Merger Problems

M&A or Merger and Acquisition text on blockNumerous studies have found over 50% of mergers and acquisitions fall short of expected results, primarily due to the failure of the cultures to integrate well. Why, then are CEOs so cheerful when they head into one of these major restructuring activities?

 

In my book, Trust in Transition: Navigating Organizational Change, I discuss 30 different systemic problems with making mergers work and give antidotes to each of them. In this brief article I will describe what I believe are the five most serious problems and suggest ways to mitigate them.

1. Relying too much on the mechanical process

When MBA students learn about M&As, the content usually is focused on the financial and legal details of setting up a combined entity from two unique groups.

Topics covered include asset valuation, due diligence, negotiation, legal aspects, management structure, and numerous other organizational things that must be considered. Few programs give equal attention to the cultural part of the equation.

Students are left to assume that the culture simply “sorts out” by itself over time. That oversight is huge because cultural issues are usually the root cause of merger problems.

For example, the Daimler-Chrysler merger in 1998 was a classic debacle that cost Daimler nearly $36 billion over a decade. The magnitude of a loss that large, was almost $10 million per day for 10 years! The major reason for the breakup was the failure of the two cultures to integrate.

To improve the M&A process, it would be helpful to give the cultural integration equal footing with the legal and financial aspects of the activities from the start.

2. Loss of objectivity leads to inadequate planning

Top leaders can easily see the benefits, and they look seductively attractive. The costs and hassles seem to be manageable, so not much energy is spent on internal culture issues or potential external problems for customers.

The upside of the deal is championed, while challenges are pushed aside. Objectivity gives way to passion for the deal.

Anyone who questions the validity of an assumption or brings up a potential problem is labeled as “not a team player,” so reasonable dissent is extinguished.

Here are three antidotes for this situation:

1) have a trusted Devil’s Advocate on the senior team who will prevent myopic optimism,

2) explore potential problem areas and design solutions that mitigate risk, and

3) calculate the ROI based on the best guess of the benefits, but inflate estimated costs and problems, because real costs will surface later and often be larger than anticipated.

3. Lack of adequate training

Leadership training is crucial during any kind of reorganization. Many organizations back off on training for leaders because there is so much chaos during the integration that most leaders are “too busy to sit in the classroom.”

Antidote: Bring the classroom to the chaos. What better time is there to do leadership development than right there in the middle of the crucible? Skilled L&D professionals can leverage the urgent need for solutions into pragmatic problem solving and motivational skills.

Supervisors are also in urgent need of leadership training during a reorganization. Reason: they form the critical trust link between the management layers and the workers. Changes faced by each supervisor are stressful personally, yet this individual is vital in creating order for the other people.

Weak or bully supervisors often come unglued due to the pressures of a merger. They need training and assistance in order to perform their function when it matters most.

4. “We Versus They” Thinking

From day one, the leaders must not only preach the avoidance of “we versus they” thinking, they must model it and insist on it.

I often hear language that indicates lack of full integration years after a merger has been supposedly completed. It is essential to replace parochial thinking with “us” type language and actions.

One way to help speed the integration is to co-locate the groups. That is often impossible in the short term, so transplanting some key resources from one group to the other is another way to make it harder to tell who “we” are and who “they” are.

5. Loss of Trust

In the anticipation of a merger or acquisition, adrenaline drives expectations of what the merged entity can accomplish. It is easy to assume the individual needs will be resolved and team cohesion will somehow settle in quickly.

That is usually not the case, and often bitter feelings linger on, hurting the integrated organization for years.

Candid and frequent communication is needed to keep people informed and allow top managers to feel the angst of workers. It is in these interfaces that trust is either maintained or destroyed by the behaviors, words, and body language of senior leaders.

Ten Best Practices

Anticipate a bumpy ride, and expect that significant psychological calming is going to be needed at times. Here are some additional ideas that may be helpful:

1. Be clear and transparent throughout the process.

2. Create design teams early to help people connect with the future more quickly.

3. Include the customer in every decision, especially during the chaos phase.

4. Assume the risk of setbacks willingly, and do not let unexpected issues spoil the overall process.

5. Invest in some Emotional Intelligence training for people in the organization, especially management.

6. Celebrate positive movement in an integrated way to model the spirit of the merged culture.

7. Bring in a grief counselor to help people cope with the loss and the transition.

8. Train leaders to model the integrated behaviors, and do not tolerate silo thinking.

9. Consider cross-locating or co-locating people, where possible.

10. Prune redundant resources delicately with a sharp scalpel rather than a long line of guillotines.

There can be times of joy and accomplishment during any merger or acquisition. It is possible to maintain trust, even amidst the chaos. After all, the vision for the whole activity is a brighter future.

The wise leader will recognize that changes of this magnitude require extraordinary effort and patience to achieve the anticipated result.

By focusing the same level of effort on establishing the right kind of culture as they do on the financial and legal aspects of reorganization, leaders can ensure they meet or exceed their goals.

4 Responses to Merger Problems

  1. I wonder if we are often really clear on what it is we are deciding on what we want out of a M&A. Several years ago I was asked what I thought about M&AS where it was clearly understood that the two cultures were extremely different. The reason I was there was to advise on some talent management implications. My observation and comment was that if they tried to “merge” the two cultures they would in all likelihood get the worst of both worlds. My thought was that the focus should be on the “A” and far less on the “M”.

    I am unclear about 3 and the involvement of customers in “every” decision. Why?

    I think 4 is critical. Understanding where the hoped for value in the M&AS is very helpful as we can zero in on what are possible risks, even uncertainties if we put our minds to it. In the allude to personal experience above the value included an entrepreneurial attitude. A cultural merger would have destroyed it, so to guarantee it’s continue and presence lead to my thought about keeping it isolated from the dominant culture in the acquiring firm.

    Because of 4, I would suggest that each of your suggestions has risk on them. I can think of situations where I would be reluctant to do several of them. However, they do provide a very useful place to start to the cultural aspects of succeeding with a M&AS.

    Thanks

    • trustambassador says:

      Yes, the wording on #3 was poorly done. What I mean is that we should think through the customer implications of every action and decision on the customer – not actually involve the customer physically.

  2. Georgia Stansell says:

    Hello,

    I took a class from Mr. Whipple years ago and wondering how to reach him? Is it possible to obtain his email address?

    Thank you for the useful newsletters.

    Georgia Stansell rungeorgiarun@gmail.com

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