SLEEPING WTH THE ENEMY
Chances are that at some point in your professional life you have worked for an organisation that has merged with, acquired, or been acquired by another organisation. If you haven’t – the odds are that you will… The resulting complex, hybrid organisations are typical of today’s business environment; and you would expect, given that the scenario plays out so often, that they would be fast to assimilate, integrate and leverage synergies to outperform their less sophisticated stable mates. Mergers are a lot like marriages, but the odds for success are far lower. Evidence from prolific research on post-merger and acquisition performance suggests that the failure rate of such organisations falls in the range of 50 to 80%! Even in those organisations that are successful, the statistics don’t tell the story of how many prosper ‘despite’ the merger or acquisition rather than ‘as a direct result of.’ Promises of ‘competitive advantage’ and ‘increased market power’ are often found to be hugely overblown and, once the honeymoon is over, the focus, tenacity, persistence, resilience and downright hard work demanded of integration leads to a period of dangerous navel gazing. At Gallus, we focus on strategic alignment, leadership capability, dynamic change and customer experience. As a result, we’ve had the privilege of working with many organisations planning towards or preparing for a merger or acquisition, or navigating the post-merger headache of structural and cultural integration. Combining two organisations with different histories, experiences, capabilities, processes, systems, habits and people is a complex undertaking and there is no one right way to do it. The M&A path is complex and dynamic but there are some core important lessons that we’ve learned along the way……
LESSON 1 A BIG DOSE OF REALITY
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Perform due diligence on your due diligence! In the planning and preparation stages of the exercise robust due diligence is critical. Typical due diligence considers strategic capabilities, market penetration, financial health, proprietary intellectual property and the potential competitive advantage to be gained. More insightful due diligence processes extend to the operating structure of the organisation, system compatibility and critical process and decision mapping. Many however miss four vital areas: 1. Leadership capability – the ability of the most senior team to create an aligned strategy, focus the organisation on key priorities, and demonstrate culturally appropriate behaviour. And the ability of line managers to focus their teams on what really matters and support their people as they navigate ambiguity. Understanding the level of leadership and management capability at all levels of both organisations is imperative to success. 2. Culture – Gaining a deep appreciation of the culture of each organisation, the deeply held values and beliefs, the histories that have created said cultures and the habits demonstrated under pressure. Being brutally honest about the likely clashes that may occur and how damaging they have the potential to be. 3. Change agility – Integration is about mobilising change – how quick can the organisation accept, adapt and accelerate. M&A activity is change on steroids; if an organisation struggles with change more broadly an M&A scenario is only going to amplify that problem. Often the most impactful derailer can be a lack of change agility in one or both organisations.
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GALLUS CONSULTING 4. M&A ability – an evaluation of M&A expertise across the combined organisations viewed as a core competency; how much ‘process learning’ has been embedded through previous M&A experience. A thorough due diligence process will provide a genuine outline of the capability, capacity and willingness to integrate in a way, and at a speed, that can drive ‘competitive advantage’ or ‘increased market power’. Leadership capability evaluation, cultural audits, change readiness assessment and scenario planning can all boost momentum, and ultimately, success…
LESSON 2 LEADERSHIP ALIGNMENT
Integration is virtually impossible with a split top team. The leadership team must provide clarity and focus in a complex and somewhat confusing environment. They must be aligned to create a shared vision of the future and drive long-term systemic value creation while achieving short-term results and protecting the new organisation’s assets and reputation. Leaders must be seen to believe in the new organisation and to collectively create and harness positive energy; removing obstacles on the critical path and increasing the speed of change. Cultivating belief is the team’s shared responsibility. Sometimes individuals who are not supportive of the changes are retained for their knowledge or relationships. Leaders must be seen to genuinely commit to the changes required. Whilst it’s important to consider knowledge, capability and relationships in deciding who to retain, knowing when to let go is just as important… Shared leadership should only be used to enable performance – not to avoid confrontation…
LESSON 3 MACRO TEAM DYNAMICS
Bruce Tuckman’s team development model is often applied to teams but is equally powerful at an organisational level. Consider the stages that the fledgling organisation will navigate; what will be evident as it traverses ‘forming’, how will ‘storming’ become evident and how can it be managed positively and accelerated, how can ‘norming’ be encouraged and embedded as it emerges, and finally how can the organisation enter the ‘performing’ stage and do so in a sustainable and systemic way. Don’t underestimate the need for ‘mourning’ amongst those loyal to original organisations – create vehicles for people to celebrate historic success and be proud of their heritage for a firm foundation…
LESSON 4 LABELS & NAME-TAGS
Making the effort to create a new lexicon of terms and labels is important but beware of just creating new labels for the original organisations and, in the process, re-invigorating boundaries. Giving new names to each original organisation will change nothing and will provide a tribe for those not in support of the combined organisation to subscribe to and promote…
LESSON 5 TINY HABITS
Your due diligence process will have highlighted the critical processes, key decisions and typical methods employed across both organisations. Some habits are hard to break; forming frameworks and re-engineered processes (supported by relevant system changes) early on will help to accelerate integration and will provide individuals and teams with authority and accountability. Where resistance is powerful, making small changes and adding new ‘tiny habits’ tethered to process triggers can do much to promote and embed new cultural norms…
LESSON 6 MIX IT UP
Create combined teams from the outset and engage your best minds on co-creation. Make the difficult decisions required to create leadership and operational teams that combine the best of both worlds without diluting the strengths the M&A process was designed to amplify. Use integration projects to accelerate relationship formation and make excuses for people to spend time together at every opportunity. Metaphorically swap shirts, exchange gifts and break bread!
LESSON 7 ‘BE’ THE CHANGE
‘Be’ the change throughout the change and make sure that everyone is demonstrating the values and behaviours of the assimilated culture you desire. If you seek collaboration and co-creation design your integration process to include genuine opportunities for both. If you seek innovation allow individuals to experiment and support them if and when things don’t go to plan. Call out and challenge counter-cultural behaviour and be quick to manage toxic behaviour and potentially remove those who repeatedly demonstrate it…
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SLEEPING WTH THE ENEMY
LESSON 8 CONNECT
Create a palpable rhythm of authentic and engaging conversation around the integration. All stakeholders matter as you conduct due diligence, plan and prepare for integration, and navigate the integration process. Be courageous and involve major clients and suppliers in your journey so that you don’t fall into the trap of solely focusing on the internal mechanisms of the new organisation at their expense. Communicate extensively and genuinely involve investors, clients, suppliers and employees to minimise the impact of the natural distrust that emerges in a change environment and to best ensure your decisions and actions result in sustainable performance excellence…
LESSON 9 MYTHS, LEGENDS & HEROES
Storytelling is a powerful way to influence people towards a vision. Stories communicate morals, values, beliefs and the consequences of behaviours in a palatable and memorable way, and create a shared narrative around which people can congregate. Celebrate the myths, legends and heroes of the old organisations but be sure to focus time and effort on the creation and promulgation of new myths, legends and heroes that capture the culture and leadership behaviours that you want to see and show the negative consequences of potentially toxic behaviour…
LESSON 10 BIG DOSE OF REALITY REVISITED
Be VERY realistic about what you can achieve in the first 18 months of any integration. Beware of rushing ahead without first developing and embedding the culture, establishing a capable, committed, courageous and aligned leadership team and prioritising client, supplier and employee experience. Use NPS (Net Promoter Score) to identify how the change is impacting key stakeholders and to gain valuable insight into how to create a high performance environment that everyone can believe in. Set purposefully achievable milestones to provide an opportunity to share and celebrate success as the merged organisation. Most importantly, review progress and realign strategic plans on a quarterly basis – take the opportunity to learn what has gone well and why so that you can re-plan and re-prioritise effectively…
Above all else, a good integration plan creates engagement, passion, commitment and, most importantly, belief in the future. Planning early and sustaining the involvement of all critical stakeholders in the co-creation of the future creates a solid foundation, emotional connection and aligned agendas; all invaluable to the success of the organisation. Gallus was launched to put the belief back into business – belief is core to everything we do! Since 2008 Gallus have partnered with ambitious organisations and leaders across the world to make strategy reality, and to build high performance environments that everybody can believe in. With a strong track record in creating fast growth or dynamic change in complex, regulated and emerging sectors; Gallus focus on four pillars of belief - strategic alignment, leadership capability, change agility and customer experience - to drive clarity, create momentum, accelerate growth and generate sustainable value. We’re ambitious for our clients and believe in their futures… Find out more about how Gallus can create value for you - start your journey towards clear, valuable momentum here www.gallusconsulting.com
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