(Warning to MBA’s and spreadsheet pros: this article is about the “soft stuff” of merger success. NSFW if your organization is only focused on near-term financial goals.)
Is your company merger friendly? Do your people embrace the acquired company’s employees, respect their accomplishments, their skills and capabilities? Do they actively seek to build business together by quickly merging product lines or leveraging customer relationships? Are they willing to give up some things they usually count on for the greater good of the new organization?
Or do your people exhibit the pride of the victor? Does the transaction give them proof of their inherent superiority? Are they jealous that it was “those guys’ who got rich in the deal? Do they look for problems with the acquired company’s business model, sales team, R&D results, or even the leaders themselves?
We have seen these behaviors all too often. One CEO proclaimed in our first joint meeting with the acquired company execs, “We are going to fix (your company.)” And frequently, we have heard it said, “We bought them; our way must be better.”
Leadership and Culture
Most acquisitions begin with strategic objectives and financial projections. Revenue forecasts are pushed little by little, and costs are nudged downward in the same way, as proponents seek to make the deal economically feasible, its financial model meeting ROI expectations. All the while, it is assumed that leaders are up to the job of making the tougher numbers, and rarely are cultural factors assumed either to be a benefit or a hindrance.
Leaders ignore leadership and culture issues in M&A at their peril. Recent research by one of us identifies seven specific leadership capabilities that drive first quartile financial outcomes for acquiring companies. And a deep body of knowledge demonstrates clearly the organizational culture required to succeed in times of great change.(1)
We believe that any integration will benefit from fewer generic assumptions and more thoughtful focus on the “soft” themes of leadership and culture.
Merger Friendly Companies
What does it mean to be a leader in a merger-friendly organization? We’re talking about leaders who understand that a deal isn’t done until it is successfully integrated, where people understand that integration makes extra demands and often pushes them outside their comfort zones, and that success often requires them to adopt new skills. We’re talking about leaders seeking to understand deeply how the target company actually achieves its objectives, and incorporates that understanding into its plans for the combination. Above all, merger-friendliness is openness to learning during the planning and integration of an acquisition, building on respect for the capabilities of the target company management and founded on the assumption that their people and their knowledge are crucial to the success of the combined enterprise. Broad-minded executives, open to exercising new leadership capabilities while being thoughtful and deliberate in their decisions impacting culture, create merger friendly companies.
Introducing Leadership and Culture to Your Merger Integration
Planning and managing the integration of a significant acquisition demands a balance of attention to hard and soft variables. For most organizations, the hard ones get 80-100% of the attention. You can begin to move the dial a little at your next opportunity:
1) Beginning any time, preferably before the next deal surfaces, build a better understanding of your own starting point. By this we mean to document how your leadership team stacks up against the seven key leadership skills that the most successful acquirers exhibit. Make development of the required leadership skills a focus of leadership development for top executives. During the next integration, coach these executives to truly show up as the leaders they need to be.
2) Begin to speak openly about culture. Engage colleagues now in a reflective assessment of your own company culture – both the visible and invisible elements. The visible elements fall into the category of “how we do things around here.” The invisible ones are the assumptions, beliefs and values that underlie your organization’s norms. Thoughtful interviews of long time employees can determine what it is about these that drive success and, if relevant, identify those that impede success. When you have gone through this exercise for your own organization, and socialized the result with your leaders, you will be much better prepared to explore and properly integrate a company with a different culture.
John W. Pancoast
J. Keith Dunbar
C. Evan Smith
1. Seminal documents include John Kotter and Jim Heskitt, Corporate Culture and Performance, 1992 and Edgar Schein, Organizational Culture and Leadership, 4th Edition, 2010.