MBA 620 Module 7 Project Milestone Two Acquisition Evaluation example

Milestone Two: Scoring Two Regional Airline Acquisitions Against a Balanced Scorecard

[Student Name]

Southern New Hampshire University

MBA 620: Measuring Success in an Organization

Module Seven Project Milestone Two

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Milestone Two: Scoring Two Regional Airline Acquisitions Against a Balanced Scorecard

Method

Milestone One defined a balanced scorecard for Meridian Airways, the composite carrier choosing between two regional targets, Coastline Air and Prairie Connect, with ten KPIs across four perspectives and weights of 30 percent financial, 25 percent customer, 25 percent internal process and 20 percent learning and growth. Each KPI is scored from 1 to 5 against the target and scale fixed before data were reviewed, scores are averaged within each perspective, and perspective averages are weighted to give an overall score out of 5. Using rules set in advance protects the evaluation from being bent toward a favorite (Kaplan & Norton, 1996).

Scores by KPI

Table 1 shows each target's result and score.

Table 1

KPI Scores for Both Acquisition Targets

Note. Composite results. Hub feed shares, integration costs and combined debt ratios are due diligence estimates.

Weighted Results

Averaging within perspectives, Coastline scores 4.33 on financial measures, 3.5 on customer, 4.33 on internal process and 2.5 on learning and growth. Prairie scores 3.67, 5.0, 3.33 and 4.5. Applying the weights gives Coastline an overall score of 3.76 and Prairie 4.08. Both exceed the board's minimum of 3.0, so either acquisition is acceptable in principle, but Prairie scores higher overall, by about a third of a point.

The pattern matters as much as the totals. Coastline wins on financial and internal process measures, reflecting its profitability and low costs. Prairie wins decisively on customer and learning and growth measures, the perspectives most tied to the acquisition's purpose of feeding Meridian's hubs with business travelers and to the integration risks that determine whether acquisitions succeed. Coastline is the better airline to own on paper; Prairie is the better airline to combine with Meridian.

Sensitivity to the Weights

Because weights involve judgment, the result was tested under two alternatives. If the board weighted financial measures much more heavily, at 45 percent, with customer and process at 20 percent each and learning and growth at 15 percent, the scores would be 3.89 for Coastline and 3.99 for Prairie, still favoring Prairie but by a narrow margin. With equal weights of 25 percent, Prairie leads 4.12 to 3.67. Prairie's advantage therefore holds under every reasonable weighting tested, although it narrows substantially if the board cares mainly about near-term financial results.

Bringing in Risk

The risk assessment reinforces the scorecard. Coastline carried more total risk, including the register's highest-scoring risk, labor integration, which threatens the cost advantage that drives its financial scores. Prairie's highest risks, fleet replacement and route overlap, are costs that can be estimated and negotiated into the price. Research on performance measurement stresses that measures should inform judgment rather than replace it (Neely et al., 1995), and here the qualitative risk evidence points the same way as the scores.

What the Scores Leave Out

A scorecard compresses a great deal of information, and some of it is lost. The hub feed estimates rely on network modeling that assumes Meridian can schedule connections efficiently at its hubs; if slots at those airports are constrained, the benefit could be smaller. Customer loyalty measured by Net Promoter Score may not survive a change of brand, since some of Prairie's business travelers may prefer a small regional carrier to a larger one. The integration cost estimates come from comparisons with past mergers, which vary widely. None of these limitations reverses the result, but each suggests a question for the final round of due diligence, and each is a reason to treat the difference of about 0.3 points between the targets as meaningful but not overwhelming.

Recommendation and Conditions

Meridian should pursue the acquisition of Prairie Connect, subject to three conditions. First, the price should be reduced to reflect the cost of fleet renewal; at the asking price of 18.1 times operating income, Prairie scores poorly on price, and firm aircraft quotes obtained in due diligence should be used to negotiate a lower figure or a seller contribution. Second, overlapping Midwest routes should be reviewed with antitrust counsel before signing, since airline consolidation has been associated with higher fares on affected routes (Kim & Singal, 1993). Third, a labor integration framework should be agreed with the unions before closing. If these conditions cannot be met, Meridian should walk away rather than turn to Coastline, whose labor and balance sheet risks would require even more demanding conditions.

From Selection to Integration

If the acquisition proceeds, the scorecard should not be retired. The same KPIs, with first-year targets, become the measure of whether the integration is delivering what the evaluation promised. For Prairie, the first-year targets would be hub feed rising toward 30 percent of its passengers, on-time arrivals held at or above 80 percent through the transition, pilot and mechanic turnover kept below 12 percent, combined debt to equity below 1.8 and integration spending within the 45 million dollar estimate. Reviewing these monthly, alongside the risk register, would let leadership catch problems in the perspectives that fail first, such as turnover or reliability, before they appear in financial results months later. Using one scorecard from selection through integration also keeps the decision makers accountable for the assumptions they used to justify the purchase, which research on performance measurement suggests is how measurement systems earn their value over time.

References

Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action. Harvard Business School Press.

Kim, E. H., & Singal, V. (1993). Mergers and market power: Evidence from the airline industry. American Economic Review, 83(3), 549-569.

Neely, A., Gregory, M., & Platts, K. (1995). Performance measurement system design: A literature review and research agenda. International Journal of Operations & Production Management, 15(4), 80-116. https://doi.org/10.1108/01443579510083622