Optimizing the diligence process
Transactions are complex from beginning to end, from initial diligence to a successful integration. Indeed, at Greenwood we’ve come to think of these stages (due diligence and project management) as surprisingly similar. Both due diligence work and project management incorporate many work streams, usually make use of human- and technology-driven processes, and can benefit from a strategy that segments different activities to the right mix of insiders and consultants with the right experience.
But while most deal teams have gotten pretty sophisticated in how they approach the diligence process, there is a lot more “one size fits all” when it comes to project management. Based on years of painful first-hand experience, we’d like to share what we think makes for a successful project management approach – and suggest a new role, the “working manager” who brings a specific kind of experience to the table.
The Greenwood perspective on project managers
Let’s return to the due diligence comparison for a minute. Deal diligence almost always utilizes third-party players to get the job done. But it’s understood that you need the right people for each task. Lawyers will handle tricky IP or regulatory concerns; experienced consultants might handle market research; internal deal team members may handle sensitive executive interviews.
When it comes to project management, we think there’s a similar formula. Rather than bring on an army of generic “project managers” who are somehow meant to handle basic administrative tasks as well as specialized, technical tasks, we like to think creatively about how best to segment the project management tasks between the right mix of people and software.
After seeing a wide range of deal outcomes, we’ve come to believe that the best results come from project managers with a specific profile:
1. They have seen similar transactions before
2. They have deep functional experience
3. They expect to roll up their sleeves and do the work
At Greenwood, we’ve come to describe these kinds of managers as “working managers,” because while all three attributes are important, finding someone with deep experience who is still willing to do work on the front line and lead by doing is the real differentiator.
How working managers add value
Managers who have seen previous transactions have a skill we like to think of as “seeing around corners”: they’ve experienced first-hand the challenges and surprises that come with the deal process, and these lessons (often learned painfully the first time) give them a unique ability to anticipate what’s coming next.
For example, during carve-outs, sellers often sweep all bank accounts at close (leaving no money for A/P and payroll). A good working manager will proactively ensure that flow of funds includes transferring adequate cash to cover immediate working capital needs before Day 1.
A good working manager comes with experience in accounting, IT, sales or operational fields, and can take the initiative to both advise, and solve problems without being told what to do every step of the way.
Whereas previous transaction experience lets working managers “see around corners,” functional expertise helps “hear what the experts aren’t saying.” Senior leaders (CIOs, CFOs,) are hard-wired to have good answers. But in a complex transaction, it can be just as important to anticipate what isn’t being asked as it is to answer what is being asked.
We once saw an acquired company’s CIO describing his IT infrastructure as “being in good shape,” and “less than 50% through its lifespan.” From his perspective, these assessments were correct. Unfortunately, he didn’t realize that the acquiring company used a much shorter replacement cycle (3 years rather than his 7 years) for similar equipment given different industry standards. That difference (planning to replace newly acquired equipment in a matter of months rather than years) would have led to a material unexpected expense. It was a working manager with deep expertise who understood how these companies saw the same equipment differently, and proactively worked to set expectations. A project manager simply following a checklist (“Equipment life span assessed? Check!”) would likely never have caught the issue.
Finally, experienced, technical working managers who roll up their sleeves allow you to set a plan and ensure it gets executed with minimal extra input.
In the course of a recent integration, a project manager sourced from a project management firm was tasked with performing a rollover from one Oracle system to another. The project manager had a schedule, and knew the goal was to transition between systems in an orderly way (payroll, then A/P, etc), yet the Project Manager didn’t have the technical knowledge (Accounting, Payroll, A/P, IT, etc) to resolve problems, identify risks and know when the approach needed to be changed. Instead, they needed complete, line-by- line explanations of what was going on in the migration, creating duplicative effort and an ironic sense of project management monitoring something they can’t fix. The Project Manager was doing his job (managing a checklist and a schedule), but it wasn’t the right way to allocate resources most efficiently to get the job done.
Under the Greenwood approach, we would let smarter software manage the administrative tasks, and ensure that a working manager with technical expertise was able to dive in and make decisions that would speed up the process. That would save time, and in the process help our clients integrate faster. To the extent basic administrative support is required, we can always augment the integration team, but the key is starting off with the right, nuanced approach. Due diligence can make or break a deal before the papers are signed, but robust management is equally important for the success or failure of an integration.
That’s why we put as much energy into optimizing the diligence process as we do into getting our hands dirty and doing the work to integrate.
