Tag: acquisition

Identifying opportunities early is necessary, but not sufficient, to seize them. A company must also be able to strike decisively when the time is right. Managers at Brazil’s Banco Itaú recognized that the privatization of state banks freed a new set of valuable resources – customer relationships and locations which had not been obtainable previously, and Itaú spotted the value in these banks before its peers. Equally important was top executives’ willingness to declare the acquisitions as the main effort and redeploy whatever human and financial resources were required to seize the moment. Below some key insights:

  • Mobilize best people for golden opportunity. As with experiments, it is critical to put the best people on the best opportunities. Itau’s CEO commissioned one of the most senior members of his team, a Senior Vice-President and Board Member, to spearhead the analysis of opportunities created by the privatization process. And this SVP, in turn, quickly appointed some of the bank’s most promising executives to form a fifty-person task force to evaluate the opportunity and create a post-acquisition plan in case Itaú decided to make an acquisition. Make no mistake, the managers appointed to lead this initiative were not corporate rejects whose careers were stagnated, rather they were among the most promising managers in the company, responsible for running its most profitable lines of business. Assigning them to this opportunity represented a real commitment on the part of Itaú executives.
  • Rapid approval processes. Sometimes, seizing a golden opportunity comes down to signing a deal

My last post discussed how managers can collect information to spot emerging opportunities in turbulent markets and illustrated these points with the case of Brazil’s Banco Itau’s acquisition of privatized banks in the 1990s.  Information are most likely to reveal new opportunities to the extent it is real-time, combines first-hand observation with statistical data, shared across silos in the organization, and drawing on multiple data sources within and outside the firm.

In addition to gathering data, managers can also design and run experiments to actively evaluate opportunities. Typical experiments include pilot projects, minor acquisitions, and prototypes of new product development.  Despite differences in form, successful experiments share a few common characteristics, which Banco Itaú’s experiment with the Argentine market illustrate.

Consolidation of the Brazilian banking sector in 2001 reached the final stage in the seven-year cycle, which began with the implementation of the Real plan. During this cycle, the competitive environment has been altered by the privatization of basically all the state-owned banks, the restructuring of the federally-owned banks, the absorption of many large private-sector Brazilian banks, and by a free market for international banks…Itaú is clearly one of the winners in this consolidation process. Olavo Setubal, chairman of Banco Itaú, 2001 letter to shareholders

Setubal had good reason to feel proud. Between 1995 – the first year after the Real plan stabilized Brazil’s inflation – and 2001, Banco Itaú (Itaú) posted an average return on equity of 21%, grew its asset base from $25.1 billion to $34.8 billion, and enjoyed the highest market capitalization of any private sector bank in Latin America.

Itaú’s performance was particularly impressive when compared to its rivals. Itaú posted significantly better returns on equity than other Brazilian banks. Itaú’s performance allowed it to avoid the fate of Mexican and Argentinean banks, which were for the most part displaced or acquired by multinational banks once their markets were opened to foreign competitors.

Banco Itaú, however, had not always been one of Brazil’s premier banks. The bank was born in 1945 as Banco Central de Crédito, and for its first twenty years remained a credible, but small regional player. Between 1964 and

Leading in turbulent times

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Don Sull is professor of management practice in strategic and international management, and faculty director of executive education at London Business School. This blog is dedicated to helping entrepreneurs, managers, and outside directors to lead more effectively in a turbulent world.

Over the past decade, Prof Sull has studied volatile industries including telecommunications, airlines, fast fashion, and information technology, as well as turbulent countries including Brazil and China, and found specific behaviours that consistently differentiate more, and less, successful firms. His conclusion is that actions, not an individual’s traits, increase the odds of success in turbulent markets, and these actions can be learned.

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