These days, it seems merger integration and corporate consolidation continues to run rampant across most industries. As you have undoubtedly seen over the past few years, many of the smaller players and especially family businesses that once existed are no longer in business. While some may have fallen prey to the recession, many more have simply been acquired by larger corporations.
So what makes these company mergers successful? Maybe more importantly, why do so many fail to deliver their intended business results? If you are currently contemplating the potential of a merger, the following six best practices and absolute must do’s can make your merger a success. And if you are already in the midst of a consolidation effort, it’s not too late to apply these proven principles now to produce better business results.
1. Do your cultural due diligence – The integration process routinely begins with a thorough financial due diligence. This is how most companies, especially private equity-funded organizations, assess the financial performance of their acquisition targets and determine the merits of a potential deal. Unfortunately, this financial analysis often misses a critical success factor for that business – its people! The human element in an organization is what makes it tick, so in addition to any fixed assets an organization’s people and culture is what someone is really buying when they acquire another company. So the burning question to ask extends far beyond the book value of a business with the key to success being effectively integrating the people and culture of one business with that of another. This is why Amazon.com’s acquisition of online retailer Zappos worked so well. Tony Hsieh apparently only agreed to the merger because Amazon’s leadership agreed not to touch the defining culture he created at Zappos during the integration.
2. Honor the past and celebrate what got you here – Even when it is supposedly a merger of two “like” companies, one company tends to experience a loss unlike the other in a merger. That means that the culture of one company tends to win out over the other. To combat this common challenge, it’s important to honor the successes that brought both “OldCo” companies (as we often refer to the original companies) together as a single “NewCo” organization. Explicit rituals like All Hands celebrations and awards ceremonies that recognize individuals and groups who have contributed materially to their organization’s success can be effective. Maintaining heightened awareness of the OldCo’s core values or displaying symbolic icons like pictures of the OldCo company’s founders or first office building can be effective too. In the case of United Airlines and Continental Airlines a few years ago, for example, the NewCo company is still named United and the company’s operations command center is based in Chicago, not Houston. The NewCo company’s logo though is the former Continental Airlines icon.
3. Develop a shared vision for the future – I once helped two not-for-profit agencies who had been struggling with their merger for over two years finally come together in a matter of months simply by bringing Board members and Senior Staff from both organizations together to establish their shared vision for and define the strategic direction of the combined NewCo agency. Sure, there were other legal contracting matters that had to be addressed in the final stages of the merger. That was easy though once the new leadership for the NewCo had a clear path forward and gained some inspiration for what they were trying to accomplish together. More often than not, business leaders see the transaction itself as the finish line. The transaction is just one of many steps in the transition process though. What’s most important is the ongoing purpose for the NewCo entity, and this requires a shared vision for the future.
4. Plan your future from that place in the future – As you establish that shared vision together, consider your future from the future. Most strategic planning approaches start from a place in the past, literally looking over one’s shoulder at where we’ve been and then projecting forward with the highest-level trajectory possible. This traditional approach by its very design, however, produces results that are constrained by one’s past accomplishments – and failures for that matter. You cannot rewrite your past, so don’t put it in your future. By starting from an ideal future state and focusing on that as your “lighthouse” as I’ve come to call it, you can then work backwards defining what specific actions must be taken to keep you on the path towards that intended destination. This is exactly what we did with the two not-for-profit agencies to get them unstuck and move them past their self-centric posturing to focus their collective energy on the common good.
5. Communicate early and often to everyone who will be impacted by the process – Rarely do two companies merge simply to keep all managers and staff engaged long-term. The economies of scale alone suggest that someone – if not many someones… – will in fact lose their jobs at the end of the integration effort. For that reason alone, it’s critical to let people know what’s going on as it happens as opposed to holding back information or keeping secrets from those who may be affected by the changes. More than that, people can only help with what they know. If they don’t know what’s going on, they may unintentionally do something to get in the way.
6. Identify and develop your successor – One of the final people practices that can have a tremendous effect on the success of a merger is the identification and development of someone to succeed the chief executive of the integration target. When two companies come together, it’s quite common for the chief executive of one company to assume senior leadership responsibilities of the NewCo after the transition and for the other chief executive to relinquish his/her control and depart after a period of 12 to 24 months. Companies who have a successor in place to assume increased responsibilities in the NewCo organization after those “golden handcuffs” come off literally increase the value of their businesses by two to three times as much as those who do not because someone can provide leadership continuity after the dust settles.
At the end of the day, the value in a merger is only going to come if the two companies are successful in integrating their cultures along with all of their systems and processes. That means that people are critical to the success of the integration. Yes, our greatest asset can be our greatest challenge. If you go slow and take it one step at a time though, it is possible to get through to the other side.
Are you in the midst of a merger integration effort? Beginning to consider consolidation with another company? Give us a call at 866.PLS.DLTA (or +1.310.589.4600 outside the US) to discuss how best to integrate these best practices into your overall transition strategy. You can also visit the Change Management page of Plus Delta’s website to learn more about how we implement positive changes in organizations to produce better business results.