Designs on business integration

The wave of mergers and acquisitions among components manufacturers will, in many cases, fail to add value argues Les Murray of management consultants Collinson Grant. Speaking about his company's merger with Apex Engineering International LLC, Phil Milazzo, CEO of HM Dunn AeroSystems, states: “No longer will our customers need to go to multiple providers for the engineering, design, manufacturing, processing, and assembly of key components in commercial, business jet, and military markets. We are that one-stop solution.”

His words sum up the reasons for the rising tide of consolidation among aerospace suppliers. The wave will continue to roll in as aircraft and aero-engine manufacturers demand a more streamlined and robust supply chain to support their increasing output. However, the challenge for firms whose strategies are based on mergers and acquisitions (M&A) is not only how to efficiently deliver ‘quick win' cost savings but also how to create effective organisational structures that engage all staff productively over the longer term.

OEMs are putting greater pressure on tier 2 and tier 3 suppliers to increase their capability to add value, such as by supplying subsystems rather than components. The reported goal for the next generation of aero-engines is to reduce the number of unique suppliers from 400 to 100. The drive for fewer, but more capable and mature suppliers, will prompt further consolidation in the sector. The top tier majors are encouraging small and important niche suppliers to merge in order to be competitive and remain listed.

But commanding mergers and acquisitions and making them work are two different things. Quite often, when two businesses come together, the whole amounts to considerably less than the sum of the parts. In our experience, this is often because opportunities to reduce costs are missed at the outset and then never realised.

What sets apart the best organisations is their ability to: manage the interdependencies and trade-offs between human and technical assets; align individual and organisational goals and values; mobilise these resources most effectively in support of the strategy.

Making a success of consolidation requires constant adjustments in strategy and appropriate revisions of organisational design and business models. It is also clear to us from our work in the sector that the biggest challenges presented by organisational structure include silos that prevent the flow of information and communication, turf battles, and dispersed multi-site operations which often detract from performance on major programmes. There is often a deep conservatism and a reluctance to embrace new forms of organisation. When you find yourself integrating two businesses from a starting position where both are set in their ways of working, a growth strategy based on M&A becomes fraught with risk.

Structural configurations can either liberate or limit the effectiveness of the managerial process and thus the health of the organisation. Structure is a major influence on how an organisation can and should work, and on how it is, and is intended to be, controlled by its managers. There is a large body of experience supporting the claim that flatter structures, with shallow layers and broad spans, are best. Much of the evidence boils good design down to a few simple ideas: quantitative – the number of working levels, calibre and numbers of people, and cost; qualitative – effects on communication, leadership, and employees' engagement.

There are no perfect designs; the design process requires the weighing of choices and the balancing of trade-offs. Even the best designs can be derailed by ill-planned, poorly executed implementation.

In any ‘good design' the three elements of structure, processes and controls should be present, mutually consistent, and cross-referenced. Checking the presence and interaction of these elements in any organisation is the most effective way of testing the health and optimising power of structure. All acquirers should be clear on how to run and operate a newly integrated organisation so as to deliver the benefits in full.

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