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Follow Best Practices to Make Mergers Work

By Kathy Miller on July 13th, 2013

(Article published in Louisville-Business First, March 25, 2011)

By now almost everyone knows that many mergers and acquisitions flop. The “divorce rate” is high. And even those that “stay married” frequently fail to live up to their predicted potential.  So maybe it’s time to become less romantic and a little more practical in our approach to the union of two or more companies in an M&A process.  Of course, success depends on many factors. And the accuracy of your assumptions going into the merger is the most critical key to the outcomes.   We advise leaders of merging companies to avoid assuming anything.

Establishing a synergistic merger

Compare your compatibility. Analyze the degree to which you are like-minded in your philosophies, styles, missions and visions for the future.  For example, do the two companies have the same basic tolerance for risk? Do they share the same beliefs about the desired degree of responsibility, freedom and independence of employees?  If one company encourages employees to be aggressive, innovative and risk-seeking while the other expects employees to follow explicit and stable procedures, confusion or worse could ensue.  Likewise if one of the companies gathers lots of input and pushes for consensus decision-making, while the other company emphasizes speed over input, misunderstandings and resentments could inhibit success.

Which approaches are correct? It all depends on what the newly merged company is trying to accomplish. It is incumbent upon the leaders to intentionally choose the line of attack that will serve the new merged company best.  Don’t assume that differences aren’t significant or that discomfort over dissimilarities will go away with no effort.  Identify possible pitfalls and how to avoid them. Once you have identified the differences, assess which ones matter.  Ask yourselves whether any of the contrasts are likely to create a counterproductive climate.

For example, could the diverging approaches confuse customers or lead to critical talent walking out the door? Which, if any, of the contrasting styles might lead to productivity-dampening conflict?  Of course the real challenge is to plan strategies for avoiding the potential pitfalls once identified.  Determine the newly merged company’s parameters. Ask yourselves how you want the new entity to look, feel and act.

Typically, there are three different ways companies can come together.

First, the two cultures can remain independent and coexist.

Second, one culture can dominate and eventually absorb the other.

And, third, the cultures can blend, with characteristics from each culture surviving. Typically, the acquiring company engulfs the acquired company, the acquiring company’s culture dominates, and the acquired company’s culture goes subsurface or fades away.

However, leaders are more likely to succeed in optimizing merger success by intentionally shaping the organization that they want.

Planning for the future

In some cases allowing the differences to coexist makes sense. Sometimes a company purchases another because of its differences.  For example, a large, stable company may buy a smaller more entrepreneurial one because of its flexibility and creativity.  In other cases blending the best practices of both cultures into a entirely new one will work best.  The important point is that leaders should make these decisions intentionally rather than by default.

These three steps are simple. Acting on the outcomes is harder. However, the more energetically you shape the organization that you want and need, the more likely your chances of achieving your merger goals.  Just as with a marriage, each of the companies coming together has a history of its own. Like it or not, companies are composed of people who have their own ways of doing things.  Therefore wise leaders will compare cultures, identify possible pitfalls and intentionally plan for the merged future.

To read the article, click  Lousville-Business First