What’s more risky? Not doing the deal or doing the wrong deal?

jakob-owens-771102-unsplashIn the first blog of this series, our April Guest Blogger, Ruth Murray-Webster highlighted the challenges of delivering the promised value from M&A and drew parallels between the ‘deal fever’ of many deal makers, and the challenges of making good decisions in early life cycle of major projects. She continues her thoughts in this second blog.

Understanding the challenges of implementation early in the life cycle is important because, unless you’re really lucky, value for someone is usually destroyed later.

In the M&A context half of all deals destroy value 24 months post-close[1]. We can repeat the ‘fail to plan, plan to fail’ and similar messages until our retirement, but they don’t change behaviours in early life cycle.  So, what needs to be different?

I’ve circled this challenge for most of my working career in many different situations in public and private sector, in projects to build things, or projects to transform things – I keep coming back to the need for great conversations about uncertainty and risk as early as possible.

Risk process is logical, but I’ve learned through experience that for stakeholders who are desperate to get funding to achieve something big, that it’s counter-intuitive to view uncertainty through a logical but constrained risk lens.  We know that the influences on perception of risk and chosen risk attitude are three-fold[2] – conscious influences (such as experience), sub-conscious influences (such as confirmation bias or groupthink) and visceral/emotional influences (such as fear or excitement).  And we know from the wide body of evidence from risk psychology that contrary to what we would like to believe – it’s not the conscious influences that win.

So, to get real acknowledgement by senior decision-makers of the risks of implementation in early life cycle, I conclude that we don’t need more/better risk process but we do need to find ways of having a better conversation and challenge around the Exec and Boardroom tables.  Where there is a Chair, CEO, Investment Partner or other person with ‘skin in the game’ and leverage, you have a chance – they are likely to create the context for the right conversations to happen. Even with the right support from the top though, helping the complex mix of stakeholders to share what they want and consider what might happen to make that more or less likely to happen is difficult work that typically needs a neutral voice to facilitate the conversation.

Risk analysis is important but presenting the information in a way it can be understood and discussed and amended to reflect the collective decision on how much risk to take, is vital.

I remember a notable gathering of Chairs and non-exec directors of FTSE 100 companies from my KPMG days – I was facilitating a discussion about strategic risk.  When asked the question, ‘how many of them judged that their Board considered strategy through a risk-lens’ – most hands were raised.  When asked the question, ‘how many of them considered risk in formulating strategy, as opposed to agreeing strategy then looking at the risks to achieving that post-hoc’ – far fewer hands were raised.   That’s the problem.  Understanding and managing risk isn’t (just) about trying to protect value post decision, it’s about making good decisions in the first place.

Major projects, including M&A, are risky endeavours – the sooner we consider the uncertain (some would say VUCA – volatile, uncertain, complex and ambiguous) context for our work in a structured and considered way, before promises have been made to shareholders, governments, etc – the better.

Who does this well?  Who has ideas about how to make it better?

Next week, I’ll share experiences and views on viewing our projects through a whole systems mindset.

[1] Inconvenient Truths (2017) Beyond the Deal LLP.

[2] Hillson & Murray-Webster (2007) Understanding and Managing Risk Attitude, 2nd Edition, Gower.

Read the second post in this series

Read the third post in this series

Dr Ruth Murray-Webster is a Partner with Beyond the Deal (BTD), a specialist consultancy focused on ensuring that clients put good-quality thought into their M&A integration, or divestiture carve-out and separation plans. Ruth’s work, with her colleagues helps clients address all aspects of delivering the promised value from deal-related organisational change.  Prior to joining BTD Ruth was Director, Change Portfolio and Group Head of Risk at Associated British Ports and before then, Director of KPMG’s Risk in the Boardroom practice.  Ruth has a fascination with the people aspects of effective risk taking and has co-authored four books on the subject with David Hillson (A Short Guide to Risk Appetite, 2011; Managing Group Risk Attitude, 2008 and Understanding and Managing Risk Attitude, 2nd edition, 2007) and Penny Pullan (A Short Guide to Facilitating Risk Management, 2012) – all published by Gower.  She holds an executive doctorate from Cranfield School of Management where she researched project-based change from the perspective of the recipients of change and is a Teaching Fellow at Warwick Business School where she is module leader for the project management module on MBA and Masters in Business courses.

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