Post-merger Integration and a Marriage of Resistance
“Gee, I really love you and we’re gonna get integrated”
Bill and Jane had seen each other from afar for years as they were often hanging out in the same areas and talking to the same people. They were formally introduced at a large trade show and began casually discussing a variety of topics at this time. After an intense and brief courtship, one night Bill threw out the idea that they should become closer, much closer, even taking Bill’s last name.
At first Jane was a little bit offended, but after a little bit more time, Jane agreed to explore some things. Several weeks passed. Acquaintances of Bill and Jane reviewed each other’s assets, determined that they each had something to gain, and so Bill and Jane did come together, taking Bill’s name.
From that special day, Bill and Jane had a plan that was developed by their acquaintances (note that these were not the best friends of Bill and Jane, but merely acquaintances). There was a sequence of events that would occur by certain dates and milestones that should be achieved. The acquaintances told the new couple how great their new life would be together and how to achieve this life by sticking to this plan. They were able to tell Bill and Jane this, despite not knowing anything about the prior experiences in their life that helped define Bill and Jane. They also did this using spreadsheets and financial models, not by actually taking input from Bill, Jane or the people that knew them best. How likely is this merger…err marriage … to succeed?
As ridiculous as this sounds, this happens every day with mergers and acquisitions across the business world. The reasons for such deals vary significantly. The terms of “value extraction” or “synergy” are often mentioned. Optimization of assets, products, technologies, markets, geographic reach, capabilities, and even talent are sought through these transactions.
Often deals are almost exclusively driven by a hastily-performed “due diligence”. Though the people that perform these exercises are highly experienced and do phenomenal work, they do not have enough time to truly delve into compatibility issues between the companies or explore more serious issues that may exist under the surface — ones which typically do not show up in an analysis performed over just a few weeks. In fact one study reports that as high as 83% of all merger deals do not increase shareholder returns. It is therefore quite curious, after a deal has been reached, that the plan developed during the early stages of the process becomes somehow “infallible” as the work of integration progresses.
Some symptoms of these issues could include:
- Companies maintaining the operating cultures of separate entities under one brand — which results in a negative impact for customers and/or a feeling of inequality in one group. These subcultures or the “unofficial culture” can even affect the behavior of employees and their understanding of values.
- Employees (usually from the acquired company) feeling disenfranchised — they lose their sense of belonging to a group, thereby impacting the emergent culture, creating one derived from a negative experience of the new entity.
- Attrition rates increasing — often with the departure of the best talent. This too can be linked to a feeling of no longer belonging and can be quite detrimental if core institutional knowledge is lost.
- Policies are in conflict resulting (at a minimum) in employee relations challenges or (at worst) a subversive, harmful counter-culture.
- A protracted period of low productivity emerging as employees try to figure out how to work together.
At BridgeOne, we see this post-merger integration challenge as one which could utilize a human-centered approach, one that builds empathy and understanding for the individuals actually going through the merger (or acquisition), and one that allows for the repeated ability to creatively diverge for options, quickly converge on an idea, prototype it, learn from it, and then repeat the process.
This requires leadership that does not suffer from confirmation bias. It also necessitates a real understanding that the integration of separate cultures, ways of working, and other complex businesses is messy, takes time, and is not something that can be put into a rigid project plan at the beginning of the process. Real integration goes far beyond IT systems and policies, it involves humans, behaviors, and a continual and intentional shaping of the new entity’s culture, requiring continual ideas, adjustments, decisions, and compromises in order to achieve success.
A Tale of Three Cultures
One of the first fallacies of the merger and integration world is one in which managers assume that “the right” dominant culture will simply take over in time, leaving the “unwanted” residual culture(s) behind. The assumptions are based on the notion of “how things have always been” or something as simple as having more people who demonstrate the desired, dominant culture, rather than the undesired residual culture. Minimal effort is spent explaining or exploring the phenomena (after all — these types of phenomena do not fit well into project plans), so the organization is often left to its own devices, drifts along, and relies on a form of natural selection to occur.
Most integrators view these losses and the residual cultures as collateral damage and chalk it up to the “cost of doing business”, but in reality, significant value leakage occurs due to this drift, in many cases preventing the full value of the transaction from being realized.
This “dominant” culture concept ignores the fact that the original culture was (likely) built over a significant period of time from the shared experiences of the individuals in the organization.
It therefore stands to reason that a new, emergent culture will only be “created” from the new experiences of the merged entity, not just the heritage culture of the previous companies. If this is the case, then companies going through a merger / integration process must pay extremely close attention to the experiences that are created as this process unfolds. All too often, however, all of the attention is focused on “closing the deal” or “realizing the synergies”.
Our belief is that the company leaders who most successfully design those experiences are the ones who truly realize a maximum return from the merger or acquisition.
So how is this accomplished? Early on…
- Understand the current-state culture that prevails in both entities and the experiences that created them. A key here is to take an empathetic approach, one that is deeply observational, to understand how work happens in both organizations — consider that a useful identifier is often based on how companies manage unplanned events or the context of “old timers” indoctrinating new recruits in terms of how they were oriented.
- Create a roadmap to a future state with the recognition that this will be an iterative exercise with a constant supply of new information. The business should see this as a mechanism to course correct and not an exercise in complying with a plan, dismissing the value of errors / feedback or successes.
- Recognize that the way to create a culture is not by working on culture but working on some type of opportunity as a mechanism to build the culture — this opportunity could even be the integration itself. In order to achieve this, leaders should be conscious of the attributes of the culture they would like to create, and lead in that manner.
- Engage the organization around a new way of working — building it from the ground up. Too many times the whole integration effort is managed by a small, select group working in a “war room” without real engagement across the organization. Employees are told to worry only about continuing their own work and ignore the changes occurring around them. Culture is a means and experience in which employees understand the norms and values of the organization, reinforcing the requirement for a supplantive experience to transition to a new culture.
Cultures correlate to the reality of what employees experience in the organization. How leaders interact, the manifested values and beliefs (not what is written on paper), ways of thinking, and how decisions are made all make up these experiences. If the culture does not tie back to reality (the experience), it will be resisted, and the maximum value of the combination of two or more entities will not be realized.