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Management due diligence is the assessment of the management team before a major transaction or merger. It analyzes their skills, fit with the new team, and management culture. It is crucial for successful integration and may result in changes in management titles and downsizing.
In business, due diligence refers to the investigation of all areas of an organization before agreeing to a major transaction or merger. Management due diligence, also sometimes called management appraisal, refers specifically to the assessment of the management team or teams that will be involved. It is important to ensure that managers not only have promising track record of success but also fit well with the other members of the new management team in order to successfully lead the evolving organisation.
Carrying out management due diligence is especially relevant when two or more organizations are about to integrate in some way. This integration can be in the form of a merger, acquisition or simply deeper cooperation in terms of managing a supply chain. Whatever the specific circumstance, it must first be determined whether managers and their management practices can successfully merge.
New strategic objectives are often the focus of management due diligence. While a manager may have been very successful in a previous executive role, a major shift in an organization’s goals could mean that his or her skills are no longer relevant to an executive function and he or she may better serve the organization in a new position. In many cases, mergers require a large number of changes in management titles and job roles, and can also result in management downsizing.
Furthermore, it is not only the skills and methods of particular managers that are taken into account in this type of assessment. The entire current management culture and methodology of an organization is also analysed. Several organizations might handle important legal, HR, manufacturing, marketing, and financial issues quite clearly. In a merger, it’s important to understand how management currently works across all departments of both organizations in order to determine if — and how — the two might complement each other.
Management due diligence can be a delicate task. Organizations, or the people in them, are often resistant to or suspicious of change, and this is perhaps especially true when changes relate to organizational leadership. People get used to a certain way of doing things and develop loyalty to certain leaders. It is important to weigh the value of making a given change against any disruption or discomfort it may cause. The goal of management due diligence is to evaluate the practicality of harmonizing management and to find ways to link previously separate organizations into a new coherent management structure.
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