Key questions to ask:
- Does the company tend to pursue a wide range of transaction opportunities, or are the deals considered and executed around core strategic objectives?
- What mechanisms are in place to ensure strategic alignment? What could or should be done to generate closer alignment?
- What roles do the CDO and the CDF play in shaping corporate strategy? Should they play larger or smaller roles?
- To what extent does the organization continually and critically evaluate its investment portfolio? Are the CDO and the CDF routinely called upon to evaluate the deployment of capital?
It is the role of the CDO to stay abreast, if not one step ahead, of industry trends.
Summary: The most successful CDOs do their utmost to align deal strategy with broader corporate strategy. This begins with a close working relationship with not only the CEO but also other members of the senior management team, as well as key business unit, subsidiary and other geographic and functional leaders.
The CDO needs to provide the senior management team with fact-based assessments of performance.
They must answer questions such as:
- Is the asset base as currently configured generating adequate ROIC?
- Are business units or other asset combinations delivering adequate return?
- Given these realities, is the company following appropriate strategies?
It is also the role of the CDO to stay abreast, if not one step ahead, of industry trends: are evolving technologies, societal preferences or competitor actions presenting risks or opportunities?
A CDO can inform and advise the enterprise on transaction opportunities that can enhance the strategic vision. Overall, a strong CDO not only seeks deals to complement or advance current business strategy but also seeks to inform and advise on potential strategic course corrections.
Allocating resources for successful transactions
Once a CDF is operating in alignment with the broader strategy, a number of distinctive characteristics, practices and outcomes become evident. Most notably, proposed deals will focus more acutely on the delivery of key elements of corporate strategy.
Instead of expending resources evaluating whatever deal comes along, the CDF will have a clearer transaction focus. So team members will be able to decide quickly whether a deal is worth pursuing or whether it deviates from core corporate strategy.
This orientation has follow-on benefits throughout the transaction lifecycle. A CDF that is in alignment with core strategies will possess a clearer idea of how to design deal models.
Analysis will focus on how any given transaction might enhance, enable or even detract from core corporate strategies.
Similarly, deal teams will be better able to pinpoint strategic synergies as well as concentrate integration planning and execution on the realization of tangible benefits.
- Alignment between business strategy and transaction strategy ensures a focus on executing the right deals
- Understand the value drivers
- Build and use business models to validate diligence
- Align diligence with opportunity analysis — commercial, operations, financial
- This leads to enhanced opportunities for generating value and realizing returns
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