Mergers & Acquisitions: Increasing the Probability of Success

We’ve Merged. Are We Paying Attention to all the Right Components?

All merged and acquiring companies want the best outcome from the acquisition in order to deliver the expected return on investment. These companies focus on the most advantageous combination of systems, technologies, processes, financials and organizations. Is this enough?

No.

An area often overlooked is the new, combined culture. Who are we – now? How will we operate – now? What do we value – now? How will decisions be made – now?

A Common Example

Company A merges with Company B. Employees of A continue to operate as they always have: micro-managing, control-oriented and aggressively focused on achieving results. Moreover, A employees expect Company B employees to operate in the same way. Company B employees also continue to operate in the same was they always have: trusting each other in pursuit of goals with a high degree of autonomy and accountability, and with high level financial reporting only. They, too, expect A employees to do the same.

As a result of differing expectations, Company A employees look down on B employees as being out-of-touch, unprepared and not grounded in financial controls. Company B employees, for their part, feel overwhelmed by the requests for details they’ve never had to provide before, not appreciated and even trampled upon.

The business combination that looks good on paper has gotten off to a rough start. Both employee groups are moving down divergent paths, even while working on common goals. If this continues, business results will be impacted, and the forecasted financial benefits and expected outcomes may never materialize.

Generally, the acquirer, or the dominant or remaining entity, implicitly assumes that their current culture will continue, and that the other company’s employees will assimilate and accept the prevailing way of doing business. As an M&A executive in an acquiring company, I frequently witnessed lost opportunities to achieve the forecasted gains from the combination of companies. We often assume that the newly acquired company would take on our processes, systems, financial reporting and our expectations. When they did not, we felt they were wrong, naïve, and resistant to change. We began to “manage” them more tightly, and to give promotions and growth opportunities to “our own” people, who we trusted because they operated in the same way we did.

Now, as an executive coach, I assist companies to shape a new culture, one that all employees understand and can move toward. A shift is made from an assimilation model, of one organization fitting into another, to a model of all people, together, forming a new way of working, one that combines the best of both former companies.

They’re Experienced Business People. How Can this Happen?

Inattention to the cultural combination of companies, in my experience both inside acquiring companies and as a consultant to companies engaged in M&As, is the biggest obstacle to merger success. And this is topically measured in the return on investment—the ROI forecast that drove the business combination and that justified the price paid.

Cultures, generally assumed as “the way it is around here," tend to be transparent to many leaders, and therefore not unattended to. In the culture reside the relationships necessary to getting the work done (or not). The culture determines the amount of friction, or drag on results, that exists.

The Solution

To achieve a successful business combination, there are two strategies that must be in balance: the technical strategy and the cultural strategy. The technical strategy is the processes, systems, technologies, tasks, plans, deadlines necessary to accomplish the initiative. And the cultural strategy is the communication pathways, leadership, people, relationships, and environment necessary to achieve the initiative.

Leaders tend to spend more time on the technical strategies—estimates range from 80 to 99% of leaders’ time and attention is focused here. In fact, the cultural strategy can be transparent. In order to fully and powerfully achieve the goals of a business combination, both strategies must be in balance.

Some questions to ask yourself (and your leadership team) include the following:

• Do we have a vision for how our people will all relate most effectively to one another?
• Do we have a plan to address the differences in the way the two former organizations went about doing their work?
• Do we understand the potential pitfalls and have possible solutions?
• What has made each company successful?
• How can we retain these characteristics in the new combined company?
• Do we have clear expectations for how we will relate to each other, the business, and our clients, that are current with our new business situation?
• Do we have a clear decision process that everyone understands and buys into?

When barriers arise, they generally exist in the cultural realm. Communication has become blocked (resulting in misunderstandings and frustration), trust is reduced or differing expectations have become apparent. These barriers, if unaddressed, lead to increased friction and reduced performance, resulting in missed goals. Having a process to anticipate and deal with these situations is critical to the success of the combination.

About The Author Barbara Osterman [Full Bio]

Barbara Osterman, founder and owner of Human Solutions LLC, is a business leadership consultant and cultural catalyst. She supports organizations in increasing business performance and results by successfully weaving business initiatives and culture transformations.