Our thoughts, views, and experiences
Mergers go on all the time. It’s part of normal business. (see http://for.tn/28Ml6dA) They occur for a variety of reasons, usually related to market share or financial goals. But eventually a merger comes down to integrating two or more disparate organizations. That merger integration must occur on three levels: tooling, process and people.
Many mergers do not achieve the numbers that justified the acquisition in the first place. What makes sense in a financial projection is a very different from what must occur when working to merge two groups of people into one.
First, there is tooling - all the buildings and the facilities (space, devices, computers, ….) within them. Usually, by the time the integration is through, they will be less of these. That saves costs. The buildings and the devices in them are usually the easiest part to plan.
The second is process. Ways of doing things need to become aligned. These days that means integrating computerized business applications and aligning processes. Doing so is not as easy as it appears. At first, running two or more of everything adds costs. Adding the need to integrate the reporting, at least the top of the house level, also adds cost. The eventual solution is process integration at the working level.
Integrating Automated Business Applications
Computerized application systems are knowledge sinks. They store the business rules which underline the processes previously used by each of the merged organizations to get work done. Integrating them is not just a matter of flipping some switches, eliminating some computers and their associated software, and keeping others. There’s a tremendous amount of thought work needed to succeed at process integration in today’s automated organizations. That takes skill and knowledge - analytical thinking and then, effective action.
Skilled business and IT people from each of the merged organizations must collaborate for this to happen. Getting them to do so, at a time when they are concerned about who will survive the inevitable work force numbers rationalization, takes a great deal of people management skill. Rationalizing the hardware turns out to be the easiest part of this complex problem. But it is usually not possible until full application integration is complete. Many merged organizations still have un-integrated automated applications many years, even a decade, after the initial acquisition.
Integrating the people is the key underlying problem. Two separate sets of people, each of whom have their own sense of history, pride, and working culture, must be transformed into a single team. Very few operating executives know how to do this. Their experience base is in operations and operational improvement, not wide spread business transformation.
Human psychology is deeply affected by the thousands and thousands of years we spent evolving in tribes. (Just look at our political and sport systems if you want an indication about how tribal we are). Managing a well defined operating organization is a very different challenge from merging two or more previously separate organizations together to operate as one.
Working in a Climate of Fear
The individuals leading the integration work need to skilled in responding to the psychology of fear. Everyone knows there will be fewer people working within the new organization than there were before the merger occurred. People are naturally defensive and resistant to change from day one as s result.
Handling that defensiveness well is not easy. It exists on both sides of the merger. Sometimes, the folks in the “acquiring” organization act out their fear through explicit and implicit messages that carry the tone of “ we are taking over”. When they do, this increases the resistance to change exhibited by the people in the “acquired” organization.
Getting Beyond the Fear
The leaders of the integration change team must get the people who will be part of the merged organization beyond this. These leaders can only accomplish this through creating a concordant vision of a future in which things are better for the people who remain with the merged entity.
Creating a New Working Culture
The integration change team must be capable of creating a new working culture that replaces both previous cultures. The individuals in the new organization must take pride in adopting the new ways of doing things. That new culture must implement best practices that reflect the best of what was in both organizations, not just what was in place in the acquiring organization.
While Making Tough Decisions About Individuals
Making the tough decisions about who stays and who goes is tough. Acquisitions always involve work force rationalization, unless the growth challenges faced by the merged organization is so large that the combined workforce cannot keep up with them.
Even in these circumstances, the change team must address the issue of “under performers” in both organizations. They must do so in a way that aligns with the interpersonally shared implicit knowledge about these individuals that previously existed in each organization. This is hard work, that requires great interpersonal sensitivity. The members of the change team must have the ability to tap into “implicit, shared” knowledge performance present in peers. Just keeping individuals from the ‘acquiring” organization only deepens the fear, and the resistance to change, in people from the acquired organization. Balance and fairness is the key, and it is not easy to achieve.
The Complexity of It All
Succeeding at integrations means concurrently addressing these people issues while simultaneously dealing with analytical problems of rationalizing processes and integrating computerized business systems. The requirements are complex and multifaced. Experience with them makes a difference. Sometimes either organization is lucky enough to have senior people with this kind of experience. If not, it makes sense to bring in outsiders with expertise and experience in the these implementing such integrations to be part of the leadership of the integration change team. This can avoid the pain of a failed merger. (see http://on.mktw.net/1SXsBlZ for 2016 examples of the failures which result).
The 5 Critical Success Factors that Lead to Successful Integrations
So how do you get around this? How do you avoid merger failure?
If the underlying business reasons – financial and strategic - for the merger were sound in the first place, a successful merger integration must meet 5 critical success factors.
1. Executive Stake in the Long-Term Future
2. The Composition of the Change Team
3. People Engagement
4. Expectation Management
5. Useful, Communicated Metrics
The Road to Merger Failure
Fail to adequately address any one of these 5 critical success factors (CSFs) means that the probability that the merger will not succeed is dramatically increased. As the integration action proceeds, it is clear that things are on the downward slope. Without metrics and expectation management, the most senior leaders in the acquiring organization get discouraged by this movement down the change slope. They often respond by replacing the leadership of the change integration team. That starts a new roller coaster at the lowest point reached on the previous one. Things continue to cascade downward, unless the new change leadership team can meet these 5 CSF’s and overcome the previous downward trend. Over time, the merger integration fails to meet it objectives.
The Journey to Merger Success
Communicating and meeting the 5 Critical Success Factors always requires successful previous experience with mergers. For most organizations, that means engaging outside merger implementation expertise. When senior individuals with this experience are added to the integration change leadership team, they can work with Insiders to shelter the integration efforts from internal pressures that are part of life in the executive suite. Outsiders can help craft change metrics that allow everyone to see how things are going. They can combine their experience with the Insiders’ drive to succeed. The resulting team work can keep a merger from failing, leading to a bright future for the merger organization.