The Art of Acquisition

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The Art of Acquisition

By Lori Castle - 07/01/2006
"You can never get invited to the table if you don't deliver" is the advice that Mansour Zadeh, CIO of Smithfield Foods, most often gives to his IT team leaders. If the growth of the company and the successful implementation of key IT strategies is any evidence, he is a man who takes his own advice. Since he joined in 2001, the company has grown from $6.5 billion to $11.48 billion and he has had a hand in seven acquisition integrations in the past five years.

Smithfield Foods is the largest pork processor and hog producer in the world, and the fifth largest beef processor in the United States. It has acquired 30 major companies in the last 25 years. Smithfield's and Zadeh's overall and ongoing challenge throughout these acquisitions is the assimilation of the operating companies "from the business process perspective so they successfully fit into our [Smithfield Foods] overall portfolio of business processes." Zadeh formed key strategies for managing the complexities of the IT integrations and transforming businesses.

HOW THEY DO IT

Smithfield Foods' history of acquisitions consisted of opportunities at "attractive multiples." Zadeh explains, "We have the courage to make acquisitions when an industry or acquisition target is depressed. Smithfield has a small, experienced acquisition team that can make quick decisions. We have a reputation of being able to close a deal quickly." Other factors he credits for their acquisitions' successes include the ability to integrate companies, consistent shareholder returns, corporate structure and steady improved earnings.

So while Smithfield Foods has grown organically, the true growth comes through the acquisitions. Each of these companies came with its own set of IT products and services, conceivably with most not being up-to-date. Because of the trends in the food process manufacturing segment, for example retail and food supplier consolidation, a call for new IT initiatives such as integrated supply chain management (SCM), customer relationship management (CRM) and trade promotion management (TPM) certainly exists.

Yet, due to low profit margins, market competition and retail pressure among other factors, many in the industry have not been able to stay current. Zadeh says, "It's not uncommon to find many 15-plus-year-old applications and systems in the portfolio of these companies not equipped to ride the profitable new business surges of the eCommerce world."

In such cases, and given the need for an IT-business alignment, Zadeh and his IT teams focus primarily on initiatives that impact efficiency, which in turn lays the base for long-term profitable business plans. Generally, unless there are "compelling business reasons," Smithfield would not expect the acquired company to abandon its own applications and infrastructure. Zadeh says that when business limitations are problematic or there are substantive economic advantages, it is at this stage that they want them to adhere to Smithfield's IT standards (For example: Tabware Plant Maintenance Management, Accu-sort Bar Code Labeling & Weighing, SAP financial and order-to-cash, and Rockwell Advantage MES).

The goals of the assimilation process vary depending upon branding, manufacturing, customer intimacy, market segmentation, pricing or category management. As expected, they also examine the basic infrastructure fundamentals: network, email, software platforms, security, IT governance and so on. Smithfield needs to ascertain the robustness of the overall IT system and ensure its fit and strength within the operating company and the enterprise. "Our immediate focus is to invest in those technologies that can quickly enable the assimilation of the desired business processes," says Zadeh. Of course this takes into account the realizations of synergies such as common business processes, IT architecture and data standards and format, as well as shared IT resources.

STRATEGIC COMPONENTS

As for the IT strategies that allow Smithfield Foods to achieve their successful integrations, Zadeh started laying this foundation shortly after he started with the company. "I established that staff and leadership development would be our top IT mission," he explains. They instigated a comprehensive IT reorganization, which included "role assignment and formal performance planning and assessment along training." and established "dual career paths and leadership profiles."

An important result is improved understanding of the IT supply side, shortcomings and ability to be proactive in managing services. Zadeh names "managing complexity" and "business transformation" as two things that can have a "direct financial impact and add value."
"Mergers and acquisitions bring complexity. Complexity, as an inevitable part of growth, is inherently good and we must learn to deal with it. The goal should be to manage complexity and not simply avoid it." Zadeh says. When managing this, he focuses on cost reduction of "good" complexity and minimizing of the "bad." He says bad complexity as "having many slow-moving SKUs, inconsistent product or customer data formats, non-integrated systems, change-resistant warehouse staff, or insufficient procurement leverage due to lack of purchasing synergy, as examples."

Business transformation helps identify "synergistic business opportunities" across their operating companies. He cites some of the factors signifying the value of IT as reducing cost, enabling enhanced business processes and augmenting systems productivity. "First and foremost, this means delivering and executing key business initiatives (e.g., ERP, SCM, WMS, plant data collection, e-Commerce, etc.) successfully," he explains. Understanding and addressing the needs of their customers through building and implementing the right systems helps operating companies to collect superior data and make improved decisions. "This has and will continue to make a substantial positive impact on our company's top and bottom lines," he says.

Efficiencies and savings also come from continual relationships with partners. Renewing contracts with key vendors such as Cisco, Rockwell International, SHI and Sprint has produced better terms, products and services. Early on, interaction with numerous vendors was simply treated as "client-supplier relationships." Now there are fewer vendors (global partners) and Smithfield Foods invests time to educate them about its culture, industry issues, challenges and goals (e.g., SAP, Dell, Scanvaegt Denmark, and ComputerLand Poland).

DON'T UNDERESTIMATE LEADERSHIP


As illustrated earlier, Zadeh places great emphasis on leadership development and also counts this as a factor that can impact financial performance. In fact, the IT organization was the first among all of Smithfield Foods' divisions to establish an annual conference. "Once a year, our worldwide IT leaders and their key lieutenants gather for three days to discuss and collaborate on business and IT issues, lessons learned, opportunities and successes." He adds, "Our conference is open and dynamic with good interaction amongst the leaders; they are motivated, dedicated and knowledgeable. We have a great team."

So until a few years ago many of Smithfield Foods' operating companies were functioning with substandard IT setups. Now the IT leaders operate with a collectively agreed upon set of proven practices, services and products. "The Smithfield Foods' IT architecture and practices are standard among the OpCos [operating companies]," says Zadeh.

WHAT'S AHEAD

Going forward on the acquisition side, Smithfield continues to grow concentrating more in the international space. The first international acquisition was in 1998 with the purchase of a meat processor in Poland. The latest gain is a similar company in Romania where they "plan to invest $800 million in the next five years."

On the IT side, Zadeh points out that they are further incorporating data warehousing and business intelligence (BI) into their operations "That allows us to transform raw transactional data to business data and ultimately to a set of intelligent data for superior business decisions." They are in the early stages of reviewing some SAP tools that will help with product innovation. Zadeh says," Product innovation and analytic tools are quickly becoming essential in any CPG portfolio and IT brings it to fruition."

THE REAL "TOOLS"


Zadeh is a strong proponent of strategic alliances and cooperation between IT and other areas of the business such as finance, operation, marketing and sales. He explains, "There are many companies that IT has not yet evolved to a maturity point where leaders are convinced of the strategic and tactical potential of their IT armament." In some instances IT cannot even comfortably articulate its value to the top and bottom lines.

He feels that the IT community is also "paying for the sins of some of it own." There are textbook cases from the past where IT leaders have over-promised and under-delivered, failing to "bridge business and technology." These gaps existed because IT insisted on solutions not appropriate for the organization's culture and they did not proactively foster and maintain relationships by 'speaking the language of business.' They did not properly anticipate business opportunities and therefore could not "organize and strategize the demand and supply side of IT."

Zadeh believes change needs to start at the educational level. Business schools must teach students about the ever-increasing value of IT. He goes as far as to say that no MBA student seeking a high-level career should advance without this knowledge. He says the students should not be "allowed to graduate without being successfully tested on the role of IT and what IT can and can't do for business. Period."

"On the road to demonstrate the indispensable nature of IT, a successful and forward thinking CIO should recognize these issues and tackle them head on," Zadeh explains. "Enduring communication, continuing education, unshakable passion and perseverance are what CIOs must have in their tool bags," he says. Newly appointed CEO, Larry Pope says, "Smithfield Foods has grown extraordinarily fast in recent years under CEO Joe Luter. As I think about taking over the job, one of my goals is to fine tune this very large company and reduce costs."

He explains that in working with Zadeh closely, there are process improvements and cost reduction opportunities in several key areas. Through accelerating the use of common business processes and standard IT systems, Smithfield Foods can make clear impacts in capturing synergies among operating companies.

Pope says that they need to further collect and utilize their manufacturing plants' data in examining efficiency. "Related to this point, in recent years we have made several acquisitions in Europe. In Eastern Europe, we are building some businesses almost from scratch. We have enormous challenges here to just get systems in place" In the larger scope, Pope concludes, "To deliver superior performance over the long term, we will need to commit proper resources and execute well in each of these areas."