Early in my career while working at Sony Chemicals Corporation of America, a division of Sony Corporation, I was trained in Total Productive Maintenance (TPM). Seiichi Nakajima developed Total Productive Maintenance in Japan between 1950 and 1970. Through this experience, it became clear that having a leadership mindset that involves front-line teams in small-group improvement activities is crucial for successful operations. When I returned to Avery Dennison in 2001 from Sony, I was thrust into Enterprise Lean Sigma (ELS). The idea was to take lean sigma principles across the enterprise, or the entire corporation. As most of you probably know, Lean Six Sigma seeks to improve employee and company performance by eliminating the waste of resources and process/product defects. The methodology of Lean Six Sigma is designed to provide a straightforward route toward achieving improvement objectives. It incorporates the process improvement techniques of both Six Sigma and lean enterprise.
As I progressed in my career and I began to be more involved in Mergers and Acquisitions, I looked at how the principles of TPM and ELS could advance the M&A process. I realized that Total Productive Maintenance and Enterprise Lean Sigma are two complementary methodologies that can enhance the M&A process by focusing on operational efficiency, process optimization, and continuous improvement. The Portfolio Partnership leverages the best of both processes in our Acquisition Playbook. We have worked to incorporate these principles in our six-phase 25-step model to ensure our clients derive the best practices to realize their Return on Investment. We understand these processes and incorporate them into our due diligence assessment and then subsequently incorporate them into our post-merger integration strategy. As your read below, you will understand why we say “M&A is for “operators”. To effectively execute an M&A transaction, you need to have considerable operational experience. Here is how these principles of TPM and ELS come together to enhance the M&A process:
1. Process optimization: Lean Six Sigma focuses on identifying and eliminating waste and non-value-added activities in processes. In the context of M&A, this methodology can be applied to optimize the entire acquisition process, from strategic positioning, target identification, target assessments, and negotiation through to due diligence and contracts and onwards to a successful to integration. By using Lean Six Sigma tools such as value stream mapping, process mapping, and root cause analysis, M&A professionals can streamline workflows, identify bottlenecks, and enhance efficiency throughout the M&A lifecycle.
2. Standardization and optimization of processes: In the context of M&A, this means identifying and aligning best practices from both buyer and seller, eliminating non-value-added activities, streamlining workflows, and standardizing and optimizing processes: Both TPM and Lean Sigma emphasize eliminating waste. By applying TPM principles and Lean Sigma tools, M&A operators can enhance process efficiency and establish standardized processes for the merged entity, leading to improved overall performance.
3. Data-driven decision-making: Both methodologies rely on data-driven decision-making. TPM emphasizes the collection and analysis of equipment and maintenance-related data, while Lean Sigma emphasizes the use of statistical analysis and performance metrics to drive decision-making. In M&A transactions, the combination of TPM and Lean Sigma enables M&A professionals to gather and analyze relevant data on equipment, processes, and performance, facilitating informed decision-making throughout the M&A process.
4. Employee engagement and empowerment: TPM emphasizes engaging and empowering employees to take ownership of their equipment and processes, while Lean Sigma promotes employee involvement in process improvement activities. In the context of M&A, engaging and empowering employees becomes crucial for successful integration. By incorporating TPM and Lean Sigma principles, M&A operators can involve employees from both organizations in identifying improvement opportunities, implementing changes, and ensuring buy-in and commitment during the integration process. In a 2021 McKinsey Quarterly Report research shows that a systematic and programmatic approach to your M&A program engages employees and builds trust and conviction into the deal.
5. Continuous improvement: Both TPM and Lean Sigma foster a culture of continuous improvement. TPM focuses on equipment reliability and availability, while Lean Sigma targets overall process improvement. In M&A transactions, embracing the principles of TPM and Lean Sigma encourages the merged entity to continuously seek opportunities for improvement, eliminate waste, and optimize processes. This leads to enhanced operational efficiency, cost reduction, and increased competitiveness. Our M&A Playbook identifies these opportunities early in the process and builds them into the post-acquisition integration plan.
6. Risk mitigation: M&A transactions involve inherent risks, and Lean Six Sigma can be utilized to mitigate these risks effectively. By employing Lean Six Sigma tools like Failure Mode and Effects Analysis (FMEA) and statistical process control, M&A operators can identify potential risks, assess their impact, and implement proactive measures to mitigate or eliminate them. This approach helps minimize disruptions, improve decision-making, and ensure smoother M&A execution. During due diligence, these tools help identify areas of risk and concern that could affect the valuation of the deal.
7. Quality management: Six Sigma, with its emphasis on data-driven decision-making and reducing process variations, can be applied to ensure high-quality outcomes in M&A transactions. M&A professionals can use Six Sigma methodologies, such as DMAIC (Define, Measure, Analyze, Improve, Control), to measure and analyze quality-related metrics, identify areas for improvement, and implement solutions to enhance the quality of processes and outcomes. Again, identifying opportunities for improvement early in the M&A process enables a better post-merger integration plan.
8. Conducting due diligence effectively: Due diligence is a critical phase in the M&A process, where thorough assessments of the target company’s financial, operational, and legal aspects are conducted. Lean Sigma can help M&A operators design and execute due diligence activities more effectively by providing structured frameworks and data-driven analysis methodologies, leading to better decision-making and risk management.
9. Managing integration processes: The integration of two organizations post-acquisition is a complex and challenging task. Lean Sigma offers tools such as value stream mapping and process improvement methodologies that can help M&A operators identify integration opportunities, eliminate waste, and optimize processes within the merged entity. By applying Lean Sigma principles, M&A operators can achieve smoother and more efficient integration, resulting in accelerated synergies and improved performance.
10. Change management and cultural integration: Both methodologies provide frameworks for effective change management and cultural integration. TPM emphasizes the importance of involving employees in change initiatives and addressing their concerns, while Lean Sigma provides tools for managing change and ensuring cultural alignment. In the M&A context, TPM and Lean Sigma principles can be used to design comprehensive change management plans, facilitate communication, and ensure a smooth integration of processes, systems, and cultures.
11. Performance measurement and control: TPM and Lean Sigma advocate performance measurement and control mechanisms to monitor progress and ensure sustained improvement. By combining these principles, M&A operators can establish performance metrics, implement control systems, and develop dashboards or scorecards to measure and track the performance of the merged entity. This enables timely intervention, continuous monitoring, and ultimately the ability to measure the success of the deal based on the investment thesis.
As we have discussed in our previous blog posts, consulting firms estimate that anywhere from 50% to 90% of all mergers and acquisitions do not deliver the anticipated return on investment. This is why we believe that a clearly defined “Acquisition Process” can increase the likelihood of achieving the desired results. By utilizing the advantages of both TPM and ELS, professionals involved in M&A can enhance operational efficiency, promote lasting improvements, improve the prospects of a successful integration, and achieve the ROI required.
TPP scales companies through operational excellence and through acquisitions. Think of us as hands-on Operating Partners. It’s fractional corporate development management through the lens of an operator.
Contact Ian@TPPBoston or Kevin@TPPBoston.com