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How to Modernize a Process-Based Company

“When you can show somebody how the changes make their job less challenging, they’re more willing to put in the time and effort embracing it” - Naomi O’Brien

In this episode, Naomi O’Brien, Head of M&A Integration at Honeywell, talks about how to modernize a process-based company.

Naomi explains the challenges that she encountered when she joined Honeywell, the changes that she immediately implemented, and how she ensures integration success.

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Naomi O’Brien

Episode Transcript

Text Version of the Interview

Biggest changes

One of the biggest things is the lack of experience. There's a big difference in experience when you're doing a few transactions a year compared to many. Also having cross-functional folks that are dedicated to M&A. I had that at Cisco but not in Honeywell.

That adds to the experience level that you need for consistency in the process and less ramp up as you go through deal execution. 

Another thing is the difference in tools and management of how you go through integrations and the process. When I came to Honeywell, they were very much still using Excel to manage their integration planning and how they did coordination across. 

One of the first things we did was stand up a tool here because having that ability to see the cross-functional dependencies, see the issues and risks before you have to end up in a reactive mode is just so incredibly helpful.

What about checklists?

When I came here, they had checklists. Checklists are so hard because it doesn't allow people to really think outside the box. 

And especially as you start to get into deals that are more complex, especially for a company that is doing this pivot from an industrial to a more software technology industry, being able to have the flexibility is important. 

You have to be able to tie everything back to the deal rationale and you can't do it on a checklist because as you start to go through the list, people think they are done and you have missed several things that are important and critical for the success of implementation or execution. 

So I really pushed my team and told them that checklists can be a guide. Think of them as the bumpers in a bowling lane so that the ball doesn't go down the gutters. Checklists can be something to keep you from going into the gutter but you still need to think about the additional things we need to consider as we go through the process. 

Getting teams organized 

The biggest observation coming in was that all the functions were siloed. Everyone was looking with their horse blinders at the things that they need to do.

One of the things that we did was to bring everybody together and get awareness across the functions as to what their negotiables and non-negotiables are, as they think about integration planning and other considerations,

A lot of them weren't even aware of what each other was doing or what was important to the other teams. Granted they had some dependencies that came across, but they didn't understand the critical factors of the approach. 

So we went through all their playbooks, what's negotiable and what's non-negotiable so that the functional leaders understand across the board what each other was doing.

How did you communicate?

The first thing was I set up a monthly functional sync. This is where all the functional leaders come together and talk to them about the changes in the processes and how are we going to bridge the gap between diligence and integration. 

Secondly, having the integration leaders more in tune with the integration teams, because most of our integration leaders usually have no previous integration experience. 

So we have to make sure that they're on a weekly cadence with the functional teams that are doing the execution so that they are on top of the activities that we need to do over the next 30 days. 

And at the end of 30 days, we execute a retrospective to look back and see if we have accomplished everything that we set out to do in the last 30 days. And if not, what are some of the things that we need to adjust to ensure they're set up for success.

Never underestimate the level of communication.  most people just assume that things are being shared when they're not. I know people don't like having a lot of meetings but when you're trying to stand up a function and build a practice, change is hard, and it takes a lot of two-way communication.

Take the tools for example I got a lot of push back in the beginning when I was standing up an M&A tool. People will often tell me it's not perfect. But the reality is it's never going to be perfect. The question is - is it better than what we had before? is it enabling you to be more successful and more efficient?

You had zero version control with Excel, but at least with a tool, you know it's real-time, and you know that people can go in and update their statuses. So you also need to be articulate in explaining to them how this helps and improves their lives.

I was in total observation mode for the first 30 to 60 days. I was riding along on the active integrations that are already in flight.  Trying to understand how they approach things, getting a little bit of a historical perspective of how they got to where they were.

Luckily it came across very well. It was very valued, people respected my experience from before. And that's where you want to get to. You want to get to the point where people feel like they have some stake in the game and that they have some control to change things to make things better.

Training people for M&A

When I came into the role, I quickly found out that the integration leaders had zero integration experience before they led these integrations. And even though they were very senior, very competent, and capable folks, there's something to be said about applicable experience versus conceptual. 

So one of the first things that I did was create an integration leader start-up program. It’s a team folder filled with documents that talk them through about the deliverables. What are some of the initial deliverables and expectations that we need to have from a cadence perspective as they approach certain situations and cycles of the deal? 

And then the other side of it is again, is the coaching kind of aspect of it. They're going to meet with me. They're going to have a weekly cadence with me so that they can ask their questions so that I can provide feedback or thoughts. 

And I spent a good amount of time just hand-holding through the process because there are a lot of contexts that have to be applied through that, not just for the integration leaders, also for the functional leaders as well. 

Invoking Changes

The best thing is to get them to think for themselves and get people to be excited about what they're doing. When you show somebody how it makes their job less challenging, they’re more willing to put in the time and effort for it. 

I've had many sessions, especially as I do the monthly functional syncs, to really talk about the pain points and the challenge. And one of the biggest things we found was some of the functions weren't as mature as the other functions.

We started to have each of the functions share their playbooks across. And what we found was there were some extreme differences. You had some that were just really well thought out and put together. 

And you had others that were just less mature because there wasn't either a lot of activity in that space previously, or the experience levels were different and they wanted to leverage what the other functions had used to develop and build out some of their playbooks and processes.

How do you ensure integration success? 

Before we close the deal, we have a plan on what we want to accomplish in the first 30, 60, 90 days. And we make sure that those are critical integration activities so we don't boil the ocean. We don't want to have everything in there 

  • What are the critical things that matter? 
  • What is it across all of the functions and where are the cross-functional dependencies?
  • How do these tie back to deal rationale? 

We also use an integration scorecard to ensure that we're achieving the deal commitment that we set out to do. We like to look at how we're doing from a people perspective, from a financial perspective, go-to-market, and technology.

When I mean by people, it means looking at it from, 

  • Do you have a hiring plan in order to scale the business? 
  • How are you achieving that on a month-to-month basis? 
  • What are the things that you're doing to find these folks for this business? 
  • Retention plans that you've put in place to ensure some critical skills don't leave and then look at attrition numbers.

And when we look at technology, it's not just capabilities. 

  • It's also milestones
  • Product insertion 
  • Things that are enabling your technology forward. 

When I talk about go-to-market: 

  • It's the selling motion
  • It's the channel 
  • It's your sales strategy. 
  • Do you have cross-selling across businesses that you need to make sure that you're able to do?
  • Do you have the proper incentives in place? 

And then finally, the financials.

  • Revenue
  • Gross margins 
  • Synergies and what do we need to do to achieve those?

And what I like to tell the team is, as they go through their integration planning for 30, 60, 90 in particular, can you tie it back to deal rationale? Can you tie it back to what we're trying to commit out of the deal? 

How do you keep Status?

I have a monthly integration scorecard that I send up to our CEO every single month. And that scorecard is a high-level summary. There's the people, the technology, go-to-market, and the financials, and it's done with a green, yellow, red. 

  • Red means it's not recoverable. They've got to create a recovery plan. It means that they're not going to be recoverable for the year of what we set out to achieve. 
  • Yellow means it's off the rails a bit, but it is recoverable. So they have a plan in place of how they can accelerate or modify things that they need to do to get back on track. 
  • Green means they've hit the nail on everything and everything is rosy and looking great. 

In addition to that high-level summary, I also have each of the active integrations have a one-pager that allows them to provide more detail into each of those four major areas.

All of these metrics are definitely agreed upon before we commit to doing the deal. So there's an alignment with the executive sponsors and with our executive leadership team on what success looks like with respect to those numbers? 

And then they also have to highlight the integration plan and execution, the business execution, as to how they're going to achieve those.

So that's all done before we can move forward to commit to it. And not to say it's perfect. I mean, there's obviously an opportunity to tweak it a little bit, but the variance level is not going to be much from that. They've got to have it pretty fairly detailed at that point. 

The people that are involved are:

Why is it hard to get integration lead in early? 

Unlike Cisco, Honeywell doesn't have a dedicated integration team. So when the probability that we’re going to do a deal is higher, that's when we start pulling people from the day job to lead the integration. 

And even though we try and get folks at the diligence level.  that's not always the case because they have their day job. So sometimes we pull them in a little bit further after diligence, and when that happens I become the bridge for that. I sit through all the diligence and identify integration considerations and then bridge that gap of knowledge with whoever gets designated as the integration lead. 

Value of Dedicated Integration Leaders

It's a night and day difference. In an ideal world, I would have a bench of integration leaders. I think the model that Cisco has is absolutely spot on. 

I think you enable the integration leader for the most success when you have them brought in as early as possible into the deal. And the reason for that is they get all the aspects of information, all the decisions that were made and why. 

They are able to understand all the risks and mitigations that are identified through diligence. They are part of some of the additional discovery opportunities that happen versus getting it second hand. When you get information secondhand, there's always some opportunity that things slip through the cracks or some pieces get left out or forgotten. 

And inevitably, sometimes you have transitions of people that leave the company and then, you have a complete gap of what information may have been discovered or found through that process. 

And the earlier you can bring an integration leader in, you're setting yourself up for a higher probability of success on execution. 

Getting all the metrics right

It really depends on the deal. Given what's going on in the environment today with great resignation and supply chain issues you can have a variety of challenges.

As an example, on a deal, you could have where people in go-to-market are more important factors because you know that without those, your ability to hit the technology and the financial metrics are going to be a miss.

So it really just depends on what the deal commitment factors are, what you're trying to achieve.

In my example, if you don't have the people, you're not going to have the skill sets to achieve the capabilities. And without that go-to-market channel and sales strategy in motion, you're not going to achieve your financials either. 

So really trying to think about which ones are more relevant for your current situation and it'll change deal to deal. 

How do you get to Green from Red?

Well, in my experience, nothing just goes from green to red. There's always a transition and you should be able to see the indicators or see the train wreck before it happens. And if you have an integration leader that's in tune with what the plan is, then you can raise the flag early. 

At Honeywell, we have a transparent operating system. If something is not going well, don't wait right until it's completely on fire before you raise the flag and ask for help. Reach out proactively. 

I'll give you an example. When we acquired a company, we had conversations and alignments with the target leaders that we were going to transition some of the financial responsibilities from their leader quickly upon close so that they could focus on the commercial aspects of the business.

This goes to our metric, the people aspect. You have to hire a financial person to go and take over those financial responsibilities so that this person can go do the commercial day job.

So they have identified somebody but they're not going to make it in the first 30 days because we're now at 20 days and the person that we've identified can be onboarded on the 30th day and we still have to ramp up.

In addition, this leader wants to go on a vacation because he's been working hard on the team. So there's a whole slew of things that are not going as planned, so it is important to raise the flag early so we can have interim things that we can put in place so when this person comes on board, it's a lot easier. 

Selecting an integration leader 

I really encourage the business leaders to identify folks that have the ability to navigate the company cross-functionally. So it's not ideal to have somebody who's fairly new to the company, who doesn't know who to reach out to. 

The second part of it is do they have any understanding of the business? Because there's some ability to leverage that business expertise and that understanding of how they need to be successful to operate. So that is also helpful. 

The third thing is really finding folks that have dealt with complex program management, because I don't think I've ever seen an integration plan go a hundred percent to plan, ever.

Those are my three biggest factors of consideration.  

The biggest challenge today

The great resignation, lots of turnovers. And what happens is people take their inherent knowledge with them. A lot of the M&A process and integration processes is in our heads. 

When you've done several deals, you know what you would do the next time. You have your best practice. You have your lessons learned. You have your battle scars from doing previous deals. And when people leave, it's hard to transition that amount of knowledge off to somebody else.

Because of that, one of the other things that I've started doing at Honeywell is creating a single source of truth. 

When I came in, we have diligence files in a team's folder, the deal model in a shared network drive, and we've got the integration plans in Excel. So we've started to leverage the tool. We put everything in there. 

So if somebody leaves, you don't have to scramble to figure out what did they do and what was accomplished and what is left to do. You have it all spelled out.

Allocating the right level of accountability 

You have to create the process upfront where you set the deliverables and clearly assign it to a person or a team. It’s essentially doing a RACI based on the deliverables you expect to achieve and then having regular meetings with them, just to make sure you're aligned and you're getting to the level of deliverables that you expect. 

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