ATD Blog

Succeeding at Complex Mergers

Friday, November 6, 2015

Let’s face two facts. First, the use of mergers and acquisitions (M&A) as vital elements of growth strategies will continue. Second, the success rate in complex mergers is less than fifty-fifty, making mergers a huge gamble. Why is the failure rate so high, and what do companies like Cisco and Yahoo know that makes them better than others at achieving success? 

While the acquisition of a small bolt-on company may not present difficulties, complex mergers present a long list of challenges that must be met successfully and simultaneously, making their degree of difficulty much higher. Staying on top of everything that must change, focusing on the correct priorities, and not allowing an integration effort to completely disrupt ongoing operations is a huge challenge. The difficulty is exacerbated by people from each company not liking one another, as in cases where “the cultures don’t fit together” or when people come from different professional backgrounds (such as print versus digital). What seems straightforward from a distance appears to be a daunting challenge close-up. 

Think about some things that need to happen for a complex merger to deliver its promised returns:

  • cost savings have to be generated
  • leaders from both organizations need to be selected to key positions and gain the trust and confidence of those who follow them
  • technical processes and IT systems must be melded together seamlessly
  • customers and other stakeholders need to receive communications to help them understand how to interact with the new combined organization
  • duplicate sales forces have to be consolidated without disrupting customer relationships
  • a single culture must be created that welcomes each person’s contributions regardless of previous loyalties
  • boards of directors may need to be consolidated. 

This list is only the beginning. As changes work their way into the organization, efforts at every level and eventually by every team must be made to understand the significance of the change and its implications. New processes need to be adopted, cooperation across departments with new colleagues established, product lines optimized, brands dropped or added, facilities closed, people moved, training provided, total-reward systems aligned, and meetings consolidated. Because all of this must happen during the same period of time, the change is both complex and continuous. 

Project Mentality vs. Process Mentality 

Companies that have been through this before and intend to do it on a regular basis do not approach an acquisition as an event. In contrast to the AOL-Time Warner or Daimler-Chrysler fiascos, which were heralded by analysts, but badly managed because the effort required for success was underestimated in both cases, companies that have been successful are more likely to view the work required as a process rather than a project

The project mentality forces us to think about the integration process as a short-term disruption, to be completed in a fixed timeframe and with pre-set costs, savings, and business goals to be achieved. Companies are jammed together, often with the help of third-party consultants who also adopt the short-run project mentality. Getting it over with, as quickly and efficiently as possible, is the shared goal.  There is little time or tolerance for attention to the human issues involved, which are often the reasons cited for eventual failure.  

The process mentality adopted by Cisco, Yahoo, and others who have been down the road enough times to learn from their experience begins with a comprehensive plan to manage both the technical and social aspects of the merger. Rather than force-fitting things together, there is a willingness to take time to understand what is possible before decisions are made about cost savings and business opportunities. 

Talent is carefully assessed before selection decisions are made. What’s more, efforts are undertaken not only to communicate expectations, but to listen to the inputs and concerns of those being acquired. While there are goals to be achieved, there is openness to reconsidering them in light of what is learned. An internal team with experience in integration who see it as their job to get it right—not just in the short term, but over the long haul manages of this. 


Key Capabilities for Complex Change Management 

In my book, Leading Continuous Change: Navigating Churn in the Real World, I talk about the capabilities that organizations must develop to succeed at the kind of complex, continuous change presented by strategic moves like M&A, shifts in business models, and global growth. The four key capabilities are: 

  • Discovering
  • Deciding
  • Doing
  • Discerning. 

Discovering involves understanding what is happening and what is likely to happen through multiple lenses and perspectives. Yes, there is a business case to be made for the merger that requires an analysis of how the companies involved would operate jointly, and what the efficiencies or market share to be gained would be. There are also the perspectives of customers, analysts, key leaders, employees, regulators, and others to be understood. In complex change, success is only achieved when everything works together as it should, not simply when budget projections are met.  

Deciding requires knowledge of the choices of action available and then making decisions about which options to pursue and in what order. Many failures of execution can be traced to overload, trying to do the right thing, but deciding to take on too much at the same time without an appreciation for the limits of the system or the need to coordinate interdependent actions. Disrupting a system by plunging it into complete chaos is rarely a recipe for success.  

Doing sounds deceptively simple, like crossing items off a checklist. In reality, Doing presents huge challenges but also tremendous opportunities to strengthen the culture and improve the way the joint organization operates. If care is taken to communicate, engage the right people, and attend closely to the effects of actions that are taken, the Doing phase cannot just complete the integration but do so in a manner that sets the tone for high performance in the future. 

Discerning, which is an afterthought (if done at all) in mergers conducted with a project mindset, involves learning from what took place, so that continuous improvements can be made in the integration process going forward. Whether or not the process went as intended, there is much value to be gained in learning from the considerable investments of time, money, and effort already made.  

To bring these capabilities to life in preparation for a complex merger, I recommend the following steps. 

  • Adopt a process rather than project mentality. Go into the exploration of an acquisition with open-minded curiosity about the possibilities. Avoid setting dates and budgets that will force rapid, insensitive, and suboptimal decisions. Set goals, but be open to changing them once you learn more.  

  • Appoint a team to plan and manage the integration process. The team should consist of seven-to-nine people who are given the job of getting it right in the short and long run. They should be trusted and respected individuals who can influence stakeholders and will be aligned on the decisions made. Empower this team to lead the effort; don’t allow other leaders or consultants to hijack the process.  

  • Spend time discovering. Don’t presume you already know everything you need to know about the company being acquired or the talent within it. Explore what products, processes, and practices may be of value before tossing them aside in the rush to complete the integration.   

  • Create a comprehensive plan that does the following: 1) lays out the key actions that must be taken, by whom and when, in a fashion that does not lead to overloading the system; 2) pays sufficient attention to both the business and human aspects of the integration process; 3) builds in mandatory progress reviews that are based on data obtained objectively from multiple sources; and 4) includes provisions for unexpected discoveries, delays, or expenditures that cannot be foreseen.   

  • Anticipate the need for coordination among departments and units. Schedule meetings well in advance to bring together parties who will need to align their efforts, goals, processes, and timelines. Make certain that people who are capable of breaking ties attend these meetings and that agreements are clearly understood before allowing the parties to leave.   

  • Put balanced scorecard measures in place at the beginning so progress can be assessed over the long haul. Don’t let a single metric, like cost savings, become the sole determinant of success. Also, don’t settle for less than what was expected on any measure without a good fight.   

  • Keep moving. Haste is not required, but deliberate movement is. When roadblocks are encountered, make decisions and move, rather than accepting long delays. More will be learned by acting than by not acting. As long as the best judgment available is brought to bear in the moment, accept that perfection is not possible, learn from what takes place, and move on.   

  • Learn and improve. Complex, continuous change is here to stay. M&A is only one area of challenge. Translate learning gained from the M&A experience into improving how other opportunities are approached.  

M&As aren’t bad ideas, even if they fail more often than they succeed. Learn to do them well, and you can outpace the competition. 

About the Author

Bill Pasmore, PhD, is senior vice president and global organizational practice leader at the Center for Creative Leadership, a top-ranked, global provider of leadership education. He is also a professor of practice of organization and leadership at Columbia University and was formerly a partner at Oliver Wyman Delta Consulting, part of the MMC Corporation. He is a consultant to CEOs of global Fortune 1000 firms on change, leadership, senior teams, and organization design and is a frequent speaker at corporate events and conferences.

Be the first to comment
Sign In to Post a Comment
Sorry! Something went wrong on our end. Please try again later.