People count too, not only money, during mergers
Because M&A is so complex, compelling business reasons need to drive every merger and acquisition effort. It goes without saying that companies need to consider specific strategic, financial, legal and operational criteria before determining if M&A is a viable option. Still, even M&A deals that meet all these criteria can fail.
Companies preparing for M&As often give too much attention to the hard business deal and not enough attention directed toward human resources and management plans that actually implement integration. To succeed, management needs to pay close attention to the softer, human side of mergers and acquisitions.
HR and management practices need to be evaluated to determine compatibility. Both companies need to agree on how employees can be retained and motivated, and whether there is a good fit between the cultures, before even considering a merger. Companies who don’t agree on ‘people practices’ are much more likely to fail.
Employees in organizations that are acquired or merged with other organizations report lower overall satisfaction, lower trust in management, and a diminished sense of job security compared to employees in acquiring firms, or employees in organizations not involved in M&A activities.
Begin with employees
Most leaders recognize how low employee morale, variable commitment and poor cooperation can cause disaster. Employees tend to become less flexible, less adaptable, less autonomous, less self-managing, more rigid and more defensive during stressful organizational changes.
Therefore, successful M&As begin with employees. Management should not overlook the importance of clarifying messages, encouraging and engaging their workforce. Practices that address employee concerns and reduce anxiety include strong leadership, clear communication, employee involvement and team approaches to planning and implementing change.
In particular, there are six categories of change practices that critically affect the success of a merger or acquisition. These practices all meaningfully involve employees directly in the business of changing the organization. They are:
Clarifying strategy and direction. Management should ensure business rationale is clear and widely understood.
- Involvement strategies. Employees need to be meaningfully involved in decisions and plans that affect them.
- Communication strategies. There needs to be extensive and candid communication about the status and progress of change.
- Staffing practices. Always retain key employees while treating those who are eliminated in a fair and equitable manner.
- Structure/process decisions. Management should ensure alignment among key structural elements, systems and processes.
- Culture interventions. Management needs to analyze cultural fit and establish (new) organizational values.
Not as important
Many practices leaders commonly associate with navigating change are actually not as important to integration success. Research indicates four common change practices that are the least crucial to integration success if they are not introduced in conjunction with the high impact practices above.
- Management training. Preparing managers to understand and lead change.
- Feedback and accountability. Collecting employee feedback to ensure that management walks the talk.
- Employee training. Preparing employees to deal with change.
- Special employee support. Special efforts to assist employees who may be especially vulnerable to stress, such as financial counseling, career counseling and stress management.
These practices prepare people for things that might happen. This thinking is ‘one off.’ M&As are much more successful when management implements change practices that more directly involve people in the integration process.
It is also important to know when change practices should be integrated.
Integration is not a fast process, typically lasting two years or longer. Integration is also not stagnant; the process evolves through three distinct phases: planning, legal combination and execution.
- Planning phase. Planning involves searching for and selecting a suitable merger or acquisition candidate. Activities include clarifying strategy, performing financial analysis, establishing a business case, conducting due diligence processes and developing preliminary integration plans.
- Legal combination. During legal combination, leaders complete negotiations, formalize and close the transaction, announce the combination to the public and plan for and implement the integration process.
- Execution phase. Execution involves implementation of the merger plan and addressing the unforeseen problems related to combining firms. During execution, management clarifies roles and responsibilities, retains staff, maintains employee morale and develops employee commitment to the new organization.
Knowing which change practice to apply depends heavily on the stage of the integration process. Some change practices, such as communication, need to be done throughout the entire implementation process. That said, what you communicate completely depends on the phase.
Clarifying direction, involving people and focusing on communication are particularly important in the planning and legal combination phases. Staffing and retaining employees, developing good structures, systems and processes and shaping the culture of the new organization are important during the execution phase.
Perhaps the most important thing leaders can do to ensure successful M&As is to pay close attention to their people. Employees will have questions and concerns through every stage of the change process. Stress is brought on by feelings of insecurity and uncertainty about adaptation.
Good leaders address these feelings and concerns straight on. In fact, a survey of organizational leaders who have successfully completed a merger or acquisition indicated that effective change management and good people practices were as important or more important in determining integration success than financial, economic, or competitive issues.
Robert Barnett,
MDA Leadership Consulting:
612.259.4243
bbarnett@mdaleadership.com
www.mdaleadership.com
