If more than 50% of mergers and acquisitions don’t deliver the outcomes we seek, it begs the question: how do we maximise the chance of success?
Mergers and acquisitions can be one of the most challenging strategies organisations can undertake and while the outcomes are typically geared toward growth or expanding markets, the staggering rate of failures often visit serious financial consequences for one or both of the entities involved.
More often than not, the root cause of the failure is related to ‘people’ issues, not the commercial assumptions. Despite being well-documented that cultural integration is a critical success factor in bringing two or more organisations together in the M&A process, the adage culture eats strategy for breakfast is frequently overshadowed by focus on commercials in the heat of a negotiation. It’s possibly an inadvertent oversight, but it can be a recipe for disaster.
M&As are driven by many factors: Entering new markets, increasing scale, reducing competition, acquiring a new customer base, sweating assets, new technology, new services, and many more. In most cases, the transaction typically features one party that sees themselves as the acquirer, even if it is a merger taking place. It’s not a stretch to suggest that the acquirer could perceive that they are in a stronger, more dominant position and that can lead to behaviours akin to the master-servant dynamic – talking at or down to new teams and directing rather than consulting.
The flipside of that dynamic is that the acquired company may assume some degree of superiority because what they have created is of such value that another organisation needs and wants to buy their success. Being told that they must then change – be it process, people, or systems – can quickly turned to ash if it is managed poorly.
However, this is the rub. For most people, perception is their reality and links directly to how they behave on either side of the M&A process: it’s very much the behaviours of people that will have direct impact on the likelihood of success. Setting the tone and standards for behaviour from the onset of any M&A might just be the single most important factor in delivering a successful integration down-stream.
Despite these very real challenges, it is worth unpacking the critical success factors that can be put in place to maximise the potential for successful integration.
Factor One: Set the Standards of Behaviours From Day One and Hold People to Them
A while back Quay ran a C- Suite roundtable on what the executive’s characteristics needed to be in place for successful business integration and it was quite telling when the CEO of a major financial services organisation stood up and said unequivocally that as the CEO, you must “define the standards of behaviours that are acceptable and then hold people to account”.
The CEO understood that the minute there are any allowances or exceptions for, say, one of the best players is the minute they imprint a culture of inequality and double standards – possibly not the culture you are looking to create.
Much like sporting codes the players represent their clubs and their codes and standards of behaviours must be clearly defined and met.
Factor Two: Chose Your Team Thoughtfully – the Best Players Don’t Always Make the Best Coaches After All
In our last M&A article, we pointed at leadership and culture as the ‘other due diligence’ and as being one of the main reasons that post-merger problems arise when it isn’t undertaken. Deliberate and thoughtful consideration needs to be given to identify the people best placed to lead and the people who need to be part of any delivery team. The best results will come from high performing teams.
Without doubt, collaboration, empowerment and high self-awareness are major contributors, as is the capacity of the team. Like most projects staff often maintain their day jobs and absorb the load of M&A projects on top of their usual responsibilities. Underestimating the time commitment required not just for the team but for the changes being implemented can result in serious stress, short-cuts, burn outs and blame games.
We suggest consideration is given to whether or not the leadership team need to take a ‘reasonable’ amount of time to consolidate before embarking on the integration slate and that their terms of reference include:
- Cultural integration – how can we help two cultures come together and start building a new culture amidst enormous change?
- How do we monitor, assess, and support those teams?
- How can we reduce the exodus of talent from the business?
Factor Three: Prioritise Objectively
We all know the squeaky wheel often gets the oil but it may just be that the motor needed it first.
Taking an investment-led approach to project prioritisation, applying agreed objective criteria (such as alignment to strategy, ease of implementation, risk, change impact and so on) and then assessing each project in the mix against it allows the governance group to make informed decisions collectively, which supports alignment at the top and an integrated business.
Through collaborative decision making a new organisation begins operating as one integrated business able to answer questions such as:
- How do we choose the ‘right’ projects and cadence for integration?
- Does the context – i.e. merging businesses – change the approach to how an organisation would ‘typically’ approach its project slate?
- How does a new leadership team define what success looks like and communicate that into the business?
Factor Four: Fit-for-Purpose Governance
A considered approach to governance is a must to enable the organisation to implement the changes required in an efficient manner. Too much governance can cripple and too little can lead to misalignment.
Building and implementing governance frameworks that are fit-for-purpose for the organisation can ensure timely and informed decisions are made but also bond the new teams around a common goal. For example:
- Clarity of ‘what success looks like
- What are the change impacts likely to be?
- Diversity of thought in key decisions
- Group accountability and
- Delivery methodology
These are all elements that contribute to the success or failure of integration between merging businesses. We are often both bemused and aghast when companies acquire others that have been extremely successful and then start to imprint patterns of governance that are not fit for purpose and begin to erode the value from the outset.
Factor Five: Measure and Report
A cornerstone belief of our business is this: If it’s not measured, it’s not managed.
Now more than ever, management must be appropriately informed of progress and held accountable for the outcomes. The no bad news culture of the past is under attack from regulators and authorities the world over, which means that directors and managers must be across the key information they need to make informed decisions.
Whilst most organisations will have some form of progress, reporting is the key is to thoughtfully determine what information is needed, by who and when, and in what format.
The Common Link? Behaviour
These five factors are not an exhaustive set, however the common link is that they each point to behaviour and the importance of culture in business. Some define culture as ‘what people do when no one is watching’ and accountability to that ideal has to be shown at the top. Leadership behaviour and ultimately creating policy and processes that steer the right behaviours required for success include being accountable, showing empathy, embracing diversity, and shared common goals. We believe that it’s these elements that are needed to reverse the woeful trend of failed M&As.
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