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Table of Contents
- Objectives and benefits of corporate development
- How and why to bring in a Corporate Development Analyst/Officer
- Corporate development as a function
- Corporate development team
- Key tasks and prerequisites of a Corporate Development Analyst/Officer
- Summary and outlook
1. Objectives and benefits of corporate development
During the last two decades, more companies have been engaged in some form of corporate development. When speaking about corporate development the term itself suggests that this function is relevant primarily for larger companies and multi-national conglomerates. Interestingly, corporate development as an independent function and department within companies has a number of roots. It emerged as a logical consequence of international market changes, micro- and macro-economic developments. One key factor was the more widespread habit of companies being engaged in mergers and acquisitions (M&A), particularly due to more open and flexible markets and trading opportunities accompanied by legislative changes in many countries.
Secondly, for corporate decision-makers, the problem of what to do with company assets arose, which touches aspects of dealing with divestitures.
Thirdly, corporate development is related to the growth of a company itself, where C-level stakeholders are not only concerned with achieving more sales (of products and services) or optimizing the productivity of staff and production processes in order to boost turnover, ROI or EBITDA. Particularly in the aftermath of the Global Financial Crisis, the emphasis had to be given to a more reliable risk management and how this could be accomplished. Finally – and superseding the other aspects – was the rising need for strategic performance enhancement. Hence, corporate development can be seen as amalgamating all those relevant aspects which came more to the fore during the last two decades. The primary objective of corporate development is, therefore, thinking about, developing and implementing approaches – in light of the corporate vision, mission, and strategy defined – which boost turnover and profits of a company. At the same time, a close eye has to be kept on the risks associated with any of the steps of corporate development.
Core components of corporate development
It is evident that when companies resort to setting up their own corporate development analyst team, unit or department certain benefits are envisaged. The root components of corporate development are:
- streamlining M&A
- improving divestitures and asset and risk management
- exploring new markets, products, and customer segments
- assisting in the implementation of the corporate vision, mission, and strategy
The benefits of corporate development
One key benefit of corporate development today is often seen in the crucial internal bonding and bundling of ideas, approaches, special projects, risks, processes, and responsibilities. Building joint ventures and forming purchasing or sales alliances, for example, may reduce the risk of going ahead alone, taking away the whole burden of investment and, thus, minimizing the likelihood of failure. Such joint ventures need to be prepared, carefully thought through and orchestrated professionally including the respective monitoring and evaluation (M&E). This, in turn, requires the establishment of complex communication lines, vertically inside a company but, at the same time, perhaps horizontally across to the desired partner in a joint venture. Still, the benefits are clear: companies that employ their own corporate development in a structured way are likely to profit from a more streamlined and cohesive approach to achieve better results, sales, margins or ROI. No doubt, therefore, that the role of corporate development with larger companies becomes increasingly popular and important.
2. How and why to bring in a Corporate Development Analyst/Officer
Consequently and following recent trends around the world, noticeably more vacancies for a Corporate Development Analyst (CDA) or Corporate Development Officer (CDO) are advertised today than 20 years ago. And the demand for CDAs is rising as most companies do not yet have their own corporate development department in place. The key motive for many companies to consider setting up, at least, a dedicated new position called CDA/CDO is that the amount and type of work for M&As, divestitures and seeking new avenues of growth is beginning to put strains on classic corporate structures. Without a unique CDA or a corporate development team companies begin to feel the pinch which commonly surfaces in difficulties communicating and liaising adequately fast and effectively when, for example, a joint venture is considered.
Corporate development between Audi and Bosch - an example
Who will have to be involved in realising the idea of a joint venture between two companies? Take the business case that a luxury car producer, say Audi, wants to embark on an ambitious joint venture for specific software development which will make their cars internet-ready. Audi is teaming up with a business leader in providing such competencies and products, say Bosch. Though previous partnerships may have been successful – for many years Bosch produced, for instance, batteries and spark-plugs for Audi – the new joint venture poses different problems and will involve different departments and development teams in both companies. So who is going to take the Board decision for a strategic partnership between Audi and Bosch up and sees it through at the operational level? This provides an ideal scenario of involving the CDAs of both companies. Please note that while both players, Audi and Bosch, are interested in the joint venture and signed a contract accordingly for - let’s say a ten year cooperation - the strategic focal points may differ between the two companies. It is easy to see that, for one, the market dependencies differ and so do the competitors. Both companies are internationally active and export their products worldwide, but their lines of products differ significantly. Hence, both companies face – short-, mid- or long-term – different market developments, different competitors and, most likely, different technological advances. Yet, when signing the joint venture both companies recognised benefits and synergies in a close cooperation which would adapt their products and services to recent developments in IT, i.e. hardware, software, social media and the use of internet as a whole.
Starting with this intended cooperation worked out by the respective legal teams and signed by both boards and the CEOs/CFOs, even their CIOs (Chief Information Officers), it is then prime time to turn the strategic idea into practice. This is the time the corporate development teams of Audi and Bosch have their in-trays full of tasks. It is the role of the CDA/CDO to prepare the framework and guidelines for the cooperation. It starts where the legal formalities for the partnership paved the ground and where now the practical implementation has to follow. The corporate development teams, again, face the daunting task on the one side to liaise with the new partner but, at the same time, understand and liaise appropriately with several relevant departments and units within their own companies. Putting it in a nutshell: in this scenario, the CDA becomes responsible for getting a joint venture under way. Corporate development, of course, also was instrumental in preparing such cooperation for the CEOs and board to sign. The benefits and synergies had to be carefully analysed, the pros and cons weighed, projections about risks and profits had to be made. Desired workforce and HR-related issues had be contemplated and the overall financial framework had to be checked and double-checked before a final proposal for such corporate development project could be presented to the C-level stakeholders and subsequent board approval. This example will have demonstrated why corporate development is becoming commonplace with larger companies. Competition and rapid market changes require corporates to reassess their companies’ potential frequently. It is this reassessment, the appraisal of important steps for growth and securing the market position which makes the presence of a CDA/CDO in a company helpful as well as financially and structurally viable.
3. Corporate development as a function (within a company/organization)
Please note that next to the financial implications of corporate development there is always a structural aspect with regards to achieving desired corporate changes. No doubt, it is falling too short to bring in a CDA/CDO merely for the purpose of financial improvements, be it growth, market share, margin or ROI. Similarly important is the function of the CDA/CDO in streamlining processes relevant for corporate development. This means bringing together all players involved in a coordinated and well orchestrated approach – internally as well as externally. In the case of the hypothetical joint venture between Audi and Bosch both companies have to engage in a fruitful dialogue. This is often part of the role of the corporate development teams involved. A specific business scenario or step to be accomplished by a company often falls outside the very routines of the ‘standard’ departments such as accounting/finance, logistics/supply chain, controlling or HR. Neither are M&As mere legal issues. As can be seen in thousands examples across the globe during the last decades, corporate development has become a necessary new function within larger companies.
Corporate development, once introduced as an integral function of the routine structures of a company or even large-scale organisation, is defined as a function.
While it exercises its activities within the strategic framework set by the corporate decision-makers or the board of a company, it is generally not a temporary measure or project team only assembled for one specific M&A. In most companies, corporate development is now a constant line function, reporting directly to the C-level. A recent survey conducted by EY showed that some 70% of CDAs/CDOs interviewed report to the CEO (42%) or CFO (28%). Corporate development is closely embedded in the corporate strategy and not surprisingly influences it. This interdependency arises due to the key tasks ascribed to a CDA/CDO, namely proposing M&As based on sound financial data, developing transaction strategies and supporting the overall strategic planning of a company.
4. Corporate development team
While we speak of CDAs/CDOs, it should not be overlooked that corporate development, rarely, is a task a single person can accomplish. If a company embarks on introducing corporate development as a separate function or unit it is generally introduced in form of a small team, perhaps with a number of additional virtual members (external resources). Ernst & Young found that, on average, the number of full-time staff in the corporate development team is four. Often, you may add a few staff members who are considered as part of the virtual team. This underscores that corporate development, still, is not yet a fully integral part of most company structures. Due to the dynamism and fluidity of corporate development per se companies prefer to think of reducing their corporate development team than increasing it. This is one area where high skilled online freelance talent marketplaces can step in, allowing corporate development officers to flex their teams up and down on demand. It does not surprise that, generally, such teams do not even command their own budget. Though it is more than common sense to form a small, independent corporate development team when seeing possible mergers, new business ventures, divestitures or spin-offs through, giving such team proper financial independence and more recognition is still largely unheard of. More likely, corporate development is perceived as a technical approach when resolving “special projects”, such as M&As. These, so the logic, will have only a limited “lifespan” – and do not need their own budget. This perception overlooks the fact that larger companies more or less regularly are involved in one or the other corporate development project. As mentioned earlier, corporate development should be recognised as a fluid process, a continuous corporate affair – not a singular event. Corporate development teams liaise regularly in-house with the legal team when it comes to help with tax diligence, tax structuring and board and stakeholder approval. Similarly, a good rapport has to be established with the sales and marketing department for help with opportunity analysis, portfolio asset valuation review or commercial diligence. Thus, when it comes to the evaluation of its own performance, a corporate development team is most frequently measured on the fit of deals with corporate strategy, project management and deal pipeline.
5. Key tasks and prerequisites of a Corporate Development Analyst/Officer
The “Big 4” consulting companies – Deloitte, EY, KPMG and PwC – have since long advocated for the uniqueness and, thus, (to some degree) autonomous role within companies, helping to answer the oft-asked question of what is a corporate development analyst? One of these global players, EY, has studied its clients and considers successful CDOs as those who do the following in their day to day:
- Focus on high-impact opportunities. It is the duty of a CDO to see that the organisation concentrates on those deals with the highest potential.
- Operate as highly effective leaders. Getting a deal done requires the hard work and commitment of dozens of participants — most of them outside the corporate development group. This requires confidence, competence, experience, an inclusive nature and strong communications skills: in short, charisma.
- Embrace and initiate change. An effective CDO pursues continuous learning, adaptation and improvement across the entire business development process. A CDO must welcome and initiate change, even when it may appear to conflict with institutional norms — always mindful that sound transactions can add value.
- Possess a broad range of technical skills and experience. Competence in finance is a given. In addition, success requires rock-solid credentials across an array of disciplines including strategic planning, risk, capital markets, accounting, operations, tax — and that's just the short list.
- Know how to build and leverage strong relationships. Within the company, it is essential to develop a good working relationship with all the executives likely to be involved in a transaction. In addition, the CDO must cultivate external relationships with investment banks, management consultants, accounting and tax advisors, and related organisations.
- Set goals, establish realistic expectations and measure results. It is critical to work with stakeholders to define tangible objectives and time frames, then to deliver on those promises. Establishing the objectives of a transaction up front — teasing out, for instance, whether financial return or strategic access is most desired — is essential to evaluating deal performance.
- Collaborate, communicate — and listen. If virtual members of the deal team — those outside the corporate development group — are to act collaboratively, then the CDO and staff must demonstrate collaboration. It is important to listen to business unit leaders, as those who live a given business know it best.
- Document and share processes. The most effective corporate development departments define and document their workflows. What are the key tasks in commercial, market, financial, operational or other core due diligence routines? Who is responsible for what, when and under which circumstances? Which valuation tools and reporting templates are used in the process?
- Are fully accountable within defined responsibilities. A CDO must be willing to take full responsibility for the success of individual transactions as well as for the broader set of corporate development objectives.
- Take responsibility for training and development. A competent CDO takes full responsibility for training his or her own team. But a leading-class CDO accepts responsibility for raising corporate development awareness and capability across the entire organization. Such training and development should be ongoing.
(excerpts taken from http://www.ey.com/gl/en/services/transactions/toward-transaction-excellence--the-top-10-traits-of-successful-cdos , last accessed 12.02.17)
As can be seen, the role stretches far and beyond arranging for a “deal” or searching for a suitable M&A which may stimulate growth of his/her company. Hence, several key traits and personal characteristics are essential if you strive to become a CDA/CDO:
- have an appropriate tertiary degree (most commonly an MBA is required and, surely, a good formal starting point)
- be in a related role (corporate governance, assistant to the CEO/MD, strategy leader, business development lead etc.); note, that most CDAs/CDOs prefer to remain in their position and have been in their area of expertise for some time
- be a good business and financial analyst (you will have to as financial assessments of business opportunities, mergers or divestitures require sufficient financial acumen and business experience; being a CDA/CDO is not just coming with bookworm knowledge)
- possess sufficient industry experience (experience within your sector but also beyond is key to success as you will have to understand market developments and pinpoint opportunities where they arise; often this leaves you only with a brief window of opportunity… or your competitors get ahead of you)
- be a good communicator (your role as CDA/CDO is a very integrative one; you will deal with lots of stakeholders within your company and externally; fast and effective communication is vital, particularly when you intend to “sell” a unique opportunity to your CEO/MD)
- be a versatile project manager (communicating, talking and impressive PR are surely relevant and helpful but it falls into the lap of a CDA/CDO to see a project through from its very inception as a possible idea/M&A/joint venture to the final implementation; this demands excellent project management skills whether you apply Agile, Prince2 or other formalized approaches)
6. Summary and outlook
Corporate development has evolved into a unique and discrete function within larger companies. Typical examples where corporate development is rather manifest are companies offering financial services, such as investment brokers or larger investment holdings.
As of today, the portfolios of CDAs/CDOs may vary somewhat depending on the history and structure of a company as well as its overall strategic focus. Also, the sector in which it operates and the market situation play a pivotal role. Despite the fairly stringent requirements for becoming a CDA/CDO which demand, next to the sound financial acumen, specific endurance and dedication, negotiation skills and foresight, CDAs/CDOs are quite satisfied with the range of responsibilities and their personal involvement in influencing corporate strategy. In contrast, they may be least satisfied with the allocation of resources and their work/life balance. Being a CDA/CDO is not all fun but, within large companies, most definitely a challenging and interesting area due to the breadth of corporate aspects one has to deal with.
Taking a look at job opportunities and career prospects worldwide it is highly likely that corporate development becomes even more important in the future. One of the reasons for this inevitable trend is the growing complexity within sectors and markets to seek new business opportunities, establish synergies or build alliances. Often these trends are paralleled by the general goals of companies in reducing expenditures and becoming more effective by strengthening particular KPIs. While most M&As are seen as successful there is still a sizeable amount of failure. Often “company cultures” do not fit readily. Here there is room for much more advanced corporate development. A typical mistake made is concentrating only on financial KPIs. Advanced trends in enterprise intelligence, however, suggest a more statistically sound approach for CDAs/CDOs to take. They should take a closer look at the very factors which impact – positively or negatively – on the success of a merger. All “Big 4” consulting companies appear to have compiled relevant databases, alas even their corporate development teams do not yet make use of the breadth of information available.
Thus, one future issue for CDAs/CDOs to deal with is getting control of a company’s big data. Here, corporate development, enterprise intelligence and strategic performance enhancement meet. But who gets the full picture? It should also not be overlooked that the legal aspects in corporate development and mergers become more complicated rather than easier. Thus, it is very safe to assume that corporate development is here to stay and that it will, even more than today, be seen as an integral function within a company. Make sure you share your thoughts on this piece in the comments below. Be part of the discussion!