Cases in Leadership, 4 Edition with Glenn Rowe and Laura ...

Cases in Leadership, 4th Edition with Glenn Rowe and Laura Guerrero

Chapter 1

Discussion Questions – what is leadership?

1. What is leadership?

This question generates discussion about what students think leadership is. The instructor can take this

opportunity to comment on misconceptions or myths about leadership. One way to guide the discussion

is by asking whether leadership is a behavior, a behavioral pattern, an attitude, a process or something

else.

2. Who is a leader?

We often think that leadership is a role that a certain person has. This question can uncover how

students identify someone with a leadership role. One way to guide this discussion is by asking whether

certain well-known people are leaders. Some examples that can be used are Donald Trump, Oprah

Winfrey, Barack Obama, Vladimir Putin, Pope Francis, your instructor, and many others. The instructor

can follow up with questions as to why one person is thought of as a leader but not another one.

3. Why is leadership important?

Thousands of books have been written about leaders and leadership. This discussion can be guided to

discover the difference between a popular topic and an important one. Is leadership just a popular topic

or an important one? Why?

4. Why is followership important?

Is the ability to follow a leader important as well? This topic is less popular than the topic of leadership.

The discussion can follow the previous question of whether a popular topic is more important than an

unpopular one. Another way to lead this discussion is to ask whether a leader can be equally effective if

he or she has subordinates who are not good followers.

Preparation Questions

1. Think of a well-known person who is regarded as a leader and another one who is not. Search

for a short biography of both individuals. This can be done on the Internet. Compare and

contrast the biographies. How is the leader different from the non-leader?

2. How are they similar?

These preparation questions will help students when asking discussion questions number 1 and 2.

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Teaching Note

ADCOCK INGRAM: DECISIONS AND MOTIVES THAT STEER ACQUISITIONS

Charlene C. Lew wrote this teaching note as an aid to instructors in the classroom use of the case Adcock Ingram: Decisions and Motives that Steer Acquisitions, No. 9B10C008. This teaching note should not be used in any way that would prejudice the future use of the case. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected]. Copyright © 2010, Richard Ivey School of Business Foundation Version: (A) 2010-06-08

SUMMARY This Adcock Ingram case study has been designed for class discussion and analysis of leadership factors that underpin or influence acquisitions. As opposed to an analysis of the commercial rationale of an acquisition, it focuses on the behavioural components of leadership decision-making and how these impact business results. The case study can provide a platform for the discussion of motives, interpersonal skills and relationships and business activities in acquisitions. The case sketches the story of a charismatic and ambitious young business leader who, through value-adding commercial transactions, has helped set a South African pharmaceutical company on a trajectory of growth. The case reader encounters him in May 2009, when he faces a lack of closure and an ambiguous outcome to an offer to acquire a smaller pharmaceutical company. The case demonstrates the power of relationships, specifically the ambitions of different parties around the negotiations table and how the incentives that shape their alliances can make or break a strategic business deal. As opposed to presenting a strategic decision-point for class discussion, the case presents students with an opportunity to analyze an unfavourable outcome of a business deal and build a concept of behavioural requirements of success in business transactions. The case study is therefore retrospective. CASE OBJECTIVES Through the focus on the decisions and behaviours of the business leader, the case can serve the objective of assisting students of organizational behaviour to do the following: Formulate an opinion of the commercial and interpersonal skills and behaviours required to conclude

successful business transactions,

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Develop an understanding of the impact of human drivers on acquisitions, Explore human drivers that impact their own business decision-making, Develop awareness of practical steps required for the successful conclusion of business deals. INTENDED COURSE AND TEACHING LEVEL Given the strategic decision-making level implied in the case study, it is most suitable for analysis by MBA students and in executive development programs. The learning objectives are aligned to organizational behaviour courses, specifically to augment studies in mergers and acquisitions, strategy implementation, leadership, negotiations or corporate governance. CASE SUMMARY In 2009, Adcock Ingram (a pharmaceutical company in the South African context) made an offer to acquire Ciplamed (a smaller pharmaceutical company with a focus on generic medication). At the centre of the case study is Dr. Jonathan Louw, chief executive officer (CEO) of Adcock Ingram. The case begins with a presentation of the dilemma that Louw faces: it briefly mentions the business rationale of the proposed acquisition, but immediately indicates that it is unlikely that the deal would be concluded. As a business leader, the question Louw faces is whether there were further actions he could have taken to ensure that the acquisition succeeded. The case then focuses on Louw, a driven young business leader with a history of successful commercial transactions. This sets the scene for understanding his experiences, motives and values that drive his decisions. A brief overview of the history of the firm’s acquisitions then brings insight into the culture and approach to organizational growth adopted by Adcock Ingram through the years. This sheds further light on possible intrapersonal reasons why it would be important for Louw to conclude the deal. Of specific relevance is the relisting of Adcock on the JSE Securities Exchange), which increases the drive for Louw to succeed in his commercial activities. The case then demonstrates the thoroughness of the business leader in identifying a viable acquisition, communicating with relevant stakeholders — including the respective boards of the companies, their CEOs, analysts and others — and his portrayal of the commercial rationale thereof in the potential offer to Ciplamed. What follows is the unexpected outcome of a non-responsive Ciplamed board, but also various unanticipated communications between the role-players. The ultimate outcome is the rejection (at least in the media) of the offer by some of the stakeholders within a week of the offer having been made; however, this takes place against the continued assurance of Ciplamed that they are still considering the deal (up to seven weeks after the offer had been made), and Louw’s persistent attempts to make the deal go through or to reach closure. The case alludes to factors, such as the influence of the Ciplamed CEO, as well as his relationship with Ciplamed’s key supplier, that may have swayed the deal, in addition to the sentiments of some of the shareholders. Towards the end of the case, when Louw reflects on why he was unable to secure the deal, his reasons include change of mind, underestimating the power of relationships and the importance of timing in strategic execution. Ciplamed, however, cites reasons of competitiveness and the nature of relationships that have determined the outcome.

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The case closes with a brief portrayal of Louw reflecting on his lessons learnt and planning to continue with acquisitions and the execution of Adcock Ingram’s broader strategy, as well as his determination to continue with his culture of high performance. ASSIGNMENT QUESTIONS 1. What are the commercial and behavioural prerequisites of successful business transactions, and what

do you believe were the reasons for the failure of the Ciplamed acquisition? 2. What influence do personal human drivers have on acquisition behaviour, and how does this manifest

in the decisions of Louw, Smith and Lulla? 3. Did Louw meet all the requirements for the execution of business and relational activities to facilitate

the creation of a business alliance? 4. What practical steps may be taken to enhance the probability of the successful conclusion of

commercial transactions? CASE ANALYSIS Although more than one approach may be followed to teach this case, the learning objectives and assignment questions above suggest the exploration of the following progressive themes: a. Commercial and behavioural prerequisites of successful business transactions, b. The influence of human drivers on business success, c. Business and relationship activities in strategic deals, d. Practical steps to enhance the probability of success in business transactions. Preparing to Teach the Case The facilitator should be well familiarized with the case in order to steer the group effectively through the case discussion. Overheads of the exhibits attached may also be prepared for presentation in the class. The case follows both a commercial and behavioural stream, but the teaching note focuses only on the intra- and interpersonal leadership competency domain. The case uses the focus of acquisition activities and deal-making to help students understand their own leadership motives and how behavioural factors can enable or inhibit success. The ‘dilemma’ of the case is based on the following question: Was there anything more that the protagonist could have done to ensure that the offer was accepted? To formulate an answer to this question, the case analysis and group discussion have been divided into five phases, which may be augmented through theoretical input by the facilitator, self-assessment activities and small group discussion. The five phases are: 1. Identification of commercial and behavioural elements of successful transactions, 2. Human drivers and business success, 3. Identification of key business activities in creating an alliance, 4. Identification of key interpersonal activities in creating an alliance, 5. Solving the dilemma of the case.

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A. Introduction: Commercial and Behavioural Prerequisites of Successful Transactions Assignment question: What are the commercial and behavioural prerequisites of successful business transactions, and what do you believe were the reasons for the failure of the Ciplamed acquisition? In order to enhance the applicability of that learnt from the case analysis, it is useful to directly involve the student from the onset. The facilitator may prompt the students to reflect on any business transaction that they have concluded, and what they believe influenced the success of the transaction. This may include any sales activity, acquisition, negotiation or other attempt at influence or persuasion. The students are then encouraged to reflect on any transaction in which they have failed, or which was not optimal, and the reasons why they believe there was a less-than-optimal outcome. These reflections are then set aside for later discussion. The facilitator may then open the analysis of the case with a general discussion of what the group believes are the prerequisites of successful transactions. Through the discussion, commercial reasons why the Adcock-Ciplamed acquisition could have been successfully executed may emerge. These may include: Creation of shareholder value, Fiduciary duty to shareholders, A strong history of successful commercial transactions, Louw’s previous success in deal-making, Ciplamed’s low share price at the time that the offer was made, Support from the Adcock Ingram stakeholders, Support from some of the Ciplamed stakeholders. To further explore the prerequisites of successful business transactions, the students may then list possible reasons for the failure of the Ciplamed acquisition. The list generated may include comments such as: The lack of acceptance of the commercial grounds for the deal, Possible inopportune timing of the proposed acquisition from Ciplamed’s perspective, Personal motives of the various role-players, Alliances between Smith and Lulla. At this point, the facilitator could demonstrate that both behavioural and commercial factors underpin the success or failure of business decisions. B. Human Drivers in Commercial Transactions Assignment question: What influence do personal human drivers have on acquisition behaviour, and how does this manifest in the decisions of Louw, Smith and Lulla? In order to assist the students in responding to this question, the facilitator may probe the students with a series of questions to explore the key decision-makers in the transaction (Louw, Smith and Lulla), their leadership behaviour and motives and ultimately assist them in identifying how their own human drivers impact their business decision-making.

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a. Key role-players in the proposed Ciplamed acquisition The key role-players in the acquisition included the boards of the companies, the CEOs and executives, the advisors (including business analysts and lawyers), shareholders, the supplier and, surprisingly, the media. The Adcock Ingram board of directors had determined the strategy of the organization, and they were custodians of the company and therefore required to act in the best interest of all its shareholders. As such, they supported Louw’s strategy of local consolidation through acquisitions. In response to the offer, Ciplamed’s board of directors’ duty was to consider the merits of the offer and respond publicly to Adcock; however, they never responded to the offer. There is a possibility of contention in the Ciplamed board concerning the offer, and hence the need for the Ciplamed board to appoint an independent advisory committee. The boards of both companies were appointed by their shareholders. The key focus of the Ciplamed and Adcock Ingram shareholders was supposed to be on the sustainable competitive advantage of the firm that they represented. The case shows that the Adcock Ingram shareholders generally supported the proposed acquisition, but that Ciplamed shareholders were divided on the offer. Those who were against the proposed offer were in the minority, but Ciplamed emphasized their rejection of the offer in the media. Adcock Ingram’s CEO (Louw) was responsible to the board for driving the execution of the acquisition and to represent the firm’s intention in the media. Ciplamed’s CEO (Smith) had the responsibility to advise the board on the merits of the offer from a strategic perspective. Instead, according to rumours, his response was driven by emotion, and he informed employees that he did not support the offer. This was quickly corrected in the media, since such action would be against sound governance. These were the key role-players in the acquisition; however, the relationships between these role-players were complicated by the verbal rejection of the offer by the managing director of the key supplier to Ciplamed (Cipla India). Amar Lulla, during various stages of the proposed acquisition, accepted and then rejected the acquisition. What obscured the relationship was Ciplamed’s complete reliance on Cipla India for their product pipelines, based on a very close relationship between Smith and Lulla. On a commercial level, the key decision-maker to accept or reject the offer would be the board of Ciplamed, and not Smith. The principles of corporate governance prescribe that the CEO is accountable to the board, which represents the best interest of the shareholders. The decision should not have been left to the CEOs or minority shareholders, but rather the advisors of the Ciplamed board. On a relational level, however, the acquisition could only have succeeded if Louw was able to create a clear alignment between his understanding of the value of the acquisition and the understanding of Smith and Lulla. Based on the understanding of the key players’ roles as outlined above, the class discussion may then move to possible motives that have influenced the decisions and actions of the three business leaders (Louw, Smith and Lulla). It is strongly advised that the facilitator indicate that even though the characters have been portrayed based on information gained through interviews and secondary sources, the case merely provides a limited and narrow impression of the characters; however, the students may use the opinion they have shaped of the characters to explore the leadership lessons that the case holds. b. Louw as leader The following leadership traits and behaviours may emerge from the discussion of the character of Louw: hard-working, determined to grow Adcock Ingram through an acquisition strategy, driven and tenacious,

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involved in the detailed operations of Adcock Ingram, intolerant of underperformance, perfectionist, introverted, regarded as a visionary leader and respected, values-driven (honest, truthful and generous), resilient and always striving for higher performance. c. Possible personal motives and behavioural drivers of Louw From the case study it is clear that Louw’s motives revolved around the creation of shareholder value and the business incentives for this acquisition; however, considering Louw as a leader and the background description of the history of Adcock, one may assume that Louw would also have derived personal or emotional benefits from concluding the transaction. According to the hubris hypothesis of takeovers, personal motives play a central role in takeovers. To quote Richard Roll: “The Hubris hypothesis implies that managers seek to acquire firms for their own personal motives and that the pure economic gains to the acquiring firm are not the sole motivation or even the primary motivation in the acquisition.”1 Although the facilitator may not imply that Louw was driven by personal incentives, an analysis of the case may reveal the following potential benefits that he may have gained from the acquisition: Demonstrating that he was still able to conclude major acquisitions, Making his mark as the business leader of the independent Adcock Ingram, Fulfilling his drive for achievement. d. Possible motives and drivers of Smith Although the case writer has intentionally avoided developing the character of Smith, the facilitator can lead the group to infer certain traits of Smith. This may include comments such as: “He wanted things his own way,” “He knew how to get people on his side,” “He seemed to vacillate and change his mind too often,” “He was merely leading Louw on.” The case demonstrates that Smith was an entrepreneur who had grown Ciplamed into a successful company. This was done through a partnership with its key supplier, Cipla India. Although Smith cashed in on his shares of the company, he returned within two years as CEO of the company. It should be cautioned that the case is not sufficiently descriptive for the students to make inferences about Smith’s ethics; however, some motives and behavioural drivers for rejecting the offer may be inferred. Groups may come up with suggestions such as: “Smith would have liked to maximize the benefits that he could gain from the deal,” “He was playing games by implying that he wanted the acquisition,” “He had difficulty letting go of the company he had built up from its small beginnings.”

1 Patrick A. Gaughan, Mergers, Acquisitions and Corporate Restructurings, 3rd ed., John Wiley & Sons, Inc., New York, 2002, p. 147.

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e. Possible motives and drivers of Lulla Very little is provided in the case study about the character of Lulla. To answer a question concerning why Lulla would change his mind and reject the offer, groups may come up with answers such as: “He valued the relationship with Smith, and did not want to jeopardize it,” “Smith influenced him,” “He was loyal to his friends,” “He did not see the business value of the acquisition.” f. Personal human drivers in business transactions To apply the learning, students may then analyze the human drivers that energize them in concluding business transactions. Template 1 (see Exhibit TN-1) may be useful in this regard. Once the students have identified their own drivers, they may be divided into smaller groups of between four to five individuals. All members of the groups could then discuss their own success factors and inhibitors in business transactions as well as what drives their behaviour. To conclude the discussion of the influence that personal human drivers have on business success, the facilitator may discuss the notion that values and motives drive behaviour, which in turn impacts outcomes. From this follows that emotional competence is a prerequisite for successful leadership and business leadership activities and outcomes. Drawing on Daniel Goleman’s work on emotional intelligence, the facilitator may choose to present Goleman’s emotional competence framework. This framework raises awareness of the importance of effective self-management and management of relationships in business success.2 C. Key Business and Relationship Activities in Creating an Alliance Assignment question: Did Louw meet all the requirements for the execution of the business and relational activities to facilitate the creation of a business alliance? This section of the discussion is predominantly based on Spekman, Isabella and Macavoy’s theories on the creation of alliances. The discussion may be dependent on the facilitator explaining the models presented by these authors (see Exhibits TN-2 through TN-7). a. Business activities As a point of departure, students need to understand the definition and nature of alliances. According to the model presented in Exhibit TN-2, acquisitions are long-term alliances that require a high level of control. In the case, Louw’s endeavours to control are clear. Although he initially attempted an inclusive approach to the acquisition through discussions with Smith and Lulla, by the time the offer was placed on the table he was seeking control. He offered shareholders what could seem to be a very good price for their shares — a very attractive offer to shareholders who in turn could put pressure on the board to accept the offer. According to the model in Exhibit TN-2, this controlling approach, as opposed to a more affiliative or inclusive approach, may be justifiable, especially given the share price of Ciplamed at the time of the offer.

2 Daniel Goleman, Working With Emotional Intelligence, Bloomsbury, London, 1998, p.15-29.

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There are, however, also very specific business activities that need to take place in the formation of an alliance. In the proposed acquisition, Louw’s prerequisite steps would have had to include not only the selection of the company to buy, but also engagement with the necessary role-players, valuation of the acquisition and — if the offer was accepted — coordination, investment and stabilization of the acquisition. In accordance to the theory of the evolution of alliances through periods of anticipation, engagement, valuation, coordination, investment and stabilization3 (see Exhibit TN-3). In analyzing the case study, one may infer that the acquisition went through the stages of anticipation, engagement and valuation, but the stages of coordination, investment and stabilization were never reached (as the offer was not accepted). Distinct business activities may be associated with each of these stages as presented in Exhibit TN-4; specifically, Louw’s business activities first involved the identification of Ciplamed as a suitable firm to acquire (given Adcock Ingram’s strategy of local consolidation and the constraints of organic growth in the generics market in South Africa). One may argue that through interactions with board members, shareholders, analysts and economic and legal advisors, Louw and his team also effectively concluded the business activity of valuation of the proposed acquisition. Negotiation also formed part of this stage through a two-year period of discussions with Smith and his supplier (Cipla India). When delving further into the model on the actions, interactions and activities that form part of these key business activities (see Exhibit TN-5), further support of the appropriateness of Louw’s business activities emerge. Louw was aware of the business rationale of the proposed acquisition of Ciplamed, and apart from Ciplamed there were no other acquisitions in the South African market that would make strategic sense. The rationale presented under the “Proposal” section of the case details the stated benefits of the acquisition. This also highlights why Louw believed there were synergies and benefits for all parties. Whether the rationale of the acquisition is rejected or accepted by students, the case provides sufficient support that Louw concluded the first three primary business activities in alliance formation. b. Interpersonal activities The second set of activities in the successful formation of alliances involves relationship activities and interpersonal skills. Referring to the ‘relationship activities in the alliance journey’ (see Exhibit TN-6), the facilitator may demonstrate that the creation of an alliance follow a similar pattern to the formation of a romantic relationship. The proposed alliance between Adcock and Ciplamed in this case also follows the path of a relationship, but prior to reaching the stage of commitment, the relationship derailed. The stages that apply to the Adcock-Ciplamed relationship come to the fore in the headings of the case study: namely, Making a Play for Cipla, The Proposal, Waiting, The Turning Point, Further Rejection, The Ultimatum, The Deal is Off and Afterwards. Referring to the definitions of the relationship activities in the formulation of an alliance (see Exhibit TN-7), it is evident that the Adcock-Ciplamed relationship progressed through the stages of dating, imaging, initiating and the beginning of interfacing, but then progressed to rejection, ultimatum and then withdrawal. Louw had sought out the possibilities of an alliance with Ciplamed and Cipla India in the dating stage. Through various strategic conversations with Smith and Lulla over a two-year period, he had painted the reality of the possibilities that the acquisition would offer Ciplamed and Cipla India. The shared vision defined in the ‘Proposal’ section of the case refers to benefits for Ciplamed: greater competitiveness, reduced risk, a stronger portfolio and a more balanced exposure to the target market, economies of scale 3 Robert E. Spekman, Lynn A. Isabella and Thomas C. MacAvoy, Alliance Competence: Maximizing the Value of Your Partnerships, John Wiley and Sons, New York, 2000.

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and value chain consolidation. Benefits for Cipla India included a more extensive market and a more effective distribution channel. It may be debated whether Louw managed to sufficiently create this shared vision in the minds of Smith and Lulla; however, the case does provide evidence that at times both Smith and Lulla articulated that they shared the vision. It is further debatable whether Louw succeeded in “initiating” the alliance by building trust. The case clearly shows a strong trust relationship between Smith and Lulla, but not the same relationship between Louw and either Smith or Lulla. There is, however, evidence of some levels of trust, as Louw had brought the strategic conversations to the point where time was spent in face-to-face interactions and in getting to know the other parties (Cipla India was also a supplier to Adcock Ingram in their Kenyan operations). The case provides further evidence of “interfacing” to form the alliance, since Louw and Smith had already reached the point of arranging the meeting of their management teams to ensure a smooth transition; however, Smith cancelled the meeting just before it took place. The group may discuss what other actions they believe Louw could have taken to create intimacy and a shared vision, to build trust and to interface with Ciplamed and Cipla India. For this discussion, the group may draw on a generic understanding of how relationships are established. In this discussion, the group may also allude to what they believe could have made the negotiations between Louw and Smith more successful, considering the history of Smith at Cipamed. Although the groups are not assumed to be experts on negotiations or interpersonal persuasion, they may identify generic means of persuasion. Typically the following activities may be cited: “Help Smith to see what benefits the deal would bring him,” “Create a win-win argument,” “Compromise,” “Make Smith believe that the deal was his idea.” The facilitator may also present Danny Ertel’s model of the “deal relationship cycle”4 (see Exhibit TN-8). This model illustrates further activities required in the initial phases of business relationships; specifically, the model shows that creation of a mutual understanding, expanding the scope of one’s discussions, showing the other parties the value of various options, improving trust and communication and sharing information about interests are better approaches to negotiations. The facilitator may also underline the importance of the following success factors in negotiations: win-win solutions and mutual long term goals, recognition of individual goals and interests, identifying future opportunities for collaboration and gaining continued trust and respect. D. Conclusion: Solving the Dilemma of the Case Assignment question: What practical steps may be taken to enhance the probability of the successful conclusion of commercial transactions? Considering Louw’s personal reflections on the reasons for the failure of the acquisition at the end of the case study, the class may identify the following corrective measures that could have been taken to practically enhance the probability of a better outcome:

4 Danny Ertel, “Turning Negotiations into a Corporate Capability,” Harvard Business Review, May-June 1999, p. 64.

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Ensuring that Smith and Lulla were fully on board and would not change their minds prior to making

the offer, Taking cognizance of the strong influence of interpersonal relationships and ensuring that all the

necessary parties are aligned, Getting the timing right. On the other hand, considering Ciplamed’s reaction after the offer in their June 9 response to the withdrawal as well as the deputy CEO’s comments, the class may identify the following actions supportive of a better outcome: Improving the way Louw’s style of communication was perceived, Ensuring that there was appropriate buy-in for the strategy before the deal was placed on the table. The facilitator needs to emphasize that some deals will simply not come to fruition, just as some relationships do not thrive, regardless of the efforts made; however, there is a lesson to be learnt from the case. For business students to develop their effectiveness in concluding strategic deals, they need to develop: Personal awareness of the drivers of their behaviour, as well as the drivers of the other parties in the

potential alliance; Skills relating to effective business activities, including negotiation for the acceptance of the

commercial rationale of the deal; Skills relating to effective relationship activities in the formation of alliances. These elements are summarized in Exhibit TN-9. To conclude the case discussion, the facilitator may present the dilemma of the case again: “In conclusion, was there anything more Louw could have done to ensure that the offer was accepted? What practical activities would you have recommended?” Although no conclusive solution may be reached, the students should be able to identify possible improvements in the areas of intrapersonal and interpersonal factors that affect the outcome of any transaction. Once again, the facilitator may stress that the solutions generated are speculative and serve the sole purpose of learning from the case. No conclusions may be reached about the effectiveness of the activities based solely on the case study information. Finally, the students may write down any areas of required personal development that they have identified.

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TEACHING PLAN Pre-reading — Case study: “Adcock Ingram: Decisions and Motives that Steer Acquisitions.” Outline of the Case Discussion A. Introduction: Commercial and Behavioural Elements of Successful Transactions Assignment question: What are the commercial and behavioural prerequisites of successful business transactions, and what do you believe were the reasons for the failure of the Ciplamed acquisition? Differentiate between business and interpersonal reasons that ensure successful transactions; Self-assessment: Factors that affect successful business deals. B. Human Drivers in Commercial Transactions Assignment question: What influence do personal human drivers have on acquisition behaviour, and how does this manifest in the decisions of Louw, Smith and Lulla? Case discussion

Reflecting on the Adcock Ingram case, who were the key individuals that could ensure the success of the transaction?

What do you know about Louw as a leader? Considering Louw as a leader, what personal or emotional benefits do you believe he could have

gained from the transaction, over and above the business reasons for the proposed acquisition? Smith seems to play a key role in the outcome of the deal. What do you know about him? What do

you believe were Smith’s personal motives for rejecting the offer? What do you know about Lulla and what do you believe were his motives?

Self-assessment: Personal human drivers in business deals

Small group discussion of success factors and inhibitors of successful deals, and personal human drivers.

C. Key Business and Relationship Activities in Creating an Alliance Assignment question: Did Louw meet all the requirements in the execution of all the necessary business and relational activities to facilitate the creation of a business alliance? a. Business activities

Suggested presentation on: Levels of control in alliances, The evolution of alliances, Business activities and actions in alliances.

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Case discussion: What evidence does the case provide of adequate partner identification? What evidence does the case provide of strategic conversations to identify synergies? What were some of the successes of Louw in the business activities of this deal?

b. Relationship activities

Suggested presentation on: Relationship activities and actions in alliances. Case discussion: What were the stages in the development of the Adcock-Ciplamed relationship? What relationship-building activities did Louw engage in? (Dating, imaging and creating intimacy,

building trust, partnering?) What were some of Louw’s successes in the relationship activities of the deal? What other actions do you believe Louw could have taken to leverage networks, create intimacy

and a shared vision, build trust and interface? What was the basis of the alliance between Lulla and Smith? What makes negotiations successful with strong-willed people such as Smith?

Suggested presentation on: Ertel’s “deal relationship cycle.”

D. Conclusion: Solving the Dilemma of the Case Assignment question: What practical steps may be taken to enhance the probability of the successful conclusion of commercial transactions? Case discussion:

What did Louw believe could have changed the outcome of the deal? According to Ciplamed, what could possibly have changed the outcome of the deal?

Concluding activity:

Identify three practical activities Louw could have engaged in to enhance the probability of a different outcome to the deal;

Self-assessment: Areas of personal growth in awareness of human drivers, key business activities and key interpersonal activities in concluding transactions.

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FURTHER READING Danny Ertel, “Turning Negotiations into a Corporate Capability,” Harvard Business Review, May-June 1999, p. 64. Patrick A. Gaughan, Mergers, Acquisitions and Corporate Restructurings, 3rd ed., John Wiley & Sons, Inc., New York, 2002. Daniel Goleman, Working with Emotional Intelligence, Bloomsbury, London, 1998, p.15-29. John G. Lynch and Barbara Lind, “Escaping Merger and Acquisition Madness,” Strategy and Leadership, 30 (2), 2002, p. 5-12. Randall Morck, Andrei Shleifer and Robert W. Vishny, “Do Managerial Objectives Drive Bad Acquisitions?,” The Journal of Finance, XLV (1), 1990, p. 31-35. Ramani Naidoo, Corporate Governance: An Essential Guide for South African Companies, LexisNexis, Durban, 2009. Michael A. Roberto, “Making Better Acquisition Decisions,” Executive Excellence, December 2001, p. 11. Mark Sirower, “Becoming a Prepared Acquirer,” European Business Forum, 16, p. 55-59, 2003. Robert E. Spekman, Lynn A. Isabella and Thomas C. MacAvoy, Alliance Competence: Maximizing the Value of Your Partnerships, John Wiley and Sons, New York, 2000. Freidrich Trautwein, “Merger Motives and Merger Prescriptions,” Strategic Management Journal, 11 (4), 1990, p. 283-295. Philippe Very and David M. Schweiger, “The Acquisition Process as a Learning Process: Evidence from a Study of Critical Problems and Solutions in Domestic and Cross-Border Deals,” Journal of World Business, 36 (1), 2001, p. 11-31.

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Exhibit TN-1

SELF-ASSESSMENT OF PERSONAL AND COGNITIVE DRIVERS IN BUSINESS DEALS (TEMPLATE 1)

Reflecting on one of your most successful business transactions, select any three of the following human drivers that may have been most dominant in motivating you to pursue and conclude the deal:

Achievement

To gain a sense of accomplishment or success.

Allegiance

To demonstrate loyalty to your company, cause or another person.

Alliance

To associate yourself with another entity to act towards a common goal.

Altruism

To follow unselfish concern for the welfare of others.

Autonomy To liberate yourself or your company from the influence of another person or entity.

Competiveness To gain or maintain victory or advantage over personal or organizational competitors.

Curiosity

To strive to learn more about something or someone.

Growth To see yourself, the organization or part thereof develop into a more meaningful or effective entity.

Organizational reputation

To raise the esteem that the organization has in the marketplace.

Material gain To come into possession of something material not previously possessed, for yourself or the organization.

Personal affirmation

To affirm a personal understanding of yourself and your competencies.

Personal reputation

To gain or improve a state of high esteem for self, including gaining respect and recognition.

Power

To gain or strengthen influence over another entity or person.

Purpose To fulfil a deeper selfless meaning of existence.

Retribution

To retaliate against someone for something wrong they have done.

Self-defence

To protect yourself or your organization from possible harm.

Status

To improve your position or standing relative to another person or entity.

Stewardship To fulfil a fiduciary duty of taking care of what you have been entrusted with by others and for others, despite personal desires or gain.

Source: Author’s own.

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Exhibit TN-2

LEVELS OF CONTROL IN ALLIANCE FORMATION Acquisitions

Full merger Long Co-locating

Distributing Franchising Buying cooperative Trade association

Share utility Dealer franchising Coproduction Service outsourcing Selective outsourcing

Minority equity with management interest

Joint venture Shared utility

Spinout JV Value-added

reselling Competitive supplier Funded research Contract manufacturer

Code-sharing Preferred supplier Collaborative R&D Licensing

Cross-equity stake

Commodity purchase order

Joint bidding

Minority equity, financial interest only

One-off arm’s-length transaction

Short Arm’s-length

transaction Contractual without shared risk/reward

Contractual with shared risk/reward

Minority equity

Shared equity Merger and acquisition

Source: Adapted from Robert E. Spekman, Lynn A. Isabella and Thomas C. MacAvoy, Alliance Competence: Maximizing the Value of Your Partnerships, John Wiley and Sons, New York, 2000, p. 360.

Du

rati

on o

f co

mm

itm

ent

Degree of control

8B10C08

Exhibit TN-3

THEORY ON THE EVOLUTION OF ALLIANCES OVER TIME Anticipation Clarifying strategy and sensing possibilities

Engagement Agreeing to collaborate and determining the scope of the alliance Valuation Valuing assets/contributions and negotiating terms Coordination Creating structures/interfaces and getting to work Investment Making hard choices and committing to the future Stabilization Achieving balance and ongoing recalibration

Source: Robert E. Spekman, Lynn A. Isabella and Thomas C. MacAvoy, Alliance Competence: Maximizing the Value of Your Partnerships, John Wiley and Sons, New York, 2000, p. 78.

8B10C08

Exhibit TN-4

BUSINESS ACTIVITIES ON THE ALLIANCE JOURNEY

Stage Characteristic Business Activity Relationship Activity

Anticipation Pre-alliance Competitive needs and motivations emerge

Searching Dating

Engagement High energy Complementary Congruence Strategic potential

Identifying Imaging

Valuation Financial focus Business cases Analysis Internal selling

Valuing and negotiating

Initiating

Coordination Operational focus Task orientation Division of labour Parallel activity

Coordinating and integrating

Interfacing

Investment Hard choices Committing Resource reallocation Broadening scope

Clarifying and growing

Committing

Stabilization High interdependence Maintenance Assessment of relative worth

Adjusting Fine-tuning


8B10C08

Exhibit TN-5

ACTIONS, INTERACTIONS AND ACTIVITIES FOR KEY BUSINESS ACTIVITIES IN ALLIANCES

Primary Business Activities

Typical Actions, Interactions and Activities Key Business Activity

Searching Looking for right partners; Surveying the field; establishing search criteria; Considering opportunities presented. Scanning, searching. Vigilant about players and the landscape — who is networked with whom.

Visioning

Identifying Learning what is possible with the selected partner. Identifying synergies. Beginning to craft the scope of the alliance. Identifying what is in and out of bounds.

Strategic conversations

Valuing and negotiating Making the business case. Putting values on various transaction costs in alliances. Negotiating the formal contract and partnership agreements.

Collaborative negotiations


Getting down to the business of the alliance. Creating coordinating teams and work groups. Aligning work processes across partners. Seizing initial synergies and low-hanging fruit.

Collaborating in teams

Clarifying and growing Making hard choices about the future. Leveraging synergies, both planned and unplanned. Supporting choices with money, people and resources.

Managing change

Adjusting Managing a maturing business. Readjusting or fine-tuning as needed.

Managing and growing


8B10C08

Exhibit TN-6

RELATIONSHIP ACTIVITIES ON THE ALLIANCE JOURNEY

Stage Characteristic Business Activity Relationship Activity

Anticipation Pre-alliance Competitive needs and motivations emerge

Searching Dating

Engagement High energy Complementary Congruence Strategic potential

Identifying Imaging

Valuation Financial focus Business cases Analysis Internal selling

Valuing and negotiating Initiating

Coordination Operational focus Task orientation Division of labour Parallel activity


Interfacing

Investment Hard choices Committing Resource reallocation Broadening scope

Clarifying and growing Committing

Stabilization High interdependence Maintenance Assessment of relative worth

Adjusting Fine-tuning


8B10C08

Exhibit TN-7

ACTIONS, INTERACTIONS AND ACTIVITIES IN KEY RELATIONSHIP ACTIVITIES IN ALLIANCES

Primary Relationship Activities

Typical Actions, Interactions and Activities Key Relationship Skill

Dating Senior executives leveraging personal networks. Considering how to respond to enquiries. Considering how to seek out possibilities.

Good radar Good self-awareness

Imaging Seeing the reality in possibilities. Creating a shared vision from being together. Involving trusted senior managers.

Strategic conversations

Initiating Bringing key executives into action. Creating trust through face-to-face time. Investing in getting to know one another.

Trust-building

Interfacing Facilitating the creation of personal relationships at many levels. Travelling to partner facilities and engaging in technical conversations. Blending social and business time.

Partnering

Committing Demonstrating that managers are fully-committed to the alliance and to each other. Managing the conflict inherent in making hard choices. Accepting the reality of the alliance and its relationships.

Commitment

Fine-tuning Relying on mature and established relationships. Facilitating interaction and relationships with future successes.

Growing with another


8B10C08

Exhibit TN-8

A RELATIONSHIP APPROACH TO NEGOTIATIONS

Source: Danny Ertel, “Turning Negotiations Into a Corporate Capability,” Harvard Business Review, May-June 1999, p. 46.

Confirm suspicions and perceptions

Reduce risk-taking and creativity

Create low-value deal Under-invest in relationship

Restrict information flow

The usual way

Improve mutual understanding

Expand scope of discussions

Create valuable options Improve trust and communication

Share information about interests

The better approach

8B10C08

Exhibit TN-9

ELEMENTS OF A SUCCESSFUL COMMERCIAL TRANSACTION

Source: Author’s own.

SUCCESS OF A COMMERCIAL TRANSACTION

EFFECTIVE BUSINESS

ACTIVITIES IN CREATING ALLIANCES

AWARENESS OF

PERSONAL DRIVERS

INTRAPERSONAL

EFFECTIVE RELATIONSHIP ACTIVITIES IN

CREATING ALLIANCES

RATIONAL/STRATEGIC INTERPERSONAL

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