5 Tipping Points Where Mergers Fail

One Too Many Mergers?

Tipping Point Where Mergers Fail

Strong economies bring growth which inherently brings change. To achieve growth, there has been a significant increase in mergers and acquisitions over the last several years.

While mergers and acquisitions clearly grow organizations, there are unintended consequences that can limit and, in some cases, undermine growth. Leaders seeking growth acquire organizations that they believe will be a good strategic fit. Once the acquisition is done, they often leave it up to ‘management’ to do the ‘easy’ part – that is to fit all the pieces together.

This is where things begin to break down.

While leadership is off looking for the next acquisitions, management often struggles to integrate an outside company into their own. A different culture, different processes, computer systems that will not speak to one another, … it’s a mess.

Most of us hate reading instructions. After all, putting together Legos is easy! But putting two different companies together, regardless of their respective size and how much leadership talks about their similarities, is not so easy. Mergers can be like forcing a round peg into a square hole … without instructions. For most merging organizations, the difference between synergy and the chaos of mismatched technology and culture clash are the closed door conversations about ‘… who do they think they are?’

As we help clients create alignment after mergers and acquisition, there are some common themes. In terms of lessons learned, almost all of our clients who grow by acquisition reach several key tipping points. Regarding risk, these are the points where they either keep growing or stall. They are critical in that if too many stall, the organization can fall off the edge for good.

5 Tipping Points of Mergers & Integration

  1. Misalignment – When people are not on the same page with what the future state looks like or are attached to the legacy organizations, there is misalignment. Even if people think they are aligned in a merger, often they are ‘aligned’ to something different. Alignment cannot be gotten; it must be created. The investment in creating alignment separates thriving leadership teams and their corporations from those who merely survive mergers. Work must be done up, down, and across the organization to clearly align around (on a macro and micro level) WHAT needs to be done, HOW it will be achieved, and WHO will be accountable to result in the desired future state. Having three or more processes to do the same thing is really really expensive. 
  2. Talent – Growth and integration after a couple of mergers require leaders to take on a degree of strategic big-picture thinking that is often a full step or level above the role they played in the legacy organization. Some team members make it and will grow with you. Some don’t – the tipping point is about how fast you recognize, deal with this, and equip leaders with the skills to lead the organization though the chaos of integration. Leaders need to see the forest through the trees. Otherwise, they will get lost hacking at weeds. 
  3. Change – At lower levels in the organization, change is felt more strongly. The effects of decisions made at the top can create confusion or ambiguity that threatens the cohesiveness of the organization further down. When you start hearing, ‘This is the way we always did it at …,’ this is usually the reason. It’s a red flag waving in the wind that you do not have alignment. Pushing forward through this pain always results in more pain. It is like a pebble in your shoe. You need to stop and deal with the issue or risk having to slow down later. 
  4. Intentional Culture – Integration requires leadership to be extremely intentional in how they drive sustainable change and create a new culture. This ‘intentionality’ separates the viable long-term mergers from those that falter. Integration is a lot like asking two strangers to commit to marriage after one date. As with two people who have grown up in different homes with their own distinct values and beliefs, organizations too have their own ways of doing things. Integrating companies requires attention to the uniqueness as well as the shared cultures. Being intentional about culture will result in a happy marriage and avoid an eventual and expensive divorce. 
  5. Communication – Bringing different groups of people together requires both communication and inclusion so that the perceptions of being “in” vs. “not” can be addressed throughout the integration period and beyond. This typically lasts for 12-18 months as people move through their own personal transitions. Work from the premise that communication is vital. Making sure that everyone is heard is essential to making the integration a long-term success.

Alignment Drives Effective Merger Integration

Alignment is the antidote to change fatigue and it turns the risk of failing mergers upside-down.

  • The antidote lies in taking an inclusive approach and the time to get leadership aligned around the following. This is a pre-work vs. re-work scenario. An investment up front in creating alignment between leaders and teams of multiple legacies minimizes future risk.
    • Desired future state
    • The capabilities the organization must be able to deliver to achieve the future state (business capabilities, not individual capabilities)
    • A realistic assessment of the capabilities the exist in the organization as a whole…these will be different across the legacy organizations, so it is important to align leaders around the big picture
    • A clear understanding of which capabilities are most critical to drive your strategy and where the gaps are that need to be overcome
    • Clearly sequenced and prioritized investment plan (time, resources, money, projects, etc.) to ensure that the focus is on those that are most critical to drive strategy first
    • A workforce plan to ensure that the best talent owns the most critical capabilities and that the organization is structured to drive the capabilities as efficiently and effectively as possible
    • Governance needs to be reinforced and sometimes redefined, so that decision making is fast and doesn’t unravel
    • Attention to organizational design to address potential unintended internal completion and functional clarity
  • Letting culture just evolve is extremely risky and often slows growth long term. The most effective goal we’ve seen work at this point, is to build a central integrated culture (very intentionally) that creates enough momentum in the central organization that newly acquired organizations are absorbed into it by default, while at the same time allowing enough freedom for the central organization to adopt the best practices you paid for in the acquired companies.

If you are sitting in Human Resources, it may seem that much of this is not ‘HRish.’ We have found that the most cutting -edge CHRO’s are playing an increasingly strategic role asking these questions and leading the organization to address these, particularly in volatile, uncertain, complex and ambiguous environments that mergers create. That is the new normal.

Want to talk about moving past the tipping points to ensure successful integration? Call us, it’s what we do.