be found at The Corporate Polygraph. Another article, The Black Hole in the Due Diligence Audit, will appear in the October 2009 edition of Corporate Finance Review -
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Every company has just 6 Critical Functions©, entirely controlled by management, that CAUSE its short-term profits and long-term success. They also predict performance long before it can be seen in the financials or KPI’s. Changing the Critical Functions© by a little causes a large, even extraordinary, surge in financial returns; this has now been proven. The 1st year ROI can be extraordinary. But how does it work? Join the dialogue. There is a Comments button at the bottom of each entry.
nice post. thanks.
ReplyDeletenice post. thanks.
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