Wargaming for M&A Integration Leaders

This audiobook is brought to you by dealroom. Dealroom is a project management software that uses Agile principles to simplify the time consuming parts of the MA process. We streamline management of the transaction lifecycle from deal sourcing. Through integration, our technology connects communication tools, virtual data rooms, and project management tools to significantly improve efficiency. See what Dealroom can do for you? Request a demo today at www.dealroom.com FTI Consulting presents Wargaming for M and A Integration Leaders confronting the realities of M and A integration in the modern age in an era of disruption and uncertainty, developing and executing on M and A planning, execution and integration requires new strategic approaches. Business wargaming is one such approach, significantly increasing overall M and A effectiveness and by providing valuable foresights, stress testing strategy and maximizing the potential for successful integration. Written by Nitin Kumar, CMC CMNA CDDP Read by Conor Mahood Introduction Hope is not a strategy. One thing a person cannot do, no matter how rigorous his analysis or heroic his imagination, is to draw up a list of things that would never occur to him. Thomas Schelling, A well worn expression in military circles, famously observed by Prussian Field Marshal Helmut von Moltke and one supported by its absolute truth, is that no battle plan survives contact with the enemy. Knowing this, Moltke had forces under his command participate in wargaming, simulating operational and counter moves on the field of battle in order to surface both unanticipated strengths and weaknesses, but above all to subject existing assumptions to the uncertainties of fast evolving, complex situations. Business wargaming is an adaptation of this rigorous simulation, but unlike the centuries old events staged in Prussia, enterprise level war games are a relatively recent development. However, their implementation is growing rapidly given the extraordinary levels of uncertainty and disruption in the technology industry today. In other words, it is driven by the recognition that it is a competitive advantage to be able to develop a strategy and execution plan in an environment defined by unknowns. Acquisition volumes in both 2016 and 2017 have been at record levels, and as disruptive technologies continue to emerge quickly, we can only expect this trend to continue as the race for assets and capabilities intensifies. Simultaneously. Never have the set of uncertainties dominating the political, economic and regulatory spheres, the investment community and the growing cohort of activist shareholders, technology obsolescence and shifting business models, not to mention basic customer preferences, been greater. In this context, it seems naive to argue that conventional linear strategies are an optimal way to craft an M and A process, nor will they produce results when it comes to the key driver of fully realizing M and a Value Integration Business wargamers can experience firsthand the multiple and cascading pressures from frantic traditional competitors, emerging non traditional competitors, disruptive technologies, changes in geopolitical landscape, and a furious race to acquire digital assets. Acquiring companies can face preemptive strikes from competitors on the very targets they'd identified and as a key pillar of their own strategies. The acquisition itself represents only the very first salvo battle once an asset is acquired. Executing on all the factors that determine just how smooth and successful an integration will be in many ways defines the ultimate transaction value far more than the acquisition price. Higher multiples increase integration pressures and creation of value, and we see evidence of fewer opportunities to achieve conventional back office synergies. This is especially true with smaller digital assets where the value drivers are centered around products, customers and revenue growth. For anyone still on the fence, I will argue that the evidence is clear that the time has come for MA integration leaders to adopt business wargaming techniques and practices into their execution strategies for creating value. Integration leaders need to consider the value of exposing existing strategies and the assumptions that underpin them to the fluid, difficult and fast evolving environments that any modern enterprise operates in. Doing so means an integration strategy development process with reduced risks due to uncertainties. In the following chapters I will outline the case for developing new non linear processes that create MA value and from strategies focused on M and A integration. A key driver of this value and foundational to testing and refining these strategies is business wargaming, which develops a framework for strategy through execution based on key criteria enabling optimal integration and value creation outcomes. Chapter 1 challenges with conventional MA Integration Traditional MA integration does not typically factor in the impact on deal value due to external factors like competitor moves, customer behavior in house personalities and other macroeconomic forces. MA integration creates a highly complex environment with many moving parts. Picking the right targets with the best strategic fit, paying the right price and integrating the asset are all essential for creating lasting shareholder value. Typically a lot of time is spent ascertaining strategic fit through the execution of synergies with limited importance placed on moves or counter moves by customers, competitors and employees. A classic example is Microsoft's acquisition of the Nokia handset business. The core thesis was sound at the time the then leading choice in enterprise phones, BlackBerry was stagnating, Windows Mobile could integrate seamlessly into the Microsoft enterprise ecosystem such as Office Exchange and SharePoint, and acquiring a handset asset could propel them into a leadership position in the enterprise. The weakness the widely assumed and unchallenged dogma that iOS and Android would remain consumer phones and would never penetrate the enterprise space. The assumption was simply wrong for both iOS and Android, which rapidly penetrated enterprises at a rate Microsoft could not match and fundamentally derailed the value of the deal. Had these scenarios been war gamed ahead of time, life might have been different in Seattle and in Espo. M and A Integration leaders need to anticipate and manage competitor responses or counter moves to their MA strategy or integration, such as price drops, enticing customers, PR campaigns, product changes and counter acquisitions. Developing long term integration strategies and sound execution tactics is in an era of uncertainty requires sophisticated planning. But planning can only be as sophisticated as the process that guides it, and traditional linear thinking is inherently limited. Wargaming, on the other hand, painfully exposes truth to convention. Companies often have M and A teams focus on the integration process, underpinned by the belief that if basic blocking and tackling is masterfully handled, value will follow. On the strategy side, robust searching and screening guided by superior predefined criteria is no longer enough. Valuations have been trending up, currency moves due to geopolitical changes provide sudden buying and selling opportunities, and competitor moves revalue entire categories and happen faster than ever before. To continue to use Microsoft as a case study, note that the acquisition of LinkedIn left many competitors surprised and returning to the strategic drawing board. There is no doubt the conversation around the water cooler and in the boardroom at Salesforce the next day was particularly focused. Conventional integration strategy is typically developed by following simple steps based on prior experiences, historic data, industry dynamics, and key assumptions projected into the future. This approach only accounts for known business scenarios, can only respond to these knowns, and further brings with it historical biases. If imminent variability and uncertainty are not factored into the MA integration process, the strategy becomes inflexible. Given the velocity of business today, a new approach would need to extend the conventional MA integration in a manner that factors in actions by employees, customers, shareholders, analysts, competitors, new technologies and regulations. Wargaming, by inserting uncertainty and variability based on a set of immediately relevant factors, creates value during MA integration if it is embedded in the process alongside the due diligence phase. Both MA strategy and integration decisions have huge internal and external impact for organizations. For example, launching an exciting product through a newly acquired channel at the right price might reach more customers and drive sales, but could have difficulty integrating into existing business processes and technology, driving up costs significantly and having a negative impact on profitability. Competitor counter moves that strive to capture market share could further stress the ability to execute. An example I have seen over and over again Is pricing a critical lever in creating MA revenue synergy? Key questions to stress test are seemingly simple, but they must be asked and somehow rarely are. What is the right price? How do we time price changes? Should we increase pricing or should we decrease pricing and seek to drive volume? How will customers and competitors react? I have worked with a specific technology company that reduced prices to drive up volumes and keep competitors out, which worked extremely well in the short term. Their competitors took the opportunity to reposition their brands as premium offerings and over time gained higher market share at higher margins with top tier customers. Wargaming creates a perfect window of opportunity for the M and A integration leaders to look past some of these limitations, align with the changing business environment, and prepare optimally to anticipate and address uncertainties. For a company seeking to understand, say, the risks to a product launch via newly acquired channels, multiple options and outcomes can be tested through a war game style use of existing channels, alternate channels, pricing variability, exploring partnerships and incentivizing customers. The implications of each move, counter moves by competitors, risks and opportunities can be better anticipated and understood. There are critical decisions underpinning each of these actions driving a range of possible outcomes. Traditional strategy processes during M&As limit the visibility into uncertainties and alternatives based on moves and counter moves, or even factor personality related surprises during MA Integration Integration impacts, variables and certainly those with high potential towards value of the deal need to be considered in strategy development and execution. For example, I was contacted by a company where it was assumed after an acquisition that 90% of the engineering team would stay on because the company had retention bonuses in place. The presumption was of course that this desired outcome was purely a function of dollars offered, and it was wrong. When this assumption did not play out, many integration challenges surfaced and ultimately derailed the value of the entire transaction to irrecoverable levels. There are no uncritical loyalties in business, however, and so a business wargamer might have asked early on, what if the core team doesn't stay Design Considerations for War Games War games can enable foresight into future scenarios to build a proactive strategy and improve existing reactive strategies. A war game is best suited to deal with a moderate level of uncertainty. Extremely high levels of macro uncertainty, like the impact of nanotechnology on the design of next generation products, will understandably make it hard for any strategist to plot a range of defined outcomes. War games are best used under conditions where two or three results seem viable alongside each strategic option. In these scenarios, analysis tends to be complex while yielding limited Results War games bring forth the range of options available to executives for strategic decision making and execution tactics. The narrower the options and uncertainty, the more successful the wargame is since we know the game and must play to win it. If the degree of uncertainty is too high and the options are several or even infinite, we must first engage in scenario planning to define the game. These situations are not suited to deploy winning war games. The area in between the two spectrums of uncertainty would entail strategy workshops to plot the trajectory of the moves and to narrow the options from several choices to a group of finite choices. You now know what the game is but still must define where to play it. This would still be out of reach from the wargaming sweet spot. Once the decision to deploy wargaming is made, the next decision is to determine the kind of wargame to deploy. Chapter 3 Types of war Games War games are dimensioned by types and level. Deploying the right war game in the right scenario is a critical success factor. War Game Types Path or P Path war games consider all emerging organizations resources and focus on a long term roadmap three to five years along all possible dimensions. The focus is not on any one issue but on a broad range of business implications based on M and A strategy and integration decisions. Individual issues may not be represented in isolation. This simulation considers macroeconomic factors like the political, economic and technological impacts on the integration. This assessment will involve several roles and teams such as regulators, research and development teams, businesses, multiple competitors, strategic partners, vendors, and so on. Focus is on the economic logic of the industry, the dynamics within the industry, any possible technology breakthroughs and cost management through operational excellence. Selecting and stress testing the right procurement process and validating if it truly adds synergy would be an example of a path war game. The comprehensive strategy of an organization based on MA strategy valuation or integration is an example of a path war game, grand strategy or GS. The grand strategy war game focuses on the possible outcomes of the overall MA strategy, due diligence, valuation and integration planning. The timeframe is usually considered the end of the integration effort and any moves by key players help uncover unknowns. Ranges of multidimensional and cross functional outcomes are considered and competitor moves are usually a vital success factor in this sort of war game landscape or L landscape. War games are designed to consider changes in the operating landscape such as industry consolidations, competitor M and A, emerging business models, serial M and A activities, or a new regulatory change. These war games also help integration teams prepare for various outcomes, launch and integrate new and improved products, replace and retire end of life products and decide how much effort should ultimately be invested. These war games are geared towards adapting to the new business landscape. Test or T this war game tests an already developed strategy against surprises and uncertainty stemming from competitor responses, business changes and unplanned move from customers channel partners, government, regulators and vendors bringing in breakthrough products and technologies. The test war game is often the most popular because the timeline of decisions in most companies is more suited to building a strategy at a product, business unit or regional level and then testing it up front. A good example of this war game is testing the implications of a new change due to a single integration decision that impacts the business war game levels. In addition to picking the right situation, it is also important to determine the right level for the game. While working with M and A leaders, exercises can be conducted at four increasing intensity levels. Level 1 Level 1 is the simplest level of war game and usually involves tackling one scenario based on a specific situation or decision. This level is usually undertaken when there's a significant level of change being introduced and multiple outcomes are possible. A typical example of a level one war game would be a new process or change to an existing process that has multiple potential results affecting more than one group of stakeholders. Level 2 Often designed to serve as a consciousness raiser, Level 2 helps participants understand key issues and concerns related to their own organization and capabilities. The war game is customized to reflect an organization's specific strengths, technology landscape, business model alignment and competitors and involves multiple sessions across a couple of days. An example of a level 2 war game would be selecting enterprise resource planning packages from one of two vendors, a decision that will have a widespread technological impact on internal and external stakeholders. Level 3 Level 3 is more intensive and aimed at helping to develop and or evaluate strategies to deal with a multitude of issues occurring in tandem. It involves the preparation of a significant amount of background material and extensive customization to reflect the real personnel skills, products, competitors, vendors and uncontrollable factors as much as possible. Level 3 WarGames could easily last a few weeks and encompass multiple moves. For example, a decision to pick one target over another in single or multiple geographic locations has a significant impact on supply chains, tax rates, hard costs, employee locations, products, customer segments, competitive landscape and geography specific regulations, all of which need to be considered. Level 4 the most intensive level of M and A wargaming is Level four, which often involves two or more separate sessions each two to four days in duration. This level is usually designed to help conduct a very detailed evaluation of the integration strategy's impact on the organizational strategies and supporting operation level tactical plans before a company makes a final commitment to implement them. It is commonly used in large scale, complex and multi geographical deals and can be used extensively under divestiture or carve out scenarios and played in the path wargame configuration based on the company and integration needs. A framework can be used to help M and A leaders pick the right type and level of wargaming. Various scenarios can be mapped into this framework to develop the level of effort and depth required. While every situation may not precisely fit, approximations with tweaks are often effective. These frameworks are also dependent on the industry organization size, industry dynamics and the current state of the business potential. M and A Integration Wargaming Scenarios wargames can be deployed to develop better foresight across several areas of MA integration Creating, capturing and Protecting value Wargaming can be used as a key MA integration capability enhancement tool by MA leaders in multiple scenarios as it enables foresight into external and internal actions and reactions to the strategy from the industry, market and or internal organizational units. Depending on the maturity of the integration, an appropriate wargame type and level can be chosen and conducted as described in the previous chapter. Whether the company is initiating a formal integration for the first time, conducting an outcome assessment exercise, or evaluating the current integration strategy based on a specific situation, the following are some of the sample scenarios where wargaming could be efficiently used to enable foresight. These scenarios can significantly impact the business on an individual basis or as a combination. Landscape Evaluation in today's world, acquisition volumes are high and companies are racing to gain access to new and unique capabilities, customers and emerging technologies. The target universe is limited, forcing higher valuations and competition among acquirers. Most companies want to build a grand strategy for MA to understand how the ecosystem around them will evolve and respond. For example, what is the implication to Salesforce of Microsoft acquiring LinkedIn? How should Salesforce respond? Where will Microsoft and Oracle make their next acquisition? What is the integration strategy and execution approach underpinning each acquisition? Develop Foresight MA integration situations create flux due to the dynamic and complex business environment. Developing foresight is not easy when every decision has multiple outcomes, risks and opportunities. Wargaming can help bring clear buying possibilities and integration strategies to the fore. Competitor reactions to the deal value paid and possible value created are all critical inputs to integration teams who must now execute testing several scenarios against anticipated issues. M and A Integration Governance Selecting the right governance model for integration is critical in order to maximize deal value. In the old world, MA integration leaders used a single model which comprised of leaders and executives from the two companies and constituted a steering committee. The composition of the steering committee was largely based on where the most influential executives were located and the deal sponsor largely made the decision. Today, governance models need to tightly align within the nature of the deal and there are a variety of models to choose centralized, decentralized, top down, management centric, bottom up and others. Wargaming helps integration Governance Pick the right model for the right type of deal in order to maximize decision making, speed of execution, drive accountability and to ensure maximum shareholder value. Integration Management Managing the integration requires a dedicated integration management office. If one compares the governance to, say, air traffic control, the IMO is tasked with actually flying the plane. Safe takeoff and landing is critical for protecting and creating value. Management needs to understand the implications of having functional versus cross functional IMOs and its impact on synergies and value. In addition, there are several configurations for IMO deployment and their posture can vary depending on the deal size, complexity and metrics. IMOs can assume a drive and deliver posture or a lead and influence posture to create value. Wargaming can ensure the IMO has the right level of leeway to deliver optimal results. Day one Planning and Execution Transitioning into day one with no surprises in a smooth manner is crucial. Many variables and moving parts have to be managed in conjunction with several risks and interdependencies. Poor execution uncertainty and surprises can lead to issues around brand image, customer retention, channel conflicts, employee anxiety, productivity dips, service disruption, and flight of talent. Wargaming can help proactively anticipate these issues and decision impact while mitigating risks. It can also simplify change, buy in from executives and employees, and inform organization design, go to market strategies and other initiatives. Synergies the synergies that were modeled during due diligence need to ultimately be validated and realized. There are many business and execution risks to be anticipated and managed and and many times there are unanticipated issues creating bottlenecks that either leave synergies unrealized or delay time to realize shareholder value. Categorizing synergies and understanding the risks to the execution are important and simulating the key value drivers around cost and revenue synergies, along with associated dependencies, is a key role for war games. The How Much Decisions Several situations arise where executives think about how much time, energy, resources, efforts, and money are necessary to make the integration successful. Special situations or integration patterns that have never been undertaken before have no precedent or experience to inform decision makers. Integrating too quickly and too heavily can have consequences and so can integrating very slowly and in a limited way. It is advised that M and A integration teams conduct small scale war games to arrive at the right range and figure out how much customer impact. Customers are the heart and soul of any M and A and impacting customers negatively can destroy deal value. Wargaming not only helps protect value through well informed reactive strategies, but can also proactively resolve key customer facing issues such as brand alignment, channels, key customer segments, products and momentum acceleration. By better aligning prices and incentives, it helps companies understand potential competitor moves, customer reactions, product launches and time to value human capital impact. Wargaming helps inform organizational design, proactively address employee morale and anticipate risk factors towards flight of key personnel. It is also a tool to gain buy in from employees and engage them in the M and A integration effort, compelling them to understand problems and solve them. It is typically used in situations where change management is required or choices are made about system selection, operational policies and pricing. Additionally, the personality factor can never be ignored during MA integration such as decision making, leadership styles, communication styles and their impact on the integration roadmap and deal value chapter 5 execution of M and A War Games it's time to play the practical execution of an M and A war game depends on the complexity of issues to be addressed, the level at which it is conducted and the number of stakeholders involved. The following chart depicts a generic framework which can be used to conduct a four phase war Prepare issue definition Define existing and anticipated issues Assess existing strategy and key variables Industry analysis, customer issues, disruptive tech impact, emerging business models, competitor posture, etc. Internal and external stakeholder analysis War game design Team formation plan and design move creation Ensure executive alignment, profile personalities, obstacles, styles, etc. Socialize materials educate teams develop rules and assign roles with participants Design high level moves Prepare and modify decision frameworks Execute counter moves one to five person teams with at least three strategic moves Discuss issues, execute moves and counter moves TABLE Potential challenges Stress test all assumptions, Moves two and three more counter moves Suggestions to address challenges from Move one Focus on inconsistencies, unanticipated issues, and blind spots of the strategy. Uncover blind spots Conduct what if analysis on various scenarios Extend to test limits and thresholds of key variables Prioritize suggestions, discuss next steps and design the implementation roadmap. Develop key risks, opportunities, assumptions and develop tactical plans. Consolidate outputs from all sessions and strategic moves Act Implement roadmap Develop action Items, owners, initiatives, KPIs and measurements establish milestones and build implementation plans Implement alternative plans and pivot criteria when unanticipated events occur. Track, monitor, measure and report as part of normal business operations. M and A WarGames typically have four or more the home team, the control team, competitors and Employees an important aspect of successfully conducting a war game is to identify a control team which plays a key role in designing the war game by selecting the right type and level. This team can be from within the organization or consist of consultants who have extensive experience conducting war games and are viewed as neutral coordinators. This team focuses on keeping the game on track, introducing uncertainties, changing the game dynamics and representing any entities that have not received adequate representation such as the regulators, customers or government officials. The control team coordinates with the team separately to plan various moves and counter moves, keeping teams and discussions in isolation to avoid decisions being influenced prior to the actual war game. The execution is an iterative process and can be planned across one to five sessions based on the complexity and levels. It is important that debriefs are conducted and factored into the game for subsequent sessions so that outcomes accurately represent incremental learning from rounds. Each round comprises at least one strategic move. Normally, war games are designed for at least three strategic moves across any given time frame. Home Team the home team comprises the MA leaders, organization executives and key functional leaders who make the strategy and integration decisions. In line with the integration strategy, this team will anticipate counter moves from the other constituents. Competitor Team the competitor team will respond to any opportunities arising from the uncertainty created during strategy or integration and will make counter moves including attracting key talent customers and taking advantage of any other strategic lapses from the home team. Customer Team the customer team comprises a well planned mix of the most loyal, fringe and opportunity based customer segments that would each react differently and potentially in opposition with one another to moves from the home and competitor teams. If need be, more than one customer team can be brought into the mix based on the size and complexity of each customer segment. Employee Team it is important to assess, factor and manage the employee impact and flight risk. This team is critical to assess the execution capacity of the organization as well as engage and proactively build a retention strategy for talent. War game move options move 1 the teams are asked to predict what opponents plan to do and to analyze potential blind spots. Move 2 the teams develop strategy recommendations for the M and A integration team using the information presented in Move one, placing special emphasis on exploiting process blind spots with proactive assessments as to how uncertainties are most likely to unfold. Move 3 Teams are required to support defend the recommendations and predictions based on analysis and real time simulation. Chapter 6 Benefits and Use Cases Picking the Right Scenario and War game allows for any given time frame. The right people, levels and ingredients introduced into a war game bring several advantages. The involvement of select board members, executives and line managers in the exercise who live the strategy and the consequences of the decisions improve wargame effectiveness. Wargaming also makes learning from mistakes easier. It tests reactions to different situations and brings the capabilities of the organization to the surface. Another advantage is that radical moves are possible, challenging all assumptions, uncovering blind spots and stress testing the economic logic under specific acquisitions or business models. Simulating competitor moves brings forth innovative approaches previously not considered. Below are some very specific benefits of applying wargaming to MA integration scenarios Change Management Understand planned and unplanned areas impacted by changes during the integration efforts. Evaluate barriers and accelerators to change efforts due to external factors. Understand personality factors, cultural nuances and leadership styles impacting change management. Assess the magnitude of change by stress testing specific change vectors like reporting lines, locations, policies, processes, etc. MA landscape analysis understand industry dynamics, trends, emerging technologies, value chains and game changing targets to create competitive advantage through acquisitions. Analyze business strategy, target fit, due diligence, posture, integration capability and possible competitor moves in response to deal announcements. Proactively develop alternate target lists. Adjust integration strategy and plans to align with value creation. Develop and align integration strategy and plans with target pipeline patterns to proactively simulate integration for different types of deals. Revenue Synergies Understand the impact of each integration decision through the lens of go to market teams, customers and competitors. Build in specific accelerators in the integration process to catalyze revenue synergies. Understand key levers of revenue synergy for example Cross selling, product bundling channels, features, sales incentives, brand position, etc. And ascertain impact from each lever on revenue synergies. Understand blind spots with each value driver and functional area for example sales, marketing, products, pricing, service, customer experience, etc. Strass. Test the timing of key change to minimize risks and maximize go to market synergies by creating appropriate counter moves, customer Retention Live the acquisition and integration from the customer's vantage point. Understand key enablers, drivers and unforeseen risks. Identify specific safety nets and isolate higher risk customer segments to proactively address possible issues. Consider impact on customer experience, attributed changes in products, policies, pricing, operations, processes, etc. Consider and factor in strategic moves by competitors. Chapter 7 Common Pitfalls and Best Practices Although every situation is unique and there is no one size fits all approach, when it comes to war game design for ma, there are certain practices which, when followed, will enhance success. Common considerations are outlined below. Identify and pick the right situations to use war games, that is for low to moderate uncertainty, outcomes should be limited range of options rather than infinite. The right level and type of war game must be identified. A corresponding number of moves must be designed. Involve the right roles and invite the right people from the organization. Limited stakeholders bearing quantifiable impact through each other's decisions and actions. Automated software cannot yet replace human intelligence, decision making and intuition. Avoid automated games. After all, in the real world you're still competing with people and not AI over engineering problems do not help the cause. Keep issues close to reality. Planning for the zombie apocalypse, for example, is arguably unnecessary. Best practices for enterprise wargaming are as Keep the games and moves simple. Complicated games will divert energy on non essential items. All roles and players need to have meaningful dynamics between them to generate the right counter moves. Give yourself time. Do not run the war game very close to the D day. It might not yield desired results and in fact be counterproductive by distracting from the actual event itself. Asking questions and challenging assumptions is crucial. If an organization's management and culture do not support challenging existing thinking, then stay away from war games. Assess competitive blind spots as they arrive. Understand where you need additional focus and insights. Challenge all assumptions. Think like competitors and challenge the boundaries. A Case Study A technology company announces an acquisition as part of a strategy to pivot their business model and enhance their competitive advantage through a new business unit. The acquirer has never run the business model that target company uses to deliver to its customers. Although the products solve for the same problem, there is a large premium paid for the acquisition and the deal thesis is heavily dependent on the delivery of revenue synergies, especially given the risk of one business model cannibalizing the other. We had the senior executives and M and A integration leaders participate in an intensive war game to develop insights, surface threats and refine tactics. Here's what happened. Assess the impact of making a new type of acquisition and ascertain the ability to create value from buying a new business model. Understand impact on exiting business model and risk of cannibalization. Evaluate MA integration capabilities, I.e. scalability of existing infrastructure skills and processes to create revenue synergy from the new deal type stress test underlying assumptions and document business and execution risks in areas new to the company. Game design consisted of representatives from two new business units, a cross functional operations team, human resources, finance IT and go to market leaders. A discrete event analytical model was built to simulate the financial and economic impact of each move, decision and counter move. A control team to manage the war game, its strategic direction and key control points third party team members representing customers, competitors, regulators and suppliers. Surprises the control team brought in perspectives from the customers who did not accept a lot of changes very willingly and needed to be incentivized. While employee and other customer challenges were mostly understood and planned for, channel partners were neglected impacting the revenue trajectory. There were several personality issues that posed challenges to products, features, organization structure, sales incentives and decisions around these aspects. Key Lessons Commercial due diligence was performed at a very high level, industry Dynamics, market size, etc. And was not a good enough size to quantify revenue synergies. While the IMO was able to run the cranks and manage the integration process, they lacked the skills to create deal value through design of revenue value drivers, a functionality configured IMO could not effectively deliver go to market synergies. Value driver configuration yielded optimal outcomes. Sales personnel were harder to incentivize given the regional organization structure and additional incentives to capture value had to be designed. Brand and pricing were two key levers not factored in the thinking behind revenue generation and would have been considered during actual integration. An external consulting firm would have to be staffed with personnel who understood the industry and sector well. Generalists would not be able to maximize value from this deal Closing Thoughts As a concept, wargaming has been around for more than a century. In the recent past, it has gained acceptance amongst business and M and A leaders when it comes to strategy development and strategy testing. It is still in its infancy of application during MA integration scenarios, but is fast catching up in more complex deals and environments. The truth is that MA strategies cannot be built in a vacuum. They need to align with the business environment and the operating model. At the same time. Simply hoping an MA acquisition and integration strategy will work is hardly a productive way to operate in the current environment. Dozens of uncontrollable uncertainties exist after a deal is announced, and every subsequent decision has a high impact on the business and its value, be it managing change or protecting brand reputation. Exposing a strategy and tactics and potentially difficult truths provided via business wargaming radically transforms a company's odds when facing marketplace uncertainties, and it is my belief that early adopters of this practice will significantly outperform their competitors. The views expressed herein are those of the author and not necessarily the views of FTI Consulting Inc. Its management, its subsidiaries, its affiliates, or its other professionals. About the Author Nitin Kumar CMNA, CMC, CDDP Senior Managing Director FDI Consulting San Francisco 1408915-8627 Nitin Kumar is a seasoned C level operating executive who has spent the entirety of his career working in and around Silicon Valley, helping both his people and his clients make the most of innovation, disruption and the opportunities that new technologies can bring to business. Nitin helps CEOs, boards, investors and leaders transform their business models by leveraging disruptive trends and sophisticated M and A strategies. A management consultant with two decades of experience in the technology, media and telecommunications sector, Nitin is currently the global leader of the technology sector at FTI Consulting, where he is involved in leading the firm's offerings for disruptive strategies, transformative operations, MA and restructuring. He has previously held leadership roles at organizations including PwC, Deloitte and HP. Over his career, Nitin has been involved in adding value to over 700 MA transactions, delivering strategic recommendations, executing due diligence and integration services, and is well known as a thought leader who brings insights and innovation to develop unique MA practices that in turn have allowed boards, CEOs and shareholders to realize value. Nitin is experienced in all types of MA from consolidation, plays and adjacency moves, business model transformation and tuck ins, acquihires distressed M and A, hostile takeovers and both activist, offence and defence. He has advised multiple boards, CEOs, corporate development and integration leaders on developing strategy and executing in uncertain dynamic environments. Nitin has won international awards for his pioneering work on ma, revenue synergies and M and a wargaming this audiobook is brought to you by dealroom. Dealroom is a project management software that uses Agile principles to simplify the time consuming parts of the M and A process. We streamline management of the transaction lifecycle from deal sourcing through integration. Our technology connects communication tools, virtual data rooms and project management tools to significantly improve efficiency. See what Dealroom can do for you. Request a demo today at www.dealroom. net.