This isn't a race to become just a LARGER business! Know what the RIGHT acquisition is really all about.

Tuesday: Return Driven Strategy FROM THE DESK OF MILES EVERSON: Have you heard about Return Driven Strategy (RDS)? Discussed in the book, “Driven” by Professor Joel Litman and Dr. Mark L. Frigo, this pyramid-shaped framework has 11 tenets and 3 foundations. When applied properly, these principles help businesses effectively implement their branding and marketing strategies. Today, let’s continue talking about the 7th tenet of RDS: Partner deliberately. Keep reading to know why growth should always accompany both open and exclusive partnerships and acquisitions of various businesses. CEO, MBO Partners Chairman of the Advisory Board, The I Institute

This isn't a race to become just a LARGER business! Know what the RIGHT acquisition is really all about. In the past weeks, we published articles about topics related to Return Driven Strategy’s (RDS) Tenet 7 (Partner Deliberately). There, we discussed the importance of partnering with a purpose, the different types of partnerships, partnering in the right part of the spectrum, and more. Today, we’ll focus on another aspect of partnering deliberately. It’s about knowing why growth should always accompany the acquisition processes of several businesses. When to Partner and When Not to Partner with Other Companies In the early 2000s, a management team at a national commercial bank in the U.S. analyzed a potential partnership with some of the leading Internet portals at that time. It seemed that other banks were striking deals with these portals, so managers at the national commercial bank were worried their company might be left out. What did these managers do as a next step? They sought out potential deals with Yahoo, America Online, and Microsoft’s msn.com. Discussions with these three quickly got underway. During these discussions, the national commercial bank’s managers were smart enough to ask the RIGHT questions. One of which was: “Could a partnership with a leading Internet search engine lead to a new offering that fulfills otherwise unmet needs of the bank’s customers or potential customers?” Six weeks into the analysis, the management team decided that no major partnership would be made with any of these Internet portals. Why? It’s because there simply was no need for a major partnership! By using Professor Joel Litman and Dr. Mark L. Frigo’s RDS, the bank’s management team was able to properly evaluate the initiative. According to them, if the partnership truly made sense, it would have supported the RDS framework’s “Competency Tenets” (Tenets 4, 5, and 6) in some way. Let’s discuss these one by one… Tenet 4: Deliver Offerings During the management team’s analysis, no one could imagine how the bank’s portal partnership would lead to more efficient or effective delivery of the offerings. Could checks be processed or cleared faster, or loans processed faster with the portals compared to what the bank was already doing with its internal eBusiness initiatives? The answer from the managers was “Doubtful.” In short, the partnership was a NO when viewed in the lens of RDS’ Tenet 4. Tenet 5: Innovate Offerings During the management team’s brainstorming sessions, no new Internet-based bank products were envisioned that were not already in development. This was because in the early 2000s, banks already had web-based banking offerings like online bill pay services and others. So, similar to RDS’ Tenet 4, the partnership was a NO when viewed through RDS’ Tenet 5. Tenet 6: Brand Offerings The management team also discussed the bank’s desire to reach the Internet portals’ customers. However, upon analyzing the situation, the managers realized what was being considered was actually advertising through the portals, NOT branding with them. Because of that, they decided it would be more difficult to believe that customers would be more comfortable in placing their savings accounts or home loans in the hands of AOL Lending or Microsoft Bank. This was because while major search engines and portals have come a long way in brand-and-confidence-building, the bank’s managers found this type of branding inappropriate at that time. … and like with the first two “Competency Tenets,” the partnership was a NO in the lens of RDS’ Tenet 6. What does this example tell you? In business, it’s truly important to carefully consider plans about acquisitions or joint ventures before acting on them. This will help you make the actual RIGHT decisions for your firm and avoid bad ones. — According to Professor Litman and Dr. Frigo, there are many corporate examples of poor-performing returns where unnecessary acquisitions were made out of management’s desire to simply be a “larger business.” … and when asked about the purpose of a sizable merger, employees and middle management were often heard to cite the following: “Senior management wants this deal to happen.” Sure, it can be hard to question the upper management. However, it’s important to recognize that such partnerships don’t necessarily lead to higher returns. In fact, they often result in the opposite! When another firm has genuine assets that could be combined to create a more unique offering, then an acquisition is a must. This should be one of the bases to make sure the RIGHT partnership is in order. Keep these insights in mind! … and remember: The driving force behind all partnering activities should be the promise of better delivering, innovating, and branding of offerings. If followed, this means higher returns for all the constituents of the firm, AND higher benefit to society as resources are not wasted on unnecessary activities. Have a great day ahead! Oh, and one more thing: If you're looking to gain a better understanding of Return Driven Strategy and Career Driven Strategy, we highly recommend checking out “Driven” by Professor Litman and Dr. Frigo. Click here to get your copy and learn how this framework can help you in your business strategies and ultimately, in ethically maximizing wealth for your firm. Hope you found this week’s insights interesting and helpful.     Stay tuned for next Tuesday’s Return Driven Strategy! We all experience failures at some point in our lives… and that’s okay! After all, without our missteps, we will never change or try to make ourselves better. Learn more about the role failures play in business experimentation and innovation in next week’s article!