Acquisitions are a lot like children. You think you know what you are getting into but each one turns out to be full of unique surprises.
I have four children and each of them have required a very different approach, especially when they were very young. One worked well with a strict schedule of napping and feeding. Another fought routine and was best when we went with whatever she wanted to do, in her own timing. And the others were somewhere in between, requiring high levels of flexibility and patience.
The point is, just like children, each merger and/or acquisition is incredibly unique and requires active involvement, improvisation, and adjustment throughout the transition and integration stages.
Not surprisingly, a Harvard Business Review report stated that the failure rate for mergers and acquisitions (M&A) sits between 70 percent and 90 percent. Accurately identifying M&A targets, figuring out the right price, and providing clear and adaptable transition plans is tricky business.
All of the M&A activity can be divided into two sides: the business side and the people side. The business side includes pricing and financial projections, due diligence, market evaluation, and regulatory and legal issues. The people side involves leadership alignment, cultural integration, managerial involvement, and organization design.
Too often the business side gets the bulk of the attention while the people side can be an afterthought. Despite all of the needed work from the business side, unless culture and people are merged together well, value from the merging entities can be destroyed not created. If the point of an acquisition is to create value, then integrating the people side becomes the method and hallmark of success!
The following are four steps in aligning the people side of an acquisition. This Human Capital Playbook Framework increases the chance of successful integration and value creation.
Support the creation of a well-balanced integration team (finance, operations, product, HR, marketing, sales, etc.) with clear roles, authority, milestones, and activities. This integration team can ensure the communication of strategy and updates to the right people using the right methods. It provides critical input to help make informed decisions, protecting core operations outside the scope of the integration and determining the degree of integration and non-negotiables. It also responds in real time to issues, adjusting to the needs of the transition at each step of the way.
Assess current talent against agreed upon technical and leadership skills and create and implement 12-month retention strategies for key talent. Identify the opinion leaders and those who embody the needed culture and attitude for the organization to be successful in the future. In the retention plans, identify temporary/permanent job assignments that align with personal and organizational development opportunities and include retention bonuses as needed. Be as candid as possible about future organizational plans to minimize rumors and to build trust through transparency. Ensure that people feel a connection with their manager, understand the organization’s vision, and know what growth opportunities they have.
Identify the attributes and behaviors that characterize the existing culture for each entity and then identify the features of the desired future, united culture. Use a cultural assessment to capture the current state and to increase dialogue and understanding about why things are done certain ways. Avoid the temptation to look at another organization’s practices as wrong, but learn why they have done things. With this knowledge, develop a plan to honor the past and migrate to the future. Remember, it is often easier to adopt and modify an existing culture than it is to create a new one. So, consider which culture may become the dominant one and embrace the best parts of it. Acknowledge that co-creating a culture is hard work and will take time, but respecting differences in approach and thinking and aligning new ways of getting work done is key to successful integration.
Develop a clear transition plan for the first 90 days with monthly check-ins for the first 12 months. Identify transition points at the individual, team, and organizational levels. For the individual level, encourage networking, mentoring, and coaching along with role reconciliation activities so people are clear who does what. At the team level, conduct a team assimilation process for each team with a new leader or new team members to accelerate and clarify team processes, responsibilities, and expectations to build accountability and team cohesion. And at the organizational level, clarify structural reporting relationships with clear decision making rights and processes for information sharing and feedback to manage through the potential surprises.
Organizational culture is a significant sustainable competitive advantage and often the root cause of a M&A’s failure or success. Insist on focusing on the people side during your next acquisition. Active and visible leaders who make clear and informed choices about people and culture are needed to increase the success rate of the acquisition process. Just like a growing child, treat each acquisition as unique and be flexible as you navigate the value creating process of M&A activity.
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