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Tip of the Spear Ventures

Venture Capital | Business Transformation Consulting

Whole Foods

Mergers & Acquisition Disruption for Exponential Growth: How Amazon’s Purchase of Whole Foods Upended Retailer’s Strategic Plan – 2 Tips!

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The Point: When Amazon announced that they were buying Whole Foods for close to $14 billion, the stock price of Amazon rose to 2.4%. This stock price lift was reported by the news to add roughly $11 billion to Amazon’s market capitalization. At this same period, the stock price of Sprouts decreased by 6.3%, Kroger dropped by 9.2% and Super Value plummeted by 14.4%. It was obvious that one could perceive the short term plans of most traditional retailers (including mergers & acquisitions) – that is, working through some shredding machines. Amazon’s recent purchase now holds high implications towards the future of groceries, the food industry at large, including general shopping – it proved how the strategy of exponential growth could be used to disrupt any industry. This post will discuss how any Mergers & Acquisition deal can disrupt an industry using a powerful Strategic Plan that guarantees growth over competitors…Enjoy.

Mergers & Acquisition Disruption for Exponential Growth 2 Tips

Hello, We’re Amazon. We’re Here to Buy You!

The purchase announcement made by Amazon made the speed and nature of future Mergers & Acquisitions far more challenging for all of us, or did it?. There have been 3 questionable premises by which most traditional retailers are now looking to build Strategic Plans on. The first was whether they can include digital capacities quicker than how Amazon is adding more stores. The second being that Amazon’s e-commerce competitive space is still constrained to retails sales in U.S. The last was how retailers who are brick-n-mortar based can transition to a digital world with any profit by cautiously growing e-commerce sales.

It is now very clear that Amazon’s Strategic Plan intends to offer almost everything for customers- this is a strong indicator that the retail arenas are vulnerable. Think of this for a moment, if Amazon was able to buy into the grocery channel, what do you think can stop it from penetrating into department stores, furniture stores, drug stores or electronic stores (Or, fill in the blank when it comes to _____ stores?) Alibaba, for example, did that in China and beyond with their Strategic Plan without regard to Mergers & Acquisitions. Another thing to also consider is that Amazon may decide to use groceries to increase customers’ delivery frequency – this could pile more profit into home delivery vehicles faster. From now on, retailers in any industry must constantly learn how to develop viable retail Strategy Plans that can help achieve exponential growth and compete worldwide in scope. 

2 Tips on Using Mergers & Acquisition Disruption for Exponential Growth

Let’s use the Amazon Mergers & Acquisition as a case study to explain two tips as disruption for exponential growth:

Tip #1: Advance and Merge Physical with Digital Capabilities

Now more than ever, the Amazon Mergers & Acquisitions activity reflects that it’s more strategically reasonable to conclude only the most viable retail Strategic Plan is the one that can advance and merge physical and digital capabilities. This advance and merge will have to be better than Amazon (or your major competitor in your Industry). What this implies is that retailers need to constantly be well equipped in order to compete with Amazon in certain fundamental capabilities – For example, expense management and innovation.

Tip #2: Develop the Innovation Engine

The real truth is that it is not the e-commerce network of Amazon that gives it its greatest competitive advantage. Instead, it is really the innovation engine at its disposal that provides competitive advantage over its rivals. In order to compete with Amazon’s constant innovations; traditional retailers must relearn how to innovate like successful startups do. This will require the movement from predictive plans to adaptive and building teams of agile innovators. Agile innovation teams are small and also multidisciplinary – they are well equipped with every needed physical and digital skill required to complete with task. They are also geared towards rapid pivots, not predictable straight-aways. These teams tend to always prefer creative working environments, instead of hierarchical bureaucracies.

SUMMARY

In this post we’ve explored the topic of Mergers & Acquisition Disruption for Exponential Growth: How Amazon’s Purchase of Whole Foods Upended Retailer’s Strategic Plan along with 2 Tips! As you have seen above, the retail world has recently learned the limitations predictive Strategic Planning can result to (as compared to a Strategic Plan consisting of adaptive innovation – especially in an unpredictable market!) The right moment could be upon us for retailers to rapidly learn how to adapt to their lists of strategic initiatives, merge digital and physical capabilities and improve on the funding/speed for execution through the development of innovation engines.

Sam Palazzolo

Leading at the Tip of the Spear - The Leader

PS – I just published my 4th book, aptly titled “Leading at the Tip of the Spear: The Leader” which looks at the skills needed to successfully lead in today’s business climate. I hope you’ll purchase copies for yourself/the leaders you know. 100% of the net profits go towards supporting my 501(c)(3) charity at the Javelin Institute. Amazon’s editors had the following to say about the work:

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Leading at the Tip of the Spear – The Leader focuses on the physical, mental, emotional, intuitional, and spiritual abilities that are found in leaders who are willing to lead. You will learn to develop your individual values and purpose, strengthen your foresight and failure-resistance, step up your self-control, plan for any contingencies, and always stay on the offense. It will take effort and energy to understand the proposed process and fully implement it in life and business, but leadership is all about doing hard things for the right reasons. Once you’ve mastered true leadership, nothing can stop you from having the career and the life you’ve worked for.”

What Makes M&A so Difficult to Execute Successfully? Top 3 Reasons!

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The Point: Visualize a scenario where you buy a used car… There were test-drives available, you could examine both interior/exterior, even seek assistance from a trained mechanic to help assess the performance/stability of the car. Now, irrespective of all due diligence, the real fact is, whether you made a good purchase or otherwise, you will get real evidence after the purchase is made once you start riding around in it over time. Mergers &acquisition deals also have the same route and challenges – you can examine the existing business based on visible financial numbers, assumptions of potential fitness and advisory assistance from M&A advisors. With all these though, it’s only when all deals are made and the business needs to be moved forward that reality sets in – the dreaded difficulties and challenges may arise. In this post we’ll talk about what makes most mergers and acquisitions difficult to operate successfully… Enjoy!

What Makes M&A so Difficult to Execute Successfully?

Why Most Mergers & Acquisition Fail

Most people have read studies reporting the failure of most acquisitions to provide shareholder value – yet there have been an increasing M&A market with frothy valuations, not lacking willing buyers to venture.

A purchase with a high price often increases the task of creating a higher value. For the last decade, it has come to the understanding of many buyers that value is created from building real business value and NOT just from mere clever financial engineering and opportunistic buying.

Acquiring growth from new markets, customers and products are the major purpose for most mergers & acquisition – for profit maximization through the strategic potential of a deal. But are most firms really getting all of these? Statistics have confirmed it not to be the case. Discussed below are the reasons why executing M&A successfully can be difficult.

Top 3 Reasons Why Successfully Executing M&A is so Difficult

Reason #1: Not Executing the Integration Process

The post-merger integration has been a major challenge for many mergers & acquisitions deals. In order to identify crucial projects or products, key employees and all sensitive matters, there must be a well structured appraisal process in place. With this in place, there should also be a design for efficient integration/adoption of processes that will be supported with automation, consulting and possible outsourcing alternatives (so as to avoid deal complexity).

Reason #2: When Owners are NOT Involved

Most of the time, a limited role is assigned to advisors until a deal is completed. With this being made known, newly acquired entities are onus of their owners (or without). There should be involvement from owners starting from the establishment of the deal, to how the business will run and should allow advisors to play a role assisting (if need be). This will have a lifelong benefit to the organization as the owner will benefit from the experience of gaining tremendous key knowledge/insight and the all too important ability to execute.

Reason #3: Assuming Optimism Blindly

It is very common for buyers to assume that a targeted company operates just as the way they do things themselves. It must be noted that there are a lot of different approaches of operational functions by which companies operate by. The integration team should account for these differences when plans are being made. They should consciously make the right assumptions rather than aggressive ones.

We’ve worked with a large client for several years now… While each has the same corporate logo hanging out in front of their business, each operates dramatically different from one another on the inside!

SUMMARY

In this post we’ve discussed the topic of mergers & acquisition, and more indepth what makes M&A so difficult to execute successfully. From an outsiders seat there appears to be a need to enhance deal-making skills for acquiring a new business if lasting success is desired. A potential great company will learn from the three reasons given of mistakes made by rookies and improve, integrate the right process where owners will be involved, and consistently build capabilities needed for future growth.

 

Sam Palazzolo

PS – If you/your organization has challenges as a result of Mergers and Acquisition activity, please don’t hesitate to drop me a line and request future post titles! Here are a few other titles that are currently in the works:

  • Will Your M&A be a Success or Failure? 3 Tips!
  • Disrupting Your Industry with Exponential Growth: How Amazon’s Purchase of Whole Foods Upended Retailer’s Strategic Plan
  • Mergers & Acquisition: Should You Go for Stock or Cash?
  • The Importance of an M&A Strategic Plan
  • Mergers & Acquisition: Creating Shareholder Value
  • Mergers & Acquisition – Six Diversification Questions
  • Mergers & Acquisitions: The Future in the Old/New Economy
  • How to Successfully Survive Mergers & Acquisition
  • Mergers & Acquisitions: The Problem with Acquisitions