“Insuring your costly acquisition against failure”

by Didier Marlier on Friday May 1st, 2015

Merging or acquiring are two highly risky decisions to take. Following several consultancies, the proportion of such operations, failing to deliver on their promises, is around 70%. Why do we get it so wrong? A paper, to which some of us contributed, brought interesting ideas forward:

  • Jeffrey Krug in a 2009 HBR article pointed out that “The managers in charge of the target company at the time of the acquisition leave in droves soon after the deal is completed.” He also noticed that, 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”.
  • David Harding and Ted Rouse , writing in 2007, also spotted the loss of talent. They added “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 […] Too often, leaders simply ignore, defer, or underestimate the significance of people issues in mergers and acquisitions. They gather reams of financial, commercial, and operational data, but their attention to what we call human due diligence (understanding the culture of an organization and the roles, capabilities, and attitudes of its people) is at best cursory and at worst nonexistent.”
  • The value of addressing cultural and relational issues early was highlighted in detailed interviews Bain & Company conducted with managers involved in 40 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 relational 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.

In our view, too often, well intentioned leaders and their advisers focus solely on the “Change Management” aspect of the merger (aligning processes, choosing IT platforms, creating a new organization and staff it).It is the “Project Management” side of things and it is necessary but far from sufficient.

But focusing only on this is a heavy mistake which risks endangering the heavy investment made. This approach, no matter how many pretended engagement sessions it claims to have, completely fails to address the “Change Leadership” or the psychological aspect of the merger (culture, new shared purpose, values, Deep Intent).

In our experience, the few mergers we saw truly succeed had two processes in common and their leaders were clear about those:

Engagement, after an acquisition or merger, happens in three steps:

  • Mourning process: People need to be allowed to voice their concerns, questions, doubts and negativity, if we want them to authentically engage. “Even if we insist on obedience, we will never gain it for long, and we only gain it at the cost of what we wanted the most: loyalty, intelligence and responsiveness” says Margareth Wheatley.
  • Re-engagement process: Once the mourning process completed, a strong (but reactive and not purposeful) energy emerges. The danger is to believe that this will be sufficient. That energy is, in fact short lived and the risk is high that people will fall back into their past comfort zone, when difficulties arise.
  • Anchoring Process: is fundamental in ensuring that people move passed the temptation of going backwards. It is seeking to firmly “anchor” the new situation and people energy in the future.

When designing then delivering their Change Leadership/Engagement Process, they work at three levels:

  • Logos or Intellectual agenda: In order to engage people to actively support the integration process, it is vital to create an intellectually compelling picture. Time and space need to be created for the participants to understand the new situation and ‘make it work for themselves’. The intention is to co-create clarity, meaning and ownership on the new intellectual agenda.
  • Ethos or Behavioural agenda: People follow behaviours more than strategies! A new leadership style has to be the visible ‘cement’ between the leaders and their followers. It will show that “things are happening and taking place”. It builds credibility in the whole integration process.
  • Pathos or Emotional/Motivational agenda: The Pathos agenda is what will encourage people to look ahead instead of regretting the past. It is what causes intelligent and successful people to ‘go the extra mile’ in difficult times. The leaders of the new entity need to use, appropriately and with authenticity, the symbols and stories that will convince people to get on board.
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