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Outsourcing and Consulting in Corporate Development Practice

Outsourcing and Consulting in Corporate Development Practice

M&A Today
Volume 6 No. 1
January 1997

by Diane C. Harris

Corporate Development’s main mission is to execute on the external growth strategies of a company. Therefore, it is not surprising that the most visible portion of a Corporate Development Officer’s (CDO) job is completed deals — the number, size and strategic significance of those deals.

External Corporate Development

This external portion of the CDO’s responsibility consists of deal sourcing, analysis and valuation, negotiating and deal structuring, contractualization, financing and due diligence. The deal process often is prefaced by strategic planning and brought to fruition through post-deal integration. The CDO may be assisted in portions of the job by consultants, investment bankers, brokers, intermediaries, financiers, lawyers, accountants, and many others who help with a particular portion of the implementation. In some cases, however, the expense of a corporate development department may be seen by boards of directors and CEO’s as a substitute for paying transaction and consulting fees. That sometimes makes it difficult for the CDO to seek outside deal advice, especially if asking for help would trigger a large transaction fee. Perception of the need for such caution may also be partly responsible for the current lack of using consulting and outsourcing for the internal corporate development functions as well.

Internal Corporate Development

What is not so visible to those outside the corporate development function is the internal activity that needs to take place for the CDO to execute a successful corporate growth program. In many cases, the internal aspects of corporate development are at least as demanding as the external, but traditionally little outside help has been available to the CDO in developing the department infrastructure, and putting in place the initial process for growth. Outside the company, much consultation is targeted to completing a transaction, rather than helping the CDO to effectively implement and manage a corporate development department. Scant help may also be available inside the company, because the CDO is expected to be the in-house expert.

As a corporate development officer for over a decade, I found that my main sources of knowledge and help in the internal aspects of corporate development were in networking with my peers (especially through the Association for Corporate Growth), and in benchmarking the corporate development function at non-competing companies. A few years ago I mailed an 18-page survey to the CDO’s of all the Fortune 300 companies and had a 20% response rate. The subjects included corporate development organization, training, budgets and succession, as well as a variety of deal-related parameters, resources and future directions.

I asked the CDO his main method for keeping up with professional development. The answers were reading (85%), investment bankers (72%) and seminars (57%). Then I asked what was the main method for training corporate development staff, and the answer was overwhelmingly “apprenticeship under a qualified negotiator” (88%). The CDO sees the value of coaching and counseling with an experienced professional in developing his own staff, but such a resource has not been widely available to the CDO, except through networking. Even then, it is hard to ask the questions that the world thinks the CDO should know. I call these “closet questions.” Sometimes we would just like to hear another person’s opinion, suggestions, ideas or challenges to validate our own thinking. Only the most seasoned CDO can be an expert on most areas of corporate development practice, but the survey showed the average tenure for Fortune 300 CDO’s is a short 3.9 years.

“The goal is to make the Corporate
Development Officer even more effective.”

So the CDO may need other resources, both to execute externally on all or part of the deal, and internally in the infrastructure, resources, organization and policy of the corporate development department. Consulting and outsourcing are two ways to assist the CDO in the internal aspects of the corporate development function. Consulting applies to coaching, counseling and mentoring to get the corporate development function fully and effectively implemented. Outsourcing applies to taking on some of the work of the CDO or his staff. The line may blur between consulting and outsourcing, and the same person or organization may even play both roles. The goal is to make the CDO even more effective in his or her job, to supplement resources, not to replace the CDO or the CDO’s staff.

Corporate Development Internal Responsibilities

What constitutes the internal sphere of corporate development? The following is just a sample list. Almost any CDO could double this list by adding his own particular responsibilities:

bulletCultivate a growth mindset throughout the company.
bulletBe the key company resource for growth matters.
bulletDevelop and/or oversee strategic plans, and create the linkages to external growth strategy implementation.
bulletDecide whether or not to establish an in-house corporate development function.
bulletRecruit and train staff.
bulletDecide and implement an appropriate degree of centralization and/or decentralization.
bulletDecide and implement the right balance of corporate oversight and “customer service.”
bulletEstablish technical capability, such as valuation, information resources and negotiation training.
bulletDevelop the capabilities of the internal deal team.
bulletDevelop and cultivate a network for deal flow.
bulletDevelop and disseminate the criteria and policy for finding deals.
bulletSet up administrative systems for deal flow, confidentiality agreements, fee agreements, fee policy and the resolution process.
bulletEnact internal approval policies, internal procedures, guidelines.
bulletEstablish rewards, incentives and succession planning.
bulletConduct TQM, benchmarking, budgeting, planning and meet all corporate staff department responsibilities.

In addition to this list of internal corporate development activities, of course, is all the external activity of dealmaking. There were times even on the external dealmaking side that, as a CDO, I would have liked someone to read a contract and advise me how it might be improved, or brainstorm a negotiating gap to find a better win / win for each party, or look over my shoulder at a variation of valuation methodology and challenge me a bit. But the CDO does not have many people to whom to ask the “closet questions.”

Example of Consulting and Outsourcing for Corporate Development

Perhaps the best way to illustrate how consulting and outsourcing can be used by the CDO is to look at a selection of the kinds of assignments undertaken or in discussion since we established our corporate development consulting and outsourcing practice:

bulletA CEO who has decided to recruit a CDO asked us to participate with him in the last round of interviews. His words to me were “I’m not sure I’ll recognize a dealmaker when I see one.”
bulletA CDO who is an excellent dealmaker was recently asked by a new board member for a copy of his mergers and acquisitions policy. He does not have one. That is not a surprise, since our survey showed that half the Fortune 300 does not have a formal M&A policy. We are discussing drafting one for that CDO.
bulletAnother CEO has had a long time board member from a Wall Street investment bank. He wants to use that bank for his M&A work, but has asked us about negotiating the fee agreement for him with that bank to preserve more of an arms-length relationship.
bulletWe are beginning to use our list of 3500 deal sources around the world for clients, in order to put their acquisition criteria in front of many more people, and to participate in the screening of deal flow to relieve their administrative load.
bulletWe helped one company president to establish a corporate development online data base and search capability.
bulletIn one case we are reviewing a company’s strategic plan with respect to new products to advise which areas might best lend themselves to a new ventures growth strategy.
bulletWe are holding in-house corporate growth seminars, often being able to transmit some messages that the CDO might find difficult to say directly to his peers.
bulletWe are currently in discussions with a company about designing a program for their new corporate development staff to get up to speed quickly to become "qualified negotiators.
bulletFor one company that was being sold, there were very few potential buyers and the company did not want to take the risk of losing the first or second due diligence visitor by being poorly prepared. We conducted a Phantom Due DiligenceSM dry run to ensure the team was ready and confident.

“Outsourcing allows an organization to play to its strengths.”

Other areas where a CEO or CDO might use consulting and outsourcing for the external corporate development function are in parts of the deal such as business contract review, valuation oversight, negotiating strategies and due diligence participation. Outsourcing is not a new idea for business. Many company needs are outsourced. But outsourcing is not a concept that has been extensively applied to corporate development. Traditionally, outsourcing has not been one of the tools the CDO utilizes in order to concentrate where he can make his biggest impact, usually in deal completion.

CDO’s are committed to the success of their companies, but that does not mean they have to do all the work themselves. It is not possible for most companies to staff their corporate development areas to handle the peak work loads. In today’s mood of downsizing, many companies are not even staffing to the average level of support needed. With the inherently small size of so many corporate development staffs, it is often the internal part of the job that gets short shrift. Outsourcing allows an organization to play to its strengths. It helps to deal with those peak loads that a corporate development department cannot staff to meet, rather than miss the opportunity. I expect we will see more outsourcing of parts of the corporate development function in the future, and more consulting to the CDO to help him succeed in his responsibilities.

Cautions in Outsourcing and Consulting in Corporate Development

Although there are many reasons to consider outsourcing and/or consulting, there are some cautions about using such outside resources. Principally, these cautions involve the handling of sensitive “people relationships,” decision making and leveraging rather than substituting for the CDO’s strength.

bulletOutsourcing should not come between the CDO and his or her key relationships such as the CEO, COO or operating unit heads, the board of directors, other peer corporate staff or even the deal champion (the person driving a deal to happen).
bulletConsultants cannot create a corporate culture or a growth mindset. Outsourcing can’t make the growth mindset happen, but seminars and training can make a difference.
bulletOutsourcing should not be used to manage the corporate development staff, but consultants can coach and mentor them.
bulletConsultants should not make a decision to hire or fire, but can provide interview feedback.
bulletConsultants should not try to influence up or down the organization but can develop data or give information for the CDO to influence the organization.
bulletA third party should not be in the way of the CDO’s visibility, but should enhance it.
bulletConsulting is not a substitute for staying leading edge, keeping up one’s individual skills, but consultants can stimulate learning.
bulletThird parties should not be the face of the company to the outside world.

Outsourcing and Working with Consultants

Working with consultants and outsource providers in corporate development is not so very much different from working with those providers in other areas of the corporation. One should try to get firm deliverables, such as how much will it cost and how long will it take? It is best to work with people with a training and coaching mindset, who will show you how and not keep their skills in a black box. Then choose a consultant who has skills you want to learn and build up the relationship as you would one inside your own company.

Articulate what you want to learn and what you want to accomplish and learn to express concern early, give feedback frequently. Review results openly. Do not give up ownership of the corporate development function, no matter how competent the consultant or outsource provider may be. If you feel as if you are losing control, you probably are. Outsourcing should give the CDO more control, not less. Do not give the plum assignments to the outsource providers or you will lose the opportunity for personal growth and visibility, but do let them contribute to making you even more effective at those assignments. In this way, you will get the maximum from outsourcing and consultants, leveraging your own strengths in the process.


 

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