Do merging housing associations have a strategy that works?
June 13, 2016
‘Mega mergers’ continue to be the talk of the social housing sector, with current mergers on the table covering around a quarter of the total stock owned and managed by housing associations.
We highlighted this trend towards mergers almost a year ago, in our Talking Points, Housing Association 2020: Distinctive by design.
The ‘big idea’ in social housing mergers is clear – scale and efficiency to fund growth. But experience from previous mergers tells us that the reality often under-delivers against expectations: multiple associations continue to operate under a group brand, corporate efficiencies don’t materialise and development targets never amount to greater than the sum of the original parts. Why is this? The lack of a shareholder value imperative is sometimes pointed to as a reason. Another is that major change programmes are thwarted by boards who fail to drive integration to its conclusion. Although there may be some truth in these perspectives, at the same time, mergers in the private sector also do not always deliver the value that they could or should.
PwC’s strategy consulting team, Strategy&, have studied the success and failure of various business strategies and published a book that addresses the challenges businesses face to realise their strategy through their day-to-day execution. Strategy That Works identifies five conventional approaches which appear to offer a reasonable chance of success but too often fall short of the desired results. In their place, they suggest five alternative actions which deepen the strategy-to-execution “golden thread” that needs to run through every coherent organisation. The scope of Strategy That Works goes beyond M&A activity, but the research that supports it shows that those businesses adopting the approach deliver an additional 14% value through their M&A deals.
So, if the ‘big idea’ for merger is clear, what should you then focus on to deliver promised value?
Each and every newly-created housing association needs to commit to an identity. They should be able to state clearly why they exist, be that growth, regeneration or service, and then to link their activities back to this. A new housing association’s chosen identity will depend upon their merged capacity, capabilities, growth targets and the competition faced in their geographic areas. It is hard to motivate and mobilise teams and people, let alone plan integration and delivery, without this identity being clear.
Secondly, organisations need to translate their strategy into day-to-day execution. Everyone involved in the new organisation must be playing a role which adds to the achievement of objectives and supports the identity. This should mean stopping or outsourcing non-differentiating activities, even if they are perceived as core business, so that the merged organisation frees up resources to invest in the delivery of the merger identity. The inability to agree these tough changes may signal an organisation which is already weakening on its strategic identity and long term objectives in favour of managing short-term issues.
Thirdly, putting the corporate culture to work as an asset is an important aspect of Strategy That Works, and a real opportunity for merger housing associations. Newly merged organisations have a one-off opportunity to learn from the cultures of the legacy organisations and create the culture that will support the new business. Culture can be created through leadership, espousing agreed values, practising desired behaviours and using formal governance and decision-making as the backbone of the organisation’s culture.
Fourthly, associations need to steer clear of an across-the-board ‘go lean’ approach towards cost cutting and instead focus on an active approach to cut costs in some areas in order to re-invest in crucial areas of the business. Too many business cases advocate a 10% reduction in costs across the board. A culture which expects x-percent cuts across all departments and activities will breed a “just good enough” culture from the outset. Leaders need to implement an approach where resources are freed up to strengthen and expand those areas which produce the best return for the new identity, even if this requires radical changes or elimination of other areas.
Finally, housing associations need to be increasingly proactive in how they shape their futures. For many this will mean using financial capacity and capabilities to become catalysts for growth and regeneration in their chosen locations and for their target customers, partners and products. Further consolidation as the new wave of associations become much bolder and clearer about their offer and brand is how many will surely position themselves.
Strategy That Works offers much for a sector which is in a state of flux and disruption in response to the external challenges and opportunities with which it is presented. Housing associations entering or considering mergers should ensure they make the most of the opportunity to translate their new strategies to successful execution.