Merger or collaboration

Merger - sIt’s been interesting to read the recent wave of contrasting views within the sector, around whether charities should purposefully pursue collaborations with others in the same space, or whether they should just merge and get on with the job. Most accept there are nuances, but still talk as if it’s a strategic choice for Boards to make; as if there is one correct answer – “we’re about collaboration” or “we’re about merger”. Like most knotty questions, it’s only knotty when you’re looking at it all wrong.

This is not a strategic choice, nor is there a correct answer – in fact, it’s a straightforward operational decision that can, and should, change with time and circumstance.

One of my private sector clients, for example, is a well-known premium clothing brand. For the last few years they’ve been expanding their presence beyond clothing, as big brands are wont to do, and each brand extension requires a similar decision: should they develop the capabilities, maybe acquire a smaller player, so they can make these products themselves; or should they license their brand, to someone they trust, to make and sell the products for them.

So far, they’ve been successful in those decisions using a simple rule of thumb: if it’s high risk, i.e. they don’t know if the extension will be successful, it’s outside their expertise, requires customer relationships they don’t yet have, and needs a lot of investment, they look for a partner. If it’s lower cost, less of a stretch, and would sell through similar channels to their other ranges, they do it themselves. And if a licensed range really takes off, they always have the option to cancel the license and do it internally, saving costs and building more flexibility to extend further if they can.

The only time they’d consider acquisition, would be to gain new capabilities, or a presence in new stores or new countries, that they couldn’t easily develop on their own, and where the value of them being there has already been proven. And the only time they’d consider M&A with a direct competitor in the same market, would be if they thought they could do a dramatically better job of developing and expanding the acquired brand. Anything else is vanity and distraction.

The reason I give this example, is because it offers some very simple rules that are directly transferrable to charities when thinking about merger or collaboration.

Extending a brand into new categories is the commercial equivalent of extending a charity’s remit or theory of change; of recognising there are other aspects to this problem that we’re not covering, and that’s why change isn’t happening. The choice is the same: partner with organisations in that space, “license” or collaborate around your theory of change to get the job done; or invest in developing the capability, the relationships and the infrastructure, to do the job yourself. And the same criteria of risk, stretch, relationships and investment, will tell you pragmatically what the right approach is in a given situation. Making a strategic or ideological “choice” in advance, simply ties your operational hands, and prevents you choosing the best way to solve each immediate problem.

The same is true for merging with others in your space: can you do a dramatically better job than they’re currently doing, are there things they’re doing dramatically better than you, would the combined organisation give you a presence and capability that would be significantly more than the sum of its parts? If so, merge, combine the best of both, and roll it out across the new organisation. If not, plough your own furrow and leave them be.

Ironically, the main reasons I hear for advocating merger, are none of the above. The thrust of the argument is not about advantage, impact or reach; it’s about efficiency: combining head offices, sharing infrastructure, reducing costs. Well, I’ve got news for you: most mergers built on efficiency savings never pay back the business case, and there are far better alternatives. There are dozens of perfectly good infrastructure businesses and plenty of charities out there that sell services, like HR, accounting and the like.

If there’s a consolidation efficiency-gain to be had, get a service contract and move on. If you think you need new capabilities, but it’s risky, hard and expensive to do yourself, partner and collaborate. But if there are things that each organisation does far better than the other, if each gives the other a presence, reach and capability they can’t build on their own, and critically, if you know you’ll need both parts working seamlessly to achieve your long-term aims, then start those merger conversations today.

There are only two strategic, Board-level decisions that any charity needs to make about this. The first is to agree that these are operationally driven, pragmatic decisions; the second is to sign off on any major moves. So, forget the polemic, concentrate on the practicalities and let others tie themselves in ideological knots.

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