Put Employees in the Center of Your Integration Strategy
Business is booming – and shrinking! When the economy is strong, companies have the cash to put their acquisition strategies to work. In 2018, worldwide merger and acquisition activity totaled $4.0 trillion, representing an astounding 25.6% increase over 2017. But as merger activity accelerates, tales of woes also abound.
Studies show that around 70% of mergers fail to achieve their stated objectives. While experts commonly blame failures on poorly executed pre-deal factors such as target identification and valuation, a recent McKinsey & Company study points to the greater criticality of post-deal integration. The study concludes that the most impactful differentiator between high- and low-performing M&A efforts is the merging companies’ integration capabilities.
While integration capabilities are important, too often, they’re lacking. A study of post-deal outcomes featured by the Institute for Mergers, Acquisitions and Alliances (IMAA) found that the least successful mergers have a consistent causal theme: people. Those mergers almost always feature sub-par approaches for employee retention, maintaining high-energy, and enthusiastic employee engagement, and effectively driving decision-making among decision-makers.
Given this trend, more and more experts point to the importance of managing the people-related aspects of the deal. In this introductory installment of a multi-part series on the people aspects of post-deal integration, we focus on five practical options for integration teams to consider when designing their integration plans with organizational health in mind.
1. Culture matters – so measure it
You’ve likely heard the truism “culture eats strategy for breakfast.” It is no surprise that many failed mergers point to cultural differences as a contributing factor. We also know that culturally speaking, no two companies are the same. Merging companies bring their unique cultures to the deal, each formed by internally shared beliefs about the behaviors, attitudes, and norms that “work” in their environment. It is virtually guaranteed that the cultures of the two companies in a merger have evolved differently.
As the companies are integrated, over time one culture typically “wins out” over the other. What if the “winning” culture is not the one that drives ongoing strategic value for the new entity? How do you ensure the post-integration survival of the right cultural norms, behaviors, and attitudes?
Our experience tells us that while culture is generally considered when selecting acquisition or merger targets, the post-deal integration plan rarely takes a methodical approach to ongoing culture shaping. We recommend a different approach: use statistically-validated culture assessment tools to identify the specific strengths of each culture in the context of the strategic vision. Then implement specific organizational change management strategies to shape the post-merger culture. With continued use of culture assessment tools, the team can monitor progress and course-correct as necessary.
2. Start with the operating model, not the org charts
In the aftermath of a merger, integration teams work to sort and combine the two organizations into a single organization chart, often relying on titles or function or group names as the premise for structure. Dubbed the “lift and shift” approach to organizational design, it invariably leads to an ongoing, disruptive series of reorganizations as the company’s new operating model develops. Instead, initiate organizational design by applying organizational design principles driven from the mission of the merged entity. Organizational shifts will then fulfill the operating model from the beginning, rather than a series of upheavals that limit productivity and trigger attrition.
3. Leaders drive your culture – so navigate their journey
As we talk with leaders about their roles in building a company’s culture, they often believe they are modeling desirable cultural behaviors. Not necessarily, says expert Dr. Peter Fuda. He describes the concept of “Illusory Superiority” – that “we each judge ourselves by our intentions. We judge everybody else by their actions.” Fuda has validated with quantitative employee feedback that roughly two-thirds of all leaders are unaware that their intentions are, in fact, not visible in their actions. Helping leaders understand this intention/behavior gap accelerates both leader alignment and culture reshaping.
4. Accelerate team activation
New teams are virtually always formed following a merger, and newly appointed leaders often struggle to integrate expanded teams and scope. We recommend activating new teams by holding a structured series of workshops. These help each team define objectives, clarify roles, and even get down to the nitty-gritty of working through combined workflows. Often, a significant “bonus” outcome of this activity is the development of a foundation of collaboration and trust that enables a higher velocity transition to productivity.
5. Use people analytics to measure change
We measure the most critical factors of our organization’s performance in order to identify opportunities to improve their effectiveness and efficiency. In an M&A situation, we need to be measuring how well our people are aligning to the desired culture and new organizational design. The field of People Analytics is the answer. People Analytics has developed significantly in recent years: new “listening” tools gather rich, high-quality data and translate it into actionable, benchmarked information – all in real time. This allows an organization to quantitatively measure how well its people are aligning in the newly merged environment. And an integrating organization can use these on-demand snapshots as decision support tools to benchmark and course correct as needed – ensuring that the people factor of the merger remains solidly on the path of success.
The achievement of envisioned merger value relies on a post-deal integration strategy that includes an emphasis on people factors. In the forthcoming installments of this series, we’ll further explore practical approaches to driving integration success.