Go back to your own experience: 8 to 10 months into the integration process (after a merger or an acquisition), the momentum seems to slow and difficulties surface. Michael Newman and I researched literature to see whether or not the observation our colleagues and I had about this specific moment was matched by others. These are some of what we found:
- Jeffrey Krug, a strategy Professor at Loyola pointed out that “executives, the managers in charge of the target company at the time of the acquisition, leave in droves soon after the deal is complete. On average, about a quarter of the executives in acquired top management teams leave within the first year, a departure rate about three times higher than in comparable companies that haven’t been acquired”. He also noticed that, shockingly, the turnover rate of executives in merged companies remained twice that of unmerged firms over a 15 year period. He observed that “The exodus of incumbent executives decreases leadership stability, disrupts lines of communication, and fractures the organizational culture. New executives taking the reins in this tough environment may be set up to fail, or at least to fall short of expectations”.
- David Harding and Ted Rouse, (who led the M&A practice at Bain) wrote in 2007: “To make matters worse for those who remain, confusion over differences in decision-making styles leads to infighting. Managers postpone decisions or are blocked from making them. Integration stalls and productivity declines. Nearly two-thirds of companies lose market share in the first quarter after a merger. By the third quarter, the figure is 90%”.
- The value of addressing cultural and relationship issues early is highlighted in detailed interviews Bain & Company conducted with managers involved in 40 recent mergers and acquisitions. Their research compared people-related practices in successful and unsuccessful deals. In the 15 deals classified as successful, nearly 90% of the acquirers had dedicated significant resources to cultural and relationship issues during due diligence or within the first 30 days after the announcement. By comparison, this task was carried out in only one-third of the unsuccessful deals.
Going back to our own experience, so many leaders still confuse “Change Management” and “Change Leadership”. They believe that a solid project management structure, working on the processes, procedure, governance, product lines and markets are the most important aspect of the integration. They totally miss the truly important and urgent: their people!
As many papers have shown previously, most of the mergers fail to create value (it is widely estimated that 70% of all mergers or acquisitions destroy value). Other than carefully understanding the fragile balance of the intangible assets that are supposed to integrate with each other, we always recommend leaders to pay careful attention to three main and unavoidable steps:
- The Mourning process: It is an illusion to hope that we will get the best out of our people, in the case of integration, if we do not let them go through that delicate, painful and unpleasant phase. Having supported several such processes, I still remember consultants running to hide in their bedrooms at the hotel where we had invited the top 150 leaders of two banks, to help them through a forced “consultant driven merger” between their organizations who ferociously hated each other previously. Freud called this phase “catharsis” but it is fundamental that the leaders display interest, compassion and understanding for the hard feeling their people have in front of a forced integration. I will never forget a courageous leader I accompanied when he had to close a plant in Northern England. Rarely did I feel so threatened and abused. He stayed with the people, showed respect and understanding and didn’t bow down nor collude: to his own sadness, the decision had been made to close and he was there to announce it (rather than sending an e-mail) and see how best to support his people
- The Reaction process: It is only after the mourning process has been paid respect to that we can hope to get our people’s rationale and energy to re-engage. They usually tell us when they are ready. I remember in another case, being still prepared to run through two days of “bitching and moaning” with a large audience of people whom we were accompanying through the mourning process, when one hand rose and one of them challenged: “Didier, in all fairness I am not sure to want to continue looking at the past and regretting it. I still do not agree with the way things have been done here but I realize we now need, as leaders, to move on. Can we roll our sleeves up and work on the future?”. That was a clear signal. I asked the audience how they felt and a huge majority chose to focus on the future rather than regret the past. The only aspect leaders need to pay attention here is the danger of action for action’s sake. We need to ensure our people’s renewed and somewhat nervous, reactive energy is well used on projects that will make a visible difference for them and their people.
- The Anchoring process: People will revert back to regretting the past if we don’t solidly anchor the new situation into the future. In order to do so, we must create powerful, spectacular and authentic “emotional markers” that people will be able to hang on to. I vividly remember the tears of a C.E.O. recalling a tragic accident which cost lives in the previous company he was heading. These moved the 300 leaders audience and created a profound and sincere marker. In that company, engaged in a profound mutation, there is a before and after that moment with the C.E.O…
The best way to avoid the 9th month black hole in an integration process is to ensure, from the start that not only the process, systems and other hard and software issues are taken care of. It is critical to design a truly authentic engagement process for our people.
Home after 5 full weeks of travels. And a few days in my native Belgium! Have a great week all! Didier