Making Mergers Work: Looking beyond the spreadsheets

When looking at leadership transition and creating culture alignment in a merger, so often the integration of the two organisations fails to deliver the anticipated outcomes on economies of scale, profitability, cost savings, revenue streams, margin, market share, shareholder value, customer loyalty and the engagement of the workforce.

John Kotter founder of Kotter International and formerly Harvard’s Professor of Leadership has spent some 40 years analysing what tends to derail the best laid plans; his research showed that 70% of change efforts including mergers do not deliver what was promised.

Poor clarity of post-merger vision:

The reasons for this are manifest, but the single most common factor is a lack of post-merger vision.  Too often, leaders focus on communicating to the markets, on integration logistics, and forging together organisational structures, without ever asking the fundamental question, “What more could we become by coming together?”  

Asking this question is the first step to building a collective sense of urgency, of alignment around a shared goal and excitement throughout the organisation. The second step is engaging all the people it impacts, and then bringing in those people to help define how the goals are to be met.

Disregard for human capital:

Crafting a vision should start long before a deal is announced or even pursued, but rarely is. Too often the leadership teams fail to develop an understanding of the people, unique processes and organisational cultures that will need to be addressed during integration. This critical activity is often ignored simply because human capital assets are difficult to value financially, and the expertise to do so is often not present in the negotiations till the deal is done.

But this due diligence must be done, to create a tangible, aspirational vision for the opportunity ahead.

And this vision of success can’t remain in the board room; it needs to be understandable, translatable  and compelling to employees throughout all levels of both companies. It’s the responsibility of the combined senior leadership team to articulate an inspiring vision for the future that compels people to contribute to, engage with and help drive this vision.

Reliance on the org chart:

Hierarchical organisational structures  are as critical to drive efficiency in the combined organisation as they were in two separate companies pre-merger. Yet these structures are not designed to deliver transformational changes. Repeatedly the new organisation structure is created in a vacuum as part of the negotiations without understanding the actualities of how both organisations work. If there is no opportunity for people to engage with their counterparts to build something new together, the organisation chart is at best an irrelevance.  At worst a plan created without broad engagement and driven by an inflexible senior leadership team delivers a disenfranchised workforce and little else.

The people challenges of change:

In our work, we have observed that business transformation stands a much better chance when the newly combined organisations create more informal networked groups to run alongside the hierarchy - a kind of dual operating system. Composed of leaders throughout all organisational levels who have volunteered in service to the vision, the network side of the system can infuse the company with more agility, adaptability and innovation than a hierarchy alone allows.

The importance of the informal network:

The network can quickly adapt to new ways of working and innovate processes that drive toward the company’s future goals. It can also disseminate new cultural norms much faster than is possible in a hierarchical structure. An integrated, informal network will allow key cultural traits to become ingrained in the DNA of the new company and serve to make it stronger. Organisations with strong networks running in tandem with the hierarchy already in place even grow stronger during integration. They are critical to innovation, engagement and effective execution. Shutting them off would only serve to disenfranchise employees and disable the routes for effective change.

In situations where it is clear that some rationalisation and cost cutting will be inevitable, those at risk respond much better to being engaged with the process. Creativity and positivity can emerge from even the most difficult circumstances if people are given the chance to have more input. But it takes courage from senior leaders to resist the temptation to tightly control the integration and instead trust their workforce.

Lessons learned:

There’s no magic bullet that guarantees success in merging complex entities but if you focus early on in negotiations on crafting and communicate a vision that clearly spells out the opportunity inherent in the change ahead and engage all employees in working out how to make it happen, then you have a fair chance of being in that thriving 30%.