Deal or no deal: companies risk losing focus if they begin to chase deals over solid organic growth.
Why are we so obsessed with doing a deal? Well, clearly we love the challenge and excitement that come with deal making. To do a deal is to joust with words and ideas instead of lances and spears. Let's face it: there is a personal rush and a bit of "shock-and-awe" value attached to the recognized deal maker.
That's all well and good, but deal making in business has the potential to become as addictive as any illicit drug and to have consequences just as negative. Doing deals in business gives the appearance of being a shortcut to a goal. From mergers and acquisitions, to special arrangements with marketing companies or agencies, certainly business deals can be an effective tool to implement a business strategy. But when doing the deal becomes the strategy, then dealing with problems may be the next thing. When the growth of a company is predicated solely on the ability to consistently do deals, it is an indication that no clear corporate vision for organic growth is in place. Deal making should supplement--not supplant--a sound business model.
All too often in the life insurance industry (as well as in other industries) deal-making-for-deal-making's-sake companies become the proverbial shooting star. They start out with a bright, rapid ascent, only to fizzle and fall quietly back to Earth. The problem with predicating strategic growth on doing deals is that deals that can be done are soon done.
At the start of the process, the fields are fertile with good deals, but each deal done means one less deal available. It does not take long for competition, seeing the early success of the deal-making company, to enter the deal field. Soon the deals become more expensive and difficult to complete. When that happens, then the only option for a company dependent on deal making to grow is to start doing bad deals. Bad deals lead to bad results.
There is only one scenario worse than the deal-for-deal's-sake strategy and that is called the "one-off" deal, a special arrangement offered to just one group. This creates confusion and distrust in the market. Sell your stock and head for the exit when an executive justifies a particular deal as "one-off," which is a euphemism for, "this may be a bad deal, but we really need the business, and we will only do one deal like this one." It is bad enough to rely on doing deals for growth, but when each deal is different, the only thing that grows is chaos.
Sure, it's macho to be a deal-doer, but doing deals can never replace the value, stability and ultimate success of a clearly defined plan for organic growth. Internal growth builds strength while doing deals develops a dependency on doing deals that may not be there to do. Unquestionably, deals can play a role in the growth of a company, but companies that don't need to do deals to be successful usually make the best deals.
Robert W. MacDonald, a Best's Review columnist, is principal of CTW Consulting in Minneapolis. He can be reached at firstname.lastname@example.org.
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|Title Annotation:||Life: Management Insight|
|Author:||MacDonald, Robert W.|
|Date:||Jul 1, 2007|
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