US$28 trillion! That's the estimated value of mergers and acquisitions world wide for 1999.
In Australia alone we did A$14.6 billion in M & A deals last year. Still more
incredible is that 4 out of 5 M & A's fail to deliver their financial or strategic objectives
and yet M & A activity is increasing!
Even Stephen Covey couldn't get it right. In 1997 the Covey Leadership Centre
merged with the Franklin Quest Company (known for their day planners). In
announcing the deal, they said: "We intend to apply our own expertise to our own
merger, thereby creating a model merger for corporate industry."
Two years later, operating earnings had fallen by a disastrous 94%, sales had grown
by only 2% and the merged entity, Franklin Covey, is now said to be downsizing by
about 15%, outsourcing some functions and overhauling its salesforce. As for the
people side of the merger- it was reported that: "There was so much internal fighting
that it got almost comical."
All this from a guru who has sold around 13 million copies of "The Seven Habits."
urging us to `put first things first', strive for `win-win' situations and to synergize!
So why do most M & A's fail? The most common three reasons are: incompatible
cultures, inability to manage the target company, and being unable to implement the
change. In other words, the integration factor.
Many of you reading this article are working or have worked in companies,
government departments or business units that have been taken over or merged
with another group. Whether you've had a good experience of this, or a poor one,
the key will be the same. The quality of the integration strategy. How much emphasis
and resources was dedicated to integrating the people aspects of the merger? How
well was the change planned and implemented?
The degree and complexity of integration depends on the type and business
objective of the merger or acquisition. In the most common (and challenging)
situation, the aim is to totally integrate the people, processes, systems, procedures,
technology etc by utilizing the best available from both organizations.
Too often, management focuses on the tangible or `hard' issues, e.g. accounting
practices, branding, payroll, premises or I.T. without comprehensively addressing the
internal human issues. Most organizations realise that the change can only work if
the integrated workforce makes it happen. But 4 out of 5 still aren't beating the
integration challenge.
Only 20% of mergers and acquisitions are successful. What can be done to improve your company's chances of being one of the successful 20%?
Here are four common success factors:
1. People due diligence
Would your company ever contemplate a merger or acquisition without undertaking
financial due diligence? Of course not. Because most M & A's fail through poor
people integration, initial due diligence must include "people due diligence".
This means knowing about our own people too. What is our culture? What is the
capacity of our people to change? How ready are they to change? How much
change can they absorb and adapt to? How will any resistance show itself?
We then make the same enquiries (or try to) of the target company. If the target
company is suffering from extreme change fatigue or the existing cultures are
incompatible, it will be almost impossible to achieve a new integrated company and
culture - so look for an alternative target.
2. Appoint a full time integration leader
Integration is not a part-time job. It is a critical change management role that must be
in the hands of an appropriately qualified leader. It obviously includes developing
and implementing a plan that deals quickly with operational issues like alignment of
remuneration, rewards, performance management, terms and conditions.
But more importantly, successful integration management focuses on:
- Transition strategies - facilitating employees letting go of the former
corporate identity and accepting the new name and brand.
- Key people retention plans and putting the right people in the right jobs.
- Devising a cultural change program.
- Addressing morale and culture problems head-on.
- Identifying and providing necessary learning opportunities.
- Setting up projects to enable people from both pre-merger
organisations to work efficiently and effectively together as soon as
possible. The aim here is to generate some quick wins to demonstrate
the benefits and advantages of the merger to employees.
3. Communications plan
The integration plan has to include a comprehensive communications plan, using
every type of medium possible, at every step of the way from announcement to 12
months on, reaching every level in the organization. Lack of communication leads to
breakdown in trust, confusion, cynicism and frighteningly quickly, to ugly political and
internal in-fighting, as Covey found out to his cost.
4. Work fast
Make, announce and implement people decisions early. This is arguably the best
chance to minimize resistance, confusion and cynicism. For example, spill and fill
positions as rapidly and as fairly as can be done, implement changes in key areas
such as pay and incentives from day 1, take the hard decisions up front.
Managing change during M & A's involves the same general principles that apply
during any change activity be it the introduction of new technology, the restructuring
of a company or department or the implementation of a new performance
management program. These principles are communication, consistency of acts,
words and practices, and commitment of time and resources.
People are the key to any change success. Reliance on fads or theories is no
substitute for real life experience and for doing what is best for your unique
organisation. Examine what is involved in and behind the general principles and
most common success factors and then determine how and if they can be tailored
and applied to your circumstances.
Covey may have wanted his merger to be the model for all others but as he said
later: "It is much different when you go through it than when you look at it from some
academic ivory tower."
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