Corporate Development: Beyond the Balance Sheet
In today’s competitive industrial landscape, corporate development is often viewed narrowly, focusing primarily on financial statements, traditional metrics, and inorganic growth. However, true corporate development goes beyond the balance sheet, requiring a holistic approach that integrates various business functions and leverages operational excellence.
Unlocking Growth Opportunities
Many organizations miss growth opportunities because they rely solely on financial data and conventional presentations. These traditional methods often fail to capture the nuances and potential of less obvious growth avenues and synergies. Recognizing and acting on these opportunities requires a shift in perspective—one that values operational insights as much as financial ones.
Flowchart comparing traditional and holistic approaches to corporate development, highlighting focus on financial metrics vs. multiple factors for identifying growth opportunities.
The Foundation: Operational Excellence
Before any growth strategy can be effective, it's crucial to ensure operational excellence. Think of it as setting a solid foundation before building a house; operational excellence means streamlined processes, efficient supply chains, and a culture of continuous improvement. This foundation supports sustainable growth and prepares the organization for scaling.
Incorporating operational excellence into corporate development efforts can significantly enhance the due diligence process, particularly in mergers and acquisitions (M&A). An often-overlooked area during M&A transactions is Operational Due Diligence (ODD). While financial, commercial, and HR due diligence are critical, ODD delves into a company's ability to operate and deliver value to its customers. By investing time into the ODD process, key stakeholders can uncover deep insights into a company’s operational efficiencies, identify potential risks, find areas of improvement, and assess the proper steps for a successful Post-Merger Integration (PMI) after a transaction. ODD goes beyond the financials to scrutinize a company’s operational backbone and encompasses many different inputs and risk factors.
For a detailed understanding of ODD, please check out our primer on Operational Due Diligence.
Mind map of the components of operational excellence, including process efficiency, supply chain optimization, and continuous improvement.
Holistic Corporate Development
When considering growth, companies often have to choose between organic and inorganic strategies. Organic growth involves internal improvements and expansions, while inorganic growth includes mergers and acquisitions. Both approaches have merits, but the key is to pursue them holistically.
The Importance of a Holistic Approach
A holistic approach ensures that all aspects of the business are aligned and working towards common goals. This involves integrating management, operations, finance, IT, commercial, and legal perspectives. Let's explore how this plays out in practice.
Organic Growth Example
Consider an apparatus provider in the mining industry, initially focused on domestic sales due to the prevalence of open-surface mining in the region. Recognizing larger international deposits and the need for more powerful equipment, the company introduced the largest apparatus product on the market. Orders skyrocketed, making it a top offering. This success was due to the commercial team’s diligent collaboration with engineering and operations, ensuring the product met market needs. This holistic approach to innovation and development fueled significant organic growth.
Inorganic Growth Example
Building on their success, the company expanded into underground mining through M&A. Despite the initial promise, the differences in culture, products, operations, and customer bases between surface and underground mining led to unsynergistic outcomes post-close. Factories were eventually closed, and the company exited the underground market. This example highlights the risks of inorganic growth pursued without a holistic, integrated approach.
Integrating Cross-Functional Perspectives
A holistic corporate development strategy integrates management, operations, finance, IT, commercial, and legal perspectives to ensure well-rounded and effective growth strategies. This integration breaks down silos, fosters collaboration, and aligns all business functions toward common goals. The benefits include improved decision-making, enhanced operational efficiency, and a more resilient growth trajectory.
By pursuing growth holistically, companies can unlock new opportunities and achieve sustainable success, avoiding the pitfalls of narrow, financially driven strategies.
Flowchart illustrating the process of choosing a growth strategy, including paths for organic growth through internal capabilities and inorganic growth through acquisitions.
Navigating the Path Amid the Information Overload
Transforming a business into an enterprise requires informed decision-making. As the old saying goes, ‘garbage in gets garbage out’; the same is true for strategic corporate expansion. In the face of information overload, it is crucial to sift through data and insights to make well-informed decisions. Navigating the path of mergers, acquisitions, and partnerships can transform your business beyond mere expansion to strategic advancement. Inorganic growth offers unprecedented opportunities by integrating new cultures and creating synergies that transcend the sum of individual parts. However, this journey requires careful consideration of several critical factors.
Before embarking on the inorganic growth path, ensuring that your business is operating smoothly and effectively is essential. Managing an additional entity can be particularly challenging if the current structure struggles. Evaluate and address various aspects of your business, including financial stability, operational efficiency, and organizational structure. This solid foundation is critical for the success of any expansion.
Addressing Exchange-of-Information Costs
One overlooked aspect of corporate development is what we like to call the "exchange-of-information" cost or EOIC. Opportunities come with sharing knowledge, skills, and resources across the organization. This exchange can be costly in terms of time and effort but is essential for successful integration and value creation.
These costs are within the infrastructure that supports value-added activities. They include indirect engineering processes, product definition configuration control, Sales & Operations Planning (S&OP) processes, Key Performance Indicator (KPI) processes, and product lifecycle documentation recollection.
Organizations often neglect the underlying issues behind EOIC. As these organizations grow larger, EOIC rises exponentially due to the complexity inherent in the organization’s structure. Symptoms of higher EOIC include misalignment of metrics, long information-gathering times, and stalls in processes related to transactional tasks.
To counteract the growing impact of these costs, organizations need to increase productivity by cutting costs in various areas and leaning out their processes. Combating these information costs will be critical in enhancing efficiency and competitiveness. For a deeper exploration of this concept, refer to our article on Combating Exchange-of-Information Costs.
Real-World Example: Benefits of Holistic Corporate Development
In many organizations, the traditional role of a VP of Corporate Development focuses heavily on financial and strategic tasks. This conventional approach often centers on metrics like revenue growth, market share expansion, and cost synergies. While these aspects are crucial, they tend to miss broader operational insights that drive true value creation. Traditional roles can lead to a narrow focus, creating silos and missing opportunities for cross-functional collaboration and integration that are essential for sustainable growth.
Let's consider a typical job description for a VP of Corporate Development at a company focused on performance excellence, profitable growth, and environmental sustainability. The role emphasizes responsibilities such as:
Acting as a thought partner to the executive team.
Leading strategic opportunity reviews.
Monitoring market developments.
Managing the M&A lifecycle.
Developing relationships with industry contacts.
Proactively sourcing and screening M&A opportunities.
Assessing acquisition targets.
Managing due diligence processes.
Driving deal execution.
These responsibilities are critical, yet they often fail to incorporate a holistic approach that includes operational excellence and cross-functional integration. In contrast, a holistic corporate development strategy covers these traditional areas and ensures alignment across all business functions, fostering collaboration and enhancing overall operational efficiency.
Integrating Operational Excellence
Traditional corporate development roles often overlook the critical aspect of operational excellence. While financial metrics and strategic initiatives are essential, they do not provide a complete picture of a company's potential for sustainable growth. Operational excellence ensures that a company's day-to-day operations are efficient, reliable, and continuously improving. By integrating operational excellence into corporate development strategies, organizations can create a more resilient foundation for growth, uncover hidden opportunities, and mitigate risks more effectively.
A holistic corporate development approach includes:
Operational Excellence: Ensuring efficient, high-quality operations that support sustainable growth. This means going beyond financial analysis to scrutinize a company’s operational backbone. For example, during mergers and acquisitions, operational due diligence (ODD) can uncover deep insights into a company’s operational efficiencies, identify potential risks, and find areas for improvement.
Cross-Functional Integration: Aligning all business functions to work together towards common goals. This involves breaking down silos between departments such as management, operations, finance, IT, commercial, and legal, ensuring that everyone is on the same page and working towards the same objectives.
Comprehensive Due Diligence: Including operational due diligence to uncover deeper insights and potential risks. It goes beyond the typical financial and commercial due diligence, providing a comprehensive view of a company’s strengths and weaknesses.
Strategic Flexibility: Balancing organic and inorganic growth strategies tailored to the organization’s unique needs. This means being adaptable and ready to pursue different growth opportunities as they arise, whether through internal improvements or external acquisitions.
Comparison chart between traditional corporate development role and holistic corporate development approach, highlighting strategic flexibility, cross-functional integration, operational excellence, and M&A lifecycle management.
Supplementing Traditional Roles with Niche Expertise
Many corporate development teams are well-versed in traditional methods but may lack the niche expertise needed for specialized growth strategies. This is where fractional or outsourced advisory services come in. By leveraging external experts, organizations can fill gaps in their internal capabilities, ensuring they have the right skills and knowledge to pursue growth opportunities effectively.
At Coeptis Consulting Group, we provide this niche expertise. Our team brings hands-on experience in mechanical engineering, lean manufacturing, supply chain optimization, digital transformation, and operational excellence. We strongly understand what works and what doesn’t for growth.
Flowchart showing how an internal corporate development team identifies expertise gaps and enhances team capabilities by integrating fractional advisors in marketing, finance, and operations to achieve strategic goals.
Real-World Impact and Conclusion: A Comprehensive Approach to Growth
A holistic corporate development approach can consistently deliver high ROI by focusing on these areas while minimizing opportunity costs across product and deal lifecycles. For instance, when Coeptis Consulting Group has worked with clients, we strategize AND help execute, ensuring that growth objectives are met efficiently and effectively. Our expertise in various fields allows us to integrate operational excellence with strategic initiatives, helping ensure that every part of the business is aligned and working towards common goals.
Corporate development should be more than a financial exercise; it requires a comprehensive, integrated approach. Organizations can unlock new growth opportunities and achieve sustainable success by focusing on operational excellence, recognizing the true cost of information exchange, and leveraging external expertise.
Adopting these principles, corporate development professionals can set their organizations on a path to intelligent, sustainable growth beyond the balance sheet. This holistic approach can help ensure robust financial health while fostering a resilient, agile, and innovative organizational culture well-equipped to adapt to market changes and seize new opportunities.
Ultimately, the goal is to create lasting value transcending financial metrics, building a strong foundation for long-term success and industry leadership. Embracing this comprehensive approach to corporate development will enable organizations to thrive in an increasingly complex and competitive business environment.
This material has been prepared for information and educational purposes only, and it is not intended to provide, nor should it be relied on for tax, legal, or investment advice. You should consult with your own tax, legal, and financial professionals for your specific situation.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or opinions of Finalis Securities, LLC.
