Mergers go on all the time. It’s part of normal business. (see https://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 https://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.
First, the long-term executives who will run the new organization need a critical stake in the future of the eventual merged organization, something more than next quarter’s EPS, or the end of the year balance sheet results. Their personal stake, whatever its form, must be closely tied to the year-over-year operating success of the merged organization. These executives need to be active and visible sponsors with consistent messages and themes for the future that tied to a clear vision of the success and purpose of the new organization.
Second, the integration change team needs to consist of insiders with this stake and outsiders who truly understand the tooling, people, and process issues involved in mergers. Insiders with stake provide the drive. Outsiders with experience provide the confidence and objectivity required. That is the only hope that the tough conversations that will be inevitable inside this team in fact happen and lead to the needed synergetic implementation actions required.
The people impacted at all levels of each of the organization must be engaged in the dialogues necessary to deal with the tough decisions about who stays and who goes, and the critical re-skilling needed to operate the merged organization. Staff members will need a clear vision of the future organization of the roadmap to the future. This roadmap must guide them through the difficulties of work force rationalization. They need to be motivated to engage in the skill upgrading, giving up old ways of doing things to embrace the new.
The most senior management executives need to expect that people at all levels in the merged organization will go through the “roller coater of change” (see the diagram below). Things will almost always get worse before they get better.
Senior executive leaders and the change team leaders need to anticipate resistance to change as a normal part of the integration process. Overcoming it, getting around it at times, and leaving it behind as the new culture comes into place are all essential skills for the change team to implement. Pushing against resistance to change – in effect hardening it – is an almost sure route to merger failure.
Resistance to change is an evitable part of the change curve. People overcome it when they see something better to more towards, a reason to leave it beyond for better things in the future. Creating this vision of the better future is key to getting out of the change trough and on the upward success slope.
Expectation management is a key skill for the merger integration team. They need to manage the expectations of the senior management team around the rate of change. They also need to manage the expectations of the people who will remain in the merged organization about the benefits of engaging in the required skill change.
Finally, metrics – before, during and after – the integration change team’s work are an essential component of keeping everyone on track.
It’s important to identify what successful integration looks like and determine what needs to be measured early in the change action plan. Moving towards eventual success requires that you know what success looks like.
You also need clear indicators that tell you when you are on the downward slope, and when that downward slope must end. Invariably, the picture below is an over simplification. Instead of one change curve, there are a set of sub-curves, some of which are further ahead than others. Know that you are moving up on some, while others are still on the way down, creates the sense of balance and persistence needed to keep the overall change moving forward.
Finally, metrics, as they turn positive, widely shared with people in the organization, re-enforce the sense of hope and future benefit which motivates people at all levels to engage in the desired change. It’s also important to celebrate successes along the way. Tying those celebrations to clear metrics that indicate actual success is better than tying them to vague hopes for improvements.
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.
– Roelf Woldring