One of my friends in the consulting business wrote an insightful article entitled “Throw Away Your Integration Plan.” The friend is John Pancoast of Acquisition Solutions, a firm that helps organizations achieve more effective mergers or acquisitions.
His article was about having the flexibility to know when the plan you drew up before a merger was announced should be abandoned for another course of action based on some unanticipated development.
The main idea makes sense to me. No original plan can anticipate everything that is possible to happen, especially in a multifaceted endeavor like a merger.
Sticking religiously to an a-priori version of the path forward will produce suboptimal results at best and may even be disastrous.
It is not just mergers and acquisitions where we need the flexibility to change a plan based on new information. We deal with the need for flexibility in every area of our lives.
For example, the following incident actually happened to me in mid-career, and it illustrated the importance of remaining nimble.
I once spent a day in a workshop with my managers to develop some strategies. We planned the time carefully because time is the ultimate scarce resource. I had published a detailed agenda for the entire day.
When I walked into the room to start the meeting, I took one look at their faces and realized they were not in the same frame of mind as they were when we made up the agenda.
Something traumatic had just happened with one of the benefits programs, and their faces told me they were preoccupied trying to deal with the damage.
I held up the agenda on a single sheet of paper and said, “I can see by your body language that this is not where you folks want to spend your time today. Am I right?” They all nodded kind of sheepishly.
So, with great fanfare, I ripped the agenda into tiny pieces and threw the confetti into the air. I’ll never forget the look on their faces as the simulated snowflakes fluttered to the floor all around me. We had a good and constructive meeting after that.
This article is not suggesting that making plans is fruitless. We need to have a nominal plan for every activity under the assumptions we are aware of at the time.
We must always test whether that plan is still the right course when we attempt to execute it in the future. Here are a few tips to remember:
1. Be alert to changes in body language. Often you can read anxiety with a current plan in the faces of your coworkers.
2. Build trust. Create an atmosphere that is real rather than one of playing games.
3. Ask for opinions. If you ask, people will tell you if they are concerned.
4. Verify the plan is current. Test to see if conditions or assumptions have changed.
5. Be willing to rip up the agenda. It creates a significant event and sends a message of care rather than rigid implementation.
6. Use a revision date. Plans change with time, so if you have a file with the plans, use a revision date so people are aware they are subject to changing conditions.
Make your plans carefully and logically, but be prepared to change them when conditions require flexibility. Doing so will keep you nimble and relevant to current conditions. It is a great way to be effective.
When executives consider doing a merger, acquisition, or major reorganization, it is a time of great peril for their organizations. Reason: many of these efforts result in eventual loss of value and failure to reach the goals envisioned at the start.
There have been many studies that present a variety of statistics on failure rates all the way from 50% to 80%. The precise number depends on the parameters of the study and how performance is measured. I do not want to debate the statistic, just recognize that the failure rate is way too high given that these decisions are choices consciously made, and they sometimes turn out to be disastrous for the organization.
In this article, I want to highlight what I believe is one root cause of the problem.
Executives become obsessed with the idea of the merger or acquisition and become blinded like a motorist driving east at 7AM. At the precise moment the sun comes up over the horizon, even if you have your visor down, it becomes extremely difficult to see the dangers around you.
The benefits of the merger are easy to see clearly upfront, but the problems and hassles are foggy.
For example, it is easy to quantify how much more market share will result from a merger. By inheriting a whole new product line and sales territory, the benefits of scope can be very tempting.
Working with a larger base will allow efficiencies due to staff reductions. Consolidation of equipment and inventory will also benefit the merged entity. All these factors, plus many more, are easy to identify and calculate with reasonable accuracy.
As the executives focus in on the benefits, some of them begin to act like people in love. Reality about the dangers gets swept aside as the potential benefits become the topic of most conversations. If there is a dissenting voice in the management ranks, it is quickly extinguished as the euphoria builds. “This is going to be wonderful!”
On the negative side, there are going to be costs and negative impacts for sure, and it is going to take time and energy to accomplish the merger. The problem here is that the specific costs and amount of time to resolve problems are extremely hard to quantify.
Overzealous executives can easily wave away the hassles with a statement like, “This is no place for the faint at heart; we will just have to tough it out and figure out how to operate as we go along.”
One problem often under estimated is the impact of a merger on customers. Before the merger you have two organizations focusing on two sets of customers and set up to serve them rather well. Eventually, you will have one entity serving a larger pool of customers, with perhaps even better service.
The problem occurs in the middle when all the chaos happens. IT systems will be in limbo for some time as the customer service teams integrate. Phone numbers of who to call will be changing. People will have evolving roles and may not even know who is covering a particular customer.
When you consider that the integration of two corporate entities can take years to accomplish, the impact on customers is often devastating.
Reason: customers do not care about the merger.
They see very little benefit. All they see is a bunch of hassles, confusion, and lower service than they had before. During the integration period, it is easy to lose the valuable customer base that made the merger attractive in the first place.
Another huge issue is the lack of worker engagement in every part of both entities. During the integration, the majority of people lose motivation for a variety of reasons and often act in uncooperative ways as they wrestle with how things are going to sort out. Both quality and productivity take huge hits when this happens, and trust in management is usually a casualty.
In this environment, the most talented people become so disillusioned that they seek employment elsewhere. Thus, during the transition it is common to see the people who are most needed in the organization quit and leave, while the people who are the deadwood quit and stay. The impact of this on costs is devastating.
These are just a few of the consequences of going into a merger or acquisition without some ballast to bring reality into the ROI equation. In my book Trust in Transition: Navigating Organizational Change, I address these symptoms as well as others and offer antidotes to reduce the sun glare and make the trip safer.
Where have all the people gone – long time passing?
When organizations merge or are acquired, there follows an unsettled time where the integration needs to happen. Ultimately the combined workforce will be sized to reflect the joined operation, but how does a wise organization get to that ideal state with the least amount of pain?
Sizing an organization following a merger is really no different from determining the correct size of any organization at any time. It is a matching of the work to be done to the resources available, all things considered. How we wrestle with the concept of “all things considered” is the tricky part. Let us look at some potential ways to determine the size of a work force and the advantages and disadvantages of each one.
If we look at the historical staffing levels of two separate entities and do some extrapolation, we can make an estimate of how large a workforce to have in each department following a merger. The danger here is that the newly formed entity is not really just the sum of the two previous separate groups. It is a completely different organization. For a time, it may be necessary to run heavier than desired as the old processes must exist in tandem with new ones being invented.
Listen to the Squawking
Some leaders like to gauge the level of staffing such that there is a reasonable level of complaints about not enough staff, but not an extreme level where people are starting to burn out, have health problems, or just leave for greener pastures. If there is no noise coming from the existing workforce, it means that people are “happy,” which some leaders interpret as also being “fat” and “dumb.” Some level of tension to scramble after tough goals despite running thin seems like a reasonable place to be. The caveat here is that regardless of how an organization is staffed, some percentage of the population is going to complain there are not enough people to do the work. Often these individuals are the same people who wander around about half of the time complaining to their co-workers that there is not enough time to get the work done.
As an example, say your combined organization has 517 people on the payroll. One way to look at the right size challenge is whether the organization would be worse off in the long term if there was either 518 people or 516 people onboard. If the answer is “yes” to both questions, then you have found the right staffing number. That sounds too simple, and it really is because it forces a kind of precision about what people are capable of in various venues that is just not available. Exactly who these people are and what capabilities they have is of critical importance. The calculation of a specific number would be impossible, but the logic behind the thinking process is sound. If you were able to approximate the thought process in each smaller unit, then it might be more practical to think this way.
Consider the level of cross training
The use of training time and activity as a buffer for workforce size issues has many benefits. In an article titled, “Cross Training The Miracle Cure,” I have documented some of the benefits of cross training as follows:
• Increased motivation among employees, that make them less likely to be absentees.
• Flexibility to operate efficiently in any other position. Handy for future restructuring or employee shifting, when needed.
• Personal bonds made between peers who cross train together and share ideas.
• Acquiring new skills leads to higher job security.
• Increased self-esteem and fun occur with learning different tasks.
• Trust between employee-manager increases.
• ROI (return of investment) compared to other training options is outstanding because timing of training can occur during slack times.
• A cross-training program teaches employees to maintain job processes well documented and easy to communicate.
• While cross-training occurs, new ideas for improved processes often surface.
By taking the opportunity to do more cross training, it may reduce the immediate cash benefits of running with the lowest possible number of people, but it may be a much better financial choice for the organization long term. As leaders seek to develop the workforce, people become capable of doing more and are able to pick up slack when there is an upswing in business.
Change the rules and the functions
It might be possible to improve the top line by putting more feet on the street. Employees who previously worked in Accounts Receivable, for example, might have the connections to be deployed as additional sales resources. When there appears to be an excess of resources, it is a great time for a leader to get creative with what is possible in terms of changing the game rather than just getting out the axe.
Probably the least creative and interesting way to configure the size of an organization is the one most often used by corporations. Somebody takes a look at the Income statement and decides we need to cut 15% across the board. The level is arbitrary, but it takes on a kind of legitimacy as managers throughout the organization strive to meet the bogey. It can be counterproductive because it penalizes groups that have historically run lean since the percentage cuts are normally spread evenly.
Experiments with Contract Labor
Many organizations have gone to a different model where the control mechanism is not how many employees are on the payroll but what percentage of temporary or contract workers are onboard. Having the ability to throttle up or down on the number of contract workers allows much more flexibility than the hire and layoff model of earlier times. Because acquisition costs are lower for contract workers, and with the ability to let them go without penalty, organizations can experiment with several different staffing strategies in reaction to differing market or competitive conditions. Unfortunately, the downsides of running with a hybrid workforce are so numerous this topic deserves a separate article. Whenever contract workers work side by side with full time employees on similar tasks, the atmosphere is ripe for conflict and lower trust. It is best to separate functions so that contract people are doing different work from full time employees and to have policies in place that ensure contract workers can feel fairly treated.
Wayne Gretzky made the following observation about his success in ice hockey, “I always skate to where the puck is going to be.” Doing good research about factors governing the size of needed workforce can allow time to right size the organization in a way that has little disruption. It is when we are caught off guard by a major recession like 2009, or experience a huge windfall of business due to the demise of a competitor that we become frantic about being way out of line relative to current conditions. Colin Powell said, “Great leaders have the ability to see around corners.” Good organizations are constantly asking “what if” type questions.
Having the right size of workforce is very much an art. Doing it well involves a consistent approach, a strategy, some training, and lots of practice. Sometimes it involves high risk, and other times it is a routine activity. Getting and keeping control of this HR process is particularly important during a merger or acquisition when all economic and human factors are up for negotiation. Making good decisions during these times is essential for the survival of the organization.
In any merger or acquisition, the characteristics of the top leaders in both organizations heavily impact the resulting merged culture. The sad truth is that in many mergers, one or both of the top players are narcissists. What it means is that the entire process from twinkle-in-the-eye to a fully integrated steady state environment will require people to “work around” the problems created at the top.
Narcissism is the personality trait of egotism, vanity, conceit, or simple selfishness. Applied to a social group, it is sometimes used to denote elitism or an indifference to the plight of others. The name “narcissism” was coined by Freud after Narcissus, who in Greek Mythology was a pathologically self-absorbed young man who fell in love with his own reflection in a pool (Wikipedia). Narcissists have a distorted view of the world around them and see themselves as the center of the universe.
Merging organizations requires a tremendous amount of common sense and sensitivity to allow the feelings and needs of both former separate groups to see themselves operating effectively as a single unit. If one or both of the top leaders have narcissistic tendencies, common sense and sensitivity are not in the lexicon. The boss acts like a steamroller to flatten the ideas or creative suggestions of the impacted groups. The way is clear, and woe be to anybody who cannot catch the vision of the top gun. In any merger, we have two top leaders, and the dynamics of their relationship impacts the entire culture whether they are narcissists or not.
Of course, narcissism is a matter of degree. Some people have only slightly enlarged egos, while others have a major case of it. I know one individual who is an extreme narcissist. He recognizes these traits in himself, but he sees no impetus to change. Why should he? He is rich and has the life style he wants. Life is good for him, and his brash bullying behavior is part of what got him to his pinnacle of perfection. He can spend $2500 on a suit and not worry about it. He is sure that everyone is interested in his whereabouts at any moment in time. He can command a press conference any time he wants it. He is aware that he rubs people the wrong way, but it does not matter in the least to him. So why change?
One reason to change is that he is about to merge with another organization that may be run by an equally dysfunctional individual. In this case, it is best to issue everyone in both organizations flak jackets and give everyone lessons in how to write a good resume. They are going to need it soon. The progression is inevitable: it leads to mutually assured destruction.
Each “camp” will talk a good game of integration, but the battle will rage in the offices and hallways of both organizations until one leader emerges victorious and the vanquished individual slinks off to lick wounds and plot a comeback in a different fiefdom. If one narcissist and one more rational manager are paired up, then the dynamic is different. Still there will be a war, and the victor might be either individual depending on the circumstances and the strength and skill of each person. Whichever individual wins the most power will prevail, and the merger will be more of an acquisition where the victors devour the spoils of battle until there is little left of the losing culture.
If all this sounds depressing, it is. Unfortunately there is no good antidote to this condition unless and until the narcissists are made aware that they are operating at cross purposes to their long term best interest and the interest of the organization. This awakening is often the result of a total failure of the merger coupled with the ouster of the offending leader or leaders. Of course by that time, colossal damage to the business has occurred, and all that can be done is some kind of salvage operation to disposition the remains.
A different, but risky, outcome is for people in the organization to see the warning signs and conduct a kind of coup. Granted, this is rarely done, but I have seen it happen where a top manager was being a total bully until one brave individual closed the office door, pointed a finger at his nose and said, “Just who do you think you are? You have no right to talk to people like that. The only difference between you and God is that God does not think He is you.” That was a significant emotional event for the leader, and it actually worked to wake up the man. After that, he was much less of a bully.
The individual calling out the narcissist boss in the above example took a huge risk. In many cases, candor like that would be immediately followed by a pink slip. Before taking such a risk, one would have to be convinced there is no other way out and have alternate plans in place in case the input is rejected along with the individual. A less dramatic idea is to suggest some form of group learning, such as a lunch hour book review process, or diagonal-slice improvement team. Get the boss to not only allow such growth but be first to suggest a book to review. Reason: if the boss has first dibs at a book, it will be one of his or her favorites. This will have the boss ease into a mode of group growth with some degree of safety.
Another idea associated with weekly growth meetings is to have a “buddy” system where individuals pair up for feedback on the material read for that week. The idea is to have a “safe” environment for both individuals. The pledge ahead of time is that coaching coming from a buddy, regardless of the hierarchy position, will cause no retaliation. Once the boss has taken the pledge publicly, it is harder to decapitate the buddy for being candid.
A third idea is to bring in some help to teach the leadership team how to go about building trust during the merger. It is important to not single out one or two offending managers who need remedial centering. The entire team needs to consider behavioral changes that will lead to greater levels of trust in all layers. A skilled facilitator can help the group move to a different place, and that may include the ability to be more candid with the narcissist in safety. The reason an outsider works is because the individuals responsible for carrying out the merger are the ones responsible for the low trust situation. An outsider can be more objective and bring in Organization Development tools that can soften the silo walls and help people see themselves more accurately.
It is fascinating to watch the dynamics of mergers and how they unfold over time. If you are inside the merged organization, it can be frightening. The real scare for the organization is that while these power games are being played, the customer focus and other competitive advantages are being compromised daily, which may prove fatal to the business. The best advice is to assess the power situation at the top before the merger and create some kind of support system so the leaders really want to work in a cooperative spirit. If they model integration and self sacrifice from the first day, it is possible for people within both groups to pick up the integrated vision.