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Executive Perspective On MA PDF
Executive Perspective On MA PDF
Mergers &
Acquisitions
By Robert C. Barnett
MDA Leadership Consulting
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The Executive Perspective on Mergers and Acquisitions
Mergers &
Acquisitions
By Robert C. Barnett
MDA Leadership Consulting
ergers and acquisitions (M&As) have which saw an increase of more than $250
M been referred to as the ultimate
change management challenge because of
billion in M&A activity from the previous
year (Association for Corporate Growth,
the complex and often stressful dynamics 2005). 2005 is expected to continue to see
involved in integrating one company with high levels of M&A activity. US deal vol-
another. To be successful, companies need ume increased 11% in the first quarter
to find suitable candidates for merger or over the same period in 2004, while the
acquisition that meet specific strategic, volume of global mergers rose 12% (The
financial, legal, and operational criteria. Investment Dealers Digest, 2005).
In addition, most companies recognize the
need to pay attention to the softer side of Although M&A activity is on the increase,
M&A activities, including determining evidence on M&A success provides little
whether HR and management practices reason to be optimistic. The conventional
are compatible, how employees can be wisdom is ripe with best practices for
retained and motivated, and whether there making mergers successful: focus on syner-
is a fit between the cultures of the merg- gies, move quickly, conduct thorough due
ing firms. Even in situations where there is diligence and detailed planning, dont lose
a good business rationale for the integration sight of your customers, communicate,
of two firms, cultural differences and poor and pay attention to cultural issues.
people practices can be significant factors (DeCamara and Renjen, 2004). However,
leading to merger failure. most studies of M&A integration report
that up to 6075% of M&A efforts fail
M&A activity is rebounding after a signifi- usually measured by changes in stock price
cant decrease in 2001-2002. In 2003, post-merger, return to shareholders, or
M&A activity increased by 29% from profitability metrics (for example, see
2002 levels. This trend continued in 2004, Mergers & Acquisitions, 2005; Business
Week, October 14, 2002; or The McKinsey This magnifies the need to find and prac-
Quarterly, 2001). tice the most effective ways to address
employee concerns, reduce anxiety, and
Other research confirms what managers, increase employee commitment and morale
HR professionals, and OD consultants in complicated change situations. To
have recognized for some time: declining address these challenges, consultants, psy-
productivity is generally associated with chologists, and OD practitioners recom-
employee stress and anxiety during a merg- mend a number of change management
er or acquisition; and, that cultural and practices that are particularly relevant to
human resource M&A activities. These include the necessi-
issues are of critical ty for strong leadership, clear communica-
In stressful change situations importance to merger tion, employee involvement, and team
when clarity, courage, and successand are at approaches to planning and implementing
engagement are most needed, least equal to finan- change. But most of the evidence for the
managers and employees tend cial factors in making success of these practices in M&A efforts
to become less flexible, less a deal work (The is anecdotaland more is understood
adaptable, less autonomous, Conference Board, about what makes mergers fail than what
2001). This trend is makes them successful.
less self-managing, more rigid,
alarmingly clear in
and more defensive. the results of a recent MDA Leadership Consulting wanted to
national study of study this problem by collecting the opin-
employee opinion and satisfaction (Gantz- ions of key organization leaders about what
Wiley Research, 2004). That is, employees they believed lead to success in complicated
in organizations that are acquired or (i.e., merger and acquisition) situations.
merged with other organizations reported
lower overall satisfaction, lower trust in
Our Approach
management, and a diminished sense of
Our approach was straightforward. Based
job security compared to employees in
on a review of the literature, we identified a
acquiring firms or employees in organiza-
number of commonly recommended change
tions not involved in M&A activities.
practices that were particularly relevant to
Organizational leaders understand the M&A situations. A questionnaire was
implications: higher employee morale and designed that asked organizational leaders
stronger employee commitment lead to to rate how important any of these prac-
increased levels of quality and productivity tices were in helping gain the cooperation
which, in turn, lead to increased customer and commitment of employees in a success-
satisfaction and retention and, as a result, ful merger or acquisition in which they had
stronger organizational performance been involved. Success referred to cultur-
(Heskett, et al, 1994). The opposite trend al or integration successhelping employ-
predicts nothing but trouble. In fact, in ees overcome concerns and apprehensions
stressful change situations when clarity, about the change process and make a full
courage, and engagement are most needed, commitment to the new organization.
managers and employees tend to become
Our intention was to collect as many opin-
less flexible, less adaptable, less
ions from senior organizational leaders as
autonomous, less self-managing, more
possible. We identified approximately 125
rigid, and more defensive (Cameron and
executives experienced in M&A activities
Whetten, 1987).
and invited them to complete the question-
The most important change practices that The practices found to be statistically less
respondents believed to be important to important and impactful to integration
the success of a merger or acquisition success included:
effort included (in rank order based on the
analysis of respondent ratings):
Digging DeeperWhich Change The table on the following page was devel-
Practices Matter When? oped to help change leaders with this chal-
Successfully implementing the integration lenge. Within each of the critical change
of a merger or acquisition takes time. 80% categories, specific change practices that
of our survey respondents indicated that are particularly relevant to merger and
integration activities spanned two years acquisition integration success are shown,
or longer. One particular aspect unique to along with when (i.e., in what phase of the
M&A activity is that the change and inte- process) it is most important to implement
gration process typically involves three that practice.
distinct phases (Marks and Mirvis, 1998).
The specific change practices included
Planning PhaseSearching for and received clear support from the change lead-
selecting a suitable merger or acquisition ers who participated in the study. They rep-
candidate. Activities include clarifying resent the top 34 (of 54 total) items in the
Involvement Involving key people in Assembling cross-company Providing teambuilding activities for
Strategies planning the transition. task forces to study integration developing effective post-combination
Planning for transition problems. teams.
teams that will identify Using cross-company task
synergies and design forces to make recommenda-
change efforts. tions about the design of the
combined organization.
Appointing key leaders as
transition managers or task
force members.
Appointing the transition
team to provide oversight and
coordination throughout the
integration phase.
Staffing Designing a plan or making Developing a comprehensive Designing a lay-off policy (if necessary)
Practices special efforts to retain staffing plan for the combined that is fair.
desired talent (e.g. bonus- organization. Administering a lay-off policy consistently.
es). Providing outplacement services, severance
packages, job-location assistance, or other
services to support displaced workers.
Culture Formally analyzing the Establishing organizational Continuously analyzing the cultural differences
Interventions culture of the candidate values and principles to guide of the two organizations to improve culture
firm to assess culture behavior and decision-making. fit.
fit. Mapping out and implementing culture
integration activities.
Identifying shared values that characterize
the desired culture of the new organization.
questionnaire. Not one specific change prac- The table on page 7 borrows some of their
tice from the 4 lower-rated change catgories suggestions and illustrates the skill and
was included in these top-rated items. expertise that good OD practitioners can
offer change leaders in light of the change
The table can be used as both a blueprint practices for successful M&A integration
for planning integration activities, as well emerging from this study.
as a diagnostic tool for understanding
stalled integration. As the table and its
specific change practices suggest, clarifying Peoples Concerns
direction, involving people, and focusing Make a Difference
on communication are particularly impor- In their book, Joining Forces, Marks and
tant in the planning and legal combination Mirvis make a compelling point: people
phases. Change practices that relate to matter! They argue that people have legiti-
staffing and retaining employees, develop- mate questions and concerns at each stage
ing an effective organization structure and of a merger or acquisition. Paying atten-
aligned systems and processes, and shaping tion to their concerns is a change leaders
the culture of the new organization are responsibility, and is one of, if not the key
more important in the execution phase. ingredient, for achieving integration suc-
For those who have already initiated a cess. They describe peoples concerns as
merger or acquisition process, using the they relate to feelings of insecurity (e.g.,
list of practices as a checklist to evaluate What will happen to me?), uncertainty
progress and plans can help pinpoint why (e.g., Whos in control?), and finally to the
problems might have emerged, or help process of adapting to the new organiza-
change leaders pay attention to important tion (e.g., How do I succeed here?).
activities they may not yet planned for. Change leaders that address these ques-
tionsby implementing the practices
describedare those who will likely have
How OD Can Help? the greatest success.
Traditionally, executives look to legal and
financial experts for help in M&A efforts. To test this notion, we included a final
However, OD practitioners are particularly question in our study. We wanted to
well suited to help change leaders design understand how change leaders viewed the
and implement the change practices importance and impact of good management
endorsed by the executives in our study. and people practices relative to other factors
They are trained in evaluating opportuni- such as financial or competitive issues in
ties for designing and implementing inter- achieving success in integrating a merger
ventions that improve organizational or acquisition. Our results clearly support
health and the well-being of the organiza- Marks and Mirvis position. Over 90%
tions employees. They are attuned to the of the respondents indicated that effective
organizations culture, and the organiza- change management and good people
tional dynamics that reflect the interplay practices were as impactful or, in some
among the elements of the organizations cases, more important in determining
strategy, structure, processes, and systems. integration success as financial, economic,
Cummings and Worley (2001) have pro- or other competitive issues.
posed a number of ways OD practitioners
can or should be involved in M&A efforts.
Change Practices for Successful The Skills and Expertise that OD Practitioners Offer
M&A Integration
Clarifying Strategy & Direction. Help the M&A team form and develop its plans.
Ensuring the business rationale Facilitate discussion and decision-making about the rationale or
is clear and widely understood. business case for the merger or acquisition.
Participate in due diligence efforts, especially those involved in the
initial assessment of culture fit.
Monitor and advise executive leaders about how to communicate most
effectively with employees.
Communication Strategies. Extensive, Advise executives on how to integrate a communications strategy into
candid communication about the sta- overall change planning and change management activities.
tus and progress of change. Coach change leaders about how to manage their message and make
their communication powerful and effective.
Design and facilitate employee communication sessions to achieve
maximum exchange and understanding.
Staffing Practices. Making special Advise executives about retention and staffing plans and decisions.
efforts to retain key employees. Design and implement staffing or selection systems for key positions
in the new organization.
Culture Interventions. Analyzing Advise and/or conduct organization or culture assessments, and
and re-analyzing culture fit. provide recommendations about how to enhance culture fit.
Facilitate clarification and communication of (new) organization values.
Advise executives about how and where to best modify practices,
policies, and processes to reflect the organizations values and
reinforce the desired culture.
References
Association for Corporate Growth (2005). 2004 M&A profile. February, 2005, 29.
Bekier, M.M., Bogardus, A.J., & Oldham, T. (2001). Why mergers fail. The McKinsey
Quarterly, No. 4, 610.
Business Week (October 14, 2002). Mergers: Why most big deals dont pay off. 3803,
6067.
Cameron, K.S., Whetton, D.A., & Kim, M.U. (1987). Organizational dysfunctions
of decline. Academy of Management Journal, 30, 12638.
Cummings, T.G. & Worley, C.G. (2001). Organizational Development and Change.
(7th ed.). Cincinnati, Ohio: South-Western College Publishing.
References (continued)
DeCamara, D. & Renjen, P. (2004). The secrets of successful mergers: dispatches from the
front lines. Journal of Business Strategy, 25(3): 1015.
Han, A.L. (2005). A strong year underway, M&A rises to $599 billion. The Investment
Dealers Digest, April 18, 2005, 1.
Heskett, J.L., Jones, T.O., Loveman, G.W., Sasser, W.E., & Schlesinger, L.A. (1994).
Putting the service-profit chain to work. Harvard Business Review, March-April, 164174.
Marks, M.L. & Mirvis, P.H. (1998). Joining Forces. Jossey Bass, San Francisco, CA.
Schein, L. (2001). Managing culture in mergers and acquisitions. The Conference Board.
Wiley, J. (2004). Work Trends. Gantz-Wiley Research Consulting Group. Minneapolis, MN.
Wall, S.J. (2005). Looking beyond the obvious in merger integration. Mergers &
Acquisitions, March 1, 2005.
Appendix
Companies Represented in the Study
Adayana Ecolab Polaris
ADC Telecommunications GMAC Pentair
Allianz Life Great River Energy Polo Ralph Lauren
Assurant Highland Banks Sunoco
Blue Cross Blue Shield Honeywell Tennant
Bremer Banks ING Thrivent Financial
Cargill International Multifoods Upsher Smith
CenterPoint Energy Lifetouch US Bank
Community First Banks Medtronic Verizon Wireless
Deutschebank Novartis Pharma Xcel Energy
Author Bio
Robert Barnett is the Executive Vice President and a Principal of MDA Leadership
Consulting in Minneapolis, which he joined in 1985. Bob earned his B.A. and his Ph.D.
from the University of Minnesota. He also has a M.S. in Organization Development
from Pepperdine Universitys Graziadio School of Business and Management, where
he serves as an adjunct faculty member. Bob can be reached at 612-332-8182 or
bbarnett@mdaleadership.com
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companies in the Midwest. Without
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great leadership, nothing works!
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