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Practice papers

Making mergers and acquisitions work:

What we know and dont know Part I
Received (in revised form): 17th June, 2002

Richard M. DiGeorgio
is the principal of Richard M. DiGeorgio & Associates, a management consulting firm.
The firm is a network of highly qualified consulting firms, who have worked in numerous
industries and at all levels of Fortune 500 companies. Mr DiGeorgio has 27 years of
experience as an executive and consultant with three Fortune 500 firms, 18 of those
years were spent at Mobil Oil. His last assignment was as an internal management
consultant on assignment to Project Horizon, Mobil Oils effort to improve its
effectiveness in building capital projects and save $500m a year. In that time, he spent
18 months working with ExxonMobil on the worlds largest merger. Mr DiGeorgio has
designed and taught numerous training programmes during his career, particularly
management and supervisory courses. Currently, Mr DiGeorgio spends most of his time
on organisational development and major change efforts, and coaching managers and

KEYWORDS: mergers and acquisitions, corporate strategy, change, leadership, systems

thinking, accountability

ABSTRACT This paper (published in two parts) summarises what is known and not
known about making mergers and acquisitions (M&A) work, and identifies best practices
where appropriate. The paper points to some of the best articles and books written on the
subject. It also identifies areas where additional research is needed. The conclusion, which is
supported with considerable evidence, is that much more of a systematic approach is needed
to thinking about M&A if the success rate is going to improve. This paper outlines the
critical elements of a systems approach to making M&A work. Professional change agents
and managers responsible for making mergers or acquisitions work will find that this paper
identifies key levers for them to focus on as they go about the real work of making it
happen. The second part of this paper will be published in the Journal of Change
Management Volume 3 Number 3.

WHY ARE THERE MORE AND MORE According to investment bankers JP

MERGERS AND ACQUISITIONS? Morgan, companies spent $3.3 trillion on
Richard M. DiGeorgio1 mergers and acquisitions (M&A)
Of the 150 recent deals valued at
Richard M. DiGeorgio &
$500MM or more, half destroyed
worldwide in 1999, up 32 per cent from
Associates, 11 Bakers
Drive, Washington shareholder wealth judged by stock 1998 (Ashkenas and Francis, 2000). From
Crossing, PA. 18977, USA
performance, and another third January 1990 to 1st June, 1997,
Tel: 1 215 369 0088; contributed only marginally to shareholder worldwide deals involving over $5m
Fax: 1 215 369 0098;
e-mail: wealth. Mercer/Business Week Study totalled $3.9 trillion. The upward trend (Zweig, 1995) should continue to the end of the

134 Journal of Change Management Vol. 3, 2, 134148 Henry Stewart Publications 1469-7017 (2002)
Making mergers and acquisitions work

millennium, according to Richard J. Even with the drop-off in M&A

Peterson of Securities Data Co. (LaJoux, activity accompanying the current
1998). economic downturn, M&A activity in
So why this significant growth? 2001 was four to five times what it was
CEOs probably can express this best, ten years ago. There is no reason why,
particularly ones involved in significant once the economy turns around, the
M&A activity. Here are quotes and amount of new M&A activity will not
comments taken from a Harvard Business continue to increase rapidly. Also some
Review roundtable with eight CEOs very significant M&A activity has
(Harvard Business Review, 2000): occurred and continues to occur. The
HP-Compaq merger will be an
Alex Mandl, Chairman and CEO of interesting case study. Stockholders will
Teligent: The plain fact is that wish them luck.
acquiring is much faster than building.
And speed speed to market, speed
to positioning, speed to becoming a THE CASE FOR CHANGE WHY A
viable company is absolutely SYSTEMS APPROACH IS REQUIRED
essential in the new economy. Given the growth in M&A activity and
Mackey McDonald, Chairman of VF the impact on the investing community,
Corporation: An acquisition becomes will the same approaches used in the past
attractive if it offers us a new be adequate in providing investor value,
consumer segment or geographic or is there a need for change?
market to sell our products to or if it In their excellent book, Joining Forces,
adds new products to one of our core Marks and Mirvis (1998) state the case
categories. thus:
Other comments by CEOs in the
article focus on the creation of more than three-quarters of corporate
synergies in research and development combinations fail to attain projected business
that can be reinvested in new drugs, results. In fact most produce
or cutting costs in the chemical higher-than-expected costs and
business. lower-than-acceptable returns. Meanwhile,
executive time and operating capital are
diverted from internal growth; morale,
There is a feeling that, to compete in productivity, and quality often plummet;
the new global economy, one needs to talented crew members jump ship; and
have scale and scope, though Ghemawat customers go elsewhere. In a great majority
and Ghadar (2000) would disagree with of combinations, one plus one yields less
that contention. Others are looking for than two.
new channels of distribution for existing
products. In addition, many small hi-tech How valid is this opinion, and what is it
companies need capital to grow, and based on? In fact, there is quite a bit of
more established companies need research on the topic. LaJoux cites 15
start-ups to grow the top line. Cisco major studies of the success or failure of
Systems and GE Capital are two acquisitions. For the studies reporting
excellent examples of established failure rates, the rate ranged from 40 per
companies that have successfully used cent to 80 per cent, with the exception of
acquisitions to grow the top line. These one study done in 1965, which reported a
two examples will be examined in more 16 per cent failure rate (LaJoux, 1998).
detail later in this paper. A few of these studies will now be

Henry Stewart Publications 1469-7017 (2002) Vol. 3, 2, 134 148 Journal of Change Management 135

examined in more depth. One of the bankers, and original sellers have
best known studies was reported by prospered in most of these
Porter (1987). Key findings were: acquisitions, not the shareholders.
My data also illustrate that none of
I studied the diversification records of the concepts of corporate strategy
33 large, prestigious U.S. companies works when industry structure is poor
over the 1950-1986 period and found or implementation is bad, no matter
that most of them had divested many how related the industries are. (Porter,
more acquisitions than they had kept. 1987)
The corporate strategies of most
companies have dissipated instead of The 1995 Business Week/Mercer
created shareholder value. Consulting analysis mentioned at the start
He found that companies divested of this paper indicates that, while the
more than half of their acquisitions in 1990s deals were performing better than
new industries, more than 60 per cent the deals in the 1980s, most of the 1990s
in new fields, and 74 per cent when deals have not worked. The analysis
they invested in unrelated businesses. method used the S&P industry indexes
three months before the deal and up to
Porter feels the data probably understate 36 months after. They used techniques
the rate of failure. While there is a lot of to filter out impacts of other events.
fanfare about an acquisition, there is very While not a perfect methodology, it is
little mention of selling or closing down one used by many to determine the
operations in the press, so sales or impact of M&A performance. The study
close-downs were much more likely to claims that the major reasons M&As do
have been missed in their data collection. not work is because of:
Porter examined four strategies to
diversify. They are portfolio management, inadequate due diligence by the
restructuring, transferring skills and sharing acquirer or merger partner
activities. He concluded that acquisitions lack of compelling strategic rationale
that rely on transferring skills, and sharing unrealistic expectations of possible
activities offer the best avenues for value synergies
creation. Successful diversifiers in his paying too much
study made a disproportionately low conflicting corporate cultures
percentage of unrelated acquisitions, failure to quickly meld the two
minimising situations where there were companies. (Zweig, 1995)
no clear opportunities for transferring
skills or sharing activities. Even successful Towers Perrin and the SHRM (Society
acquirers have poor records when for Human Resource Management)
acquiring unrelated acquisitions. With Foundation did more current research
success coming from transferring skills or regarding the key issues that trip up
sharing activities in acquisitions, effective mergers. They interviewed 600 top HR
implementation is that much more executives and CEOs. They reported the
important. following as key reasons for problems in
Porter makes some very telling the performance of the combined
comments relative to the thesis of this organisation (Rubis, 2001):
paper in his conclusions:
inability to sustain financial
Only the lawyers, investment performance (65 per cent)

136 Journal of Change Management Vol. 3, 2, 134 148 Henry Stewart Publications 1469-7017 (2002)
Making mergers and acquisitions work

loss of productivity (60 per cent) TWO THAT DO IT RIGHT CISCO

incompatible cultures (55 per cent) SYSTEMS AND GE CAPITAL
clash of managerial styles or egos (53
per cent) The Cisco Systems case
slow decision making (51 per cent) Cisco Systems has successfully employed
wrong people selected for key jobs a growth strategy that involves
(50 per cent). acquisitions. Since going public in 1990,
Cisco has seen its revenues grow by
The results of the study were published more than 40 per cent every year except
in Schmidt (2002). 1998, when they grew a meagre 31 per
From another perspective, the cent. Since acquiring its first company in
comment by Ed Liddy, CEO of Allstates, 1993, it has acquired over 70 companies
in the above-mentioned Harvard Business (Fortune Magazine, 2001). Its success rate
Review (2000) article is probably held by in acquiring these companies is well
many CEOs: one more thing about the documented. In fact, Goldbatt (1999)
bad rap on M&A. I think one of the said that, to find a business that has
reasons for it is that acquisitions are so handled acquisitions as well as Cisco, one
visible. When they fail, they draw intense would have to go back to the turn of
notice. But a lot of things in business fail; the century when AT&T assembled
weve all started projects that did not hundreds of tiny phone companies into
work out. The internal failures simply MA Bell. Even in the current economic
dont get as much attention. downturn, Cisco has faired much better
These findings fall into natural than its competitors.
categories having to do with selecting Below are highlights of this story,
and negotiating the right deal and some parts of the story will be used later
effectively implementing the merger or to illustrate points about the systems
acquisition. All experts would tend to approach to M&A.
agree that, if the right deal is not struck, As Porter (1987) suggests, good
effective implementation is not going to acquisitions start with a good strategy.
matter. They would also agree that John Chambers, CEO of Cisco, says that
ineffective implementation has spoiled a they combined key strategies from HP,
number of promising deals. that is to break up markets into
What these studies and results tell us, segments, with GEs philosophy of being
and this is the papers thesis, is that 1 or 2 in every market you compete.
corporations are not taking a systems Cisco developed a matrix with the
approach to the process of acquiring and market segments they were going after,
integrating acquisitions. What is publicly identifying where they had products and
known about the success both Cisco were they needed them. Cisco tries to
Systems and GE Capital has had in build 70 per cent of its products
acquisitions indicates they have taken a internally, but, if the company does not
systems approach to this process. The have the resources to become a market
rest of this paper will lay out the key leader in a targeted segment within six
elements in a systems approach, and months, it looks to buy its way in. Time
discuss some of the best practices to market is critical in their fast-evolving
associated with executing such an market. When Chambers came into the
approach. The description will hopefully job at Cisco, he thought IBM would be
provoke debate and discussion about the their biggest competitor, but it has not
elements in such a system. turned out that way because IBM has

Henry Stewart Publications 1469-7017 (2002) Vol. 3, 2, 134 148 Journal of Change Management 137

been too slow at making decisions 36 months from the closing of the deal.
(Rifkin, 1997). Ciscos history is filled with success at
Another significant part of the strategic making this happen (Rifkin, 1997).
approach employs Porters concept that Another measure of integration success
successful acquisitions rely on sharing is the retention of the high-priced talent
activities. Mike Volpi, who runs acquired in the new company. Cisco
acquisitions for Cisco, has a knack for makes a no-lay-off pledge and, in 2000,
identifying start-ups at a time when they had lost a scant 2.1 per cent of the
are old enough to have finished and employees it had acquired vs an industry
tested a product, yet are privately held, average of 20 per cent. Mimi Gigoux
flexible and need a lot of the leverage heads up a staff of 11 dedicated to
and advantages a big company like Cisco integration. Her teams stay at the target
can bring. These companies can leverage company from the start of the acquisition
Ciscos manufacturing, distribution, its IT through closing to the deal. They
systems, its accounting systems, HR, to tailored their integration process to each
name a few, and are able to get more acquisition. They map where each
quickly into the marketplace and reach a employee will best fit in Cisco. In
larger volume of customers than they general, product engineering and
could as a start-up (Goldblatt, 1999). marketing stay independent, but sales and
There are two keys to the approach manufacturing are folded into Ciscos
Cisco uses: (a) doing their homework to existing functions. Her team gets each
select the right companies, and (b) employee on the Cisco IT systems,
applying an effective reliable integration payroll and stock options. The day after
process once the deal is struck. the deal closes, a tailor-made orientation
Cisco is very disciplined in looking at begins, it can take up to a month
an acquisition, and has turned down (Goldblatt, 1999).
more companies than it has acquired. It Chambers feels Cisco has created a
asks these basic questions when positive reinforcing cycle when target
considering an acquisition: companies realise how good Cisco is at
acquiring companies and retaining
Are our visions basically the same? people, it makes it easier to acquire the
Can we produce quick wins for next organisation. Companies come to
shareholders? Cisco, asking to be acquired. In fact,
Can we produce long-term wins for these companies are willing to be
all four constituencies shareholders, acquired at a lower price because of
customers, employees and partners? Ciscos track record. That record includes
Is the chemistry right? the long-term benefits from the rise of
For large M&A, is there geographic their stock as well as the success in
proximity? (Rifkin, 1997) retaining people and launching the
products that the acquired people have
According to Charles Giancarlo, VP put their blood, sweat and tears into
Business Development, every acquisition developing (Rifkin, 1997).
is driven by time to market. Early if not
elegant, is Ciscos mantra. If we are not
making mistakes, we are not moving fast The GE Capital case
enough, says Giancarlo. Cisco wants to GE is a company that has had huge
be able to ship the acquired companys financial success for over 100 years. It is
products under the Cisco label within featured with good reason as a great

138 Journal of Change Management Vol. 3, 2, 134 148 Henry Stewart Publications 1469-7017 (2002)
Making mergers and acquisitions work

company in Built to Last (Collins and with GE capitals standards

Porras, 1994), a must read for anyone creating strategies to communicate
serious about what makes a great key information to employees quickly
company over time. In fact, GE is very educating new managers about GES
proud of the fact it has met its financial business cycle, reviews, etc.
targets for over 100 straight quarters. GE introducing GEs business practices to
Capital has become one of the most the new company (Ashkenas et al.,
sustaining engines of GEs profitability, 1998).
contributing approximately 40 per cent
of their profits in 2000. GE capital has It is the integration leader that
acquired well over 1,000 firms in its systematically employs a set of internally
short history, about 100 last year developed best practices to integrate the
(Presentation by GE Capital at acquired company. Those best practices
professional seminar). This is a company are developed and honed by a core staff
that knows something about effectively team that consults with and trains the
acquiring firms. integration leaders and their teams on the
What is known from public literature integration process. GE carefully selects
and presentations by GE Capital people the integration leaders and teams using
at conferences is that GE Capital has a its well-documented best practices in
very systematic approach to the succession planning called Session C.2
integration of the target companies it The opportunity to be an integration
selects. Many of GE Capitals ideas on leader is seen as a significant
effective integration can be found in developmental opportunity, one sought
Ashkenas et al. (1998). A key concept at after by those moving up in GEs
GE Capital is that of the integration managerial ranks.
manager. In fact, Jack Welch is quoted as What are some of the systematic
having said that, Getting the right practices used by integration leaders in
integration leader constitutes 95 per cent GE Capital:
of the success of an integration.
If the selection of an integration Building an effective team of GE
manager is so important, what are the Capital and people from the target
roles and responsibilities associated with company with the right mix of skills
this job? GE Capital has publicly shared and knowledge to lead the integration
thoughts on the role of an integration full time.
manager. The role includes: Well-planned launch meetings for the
integration teams that develop detailed
developing shared vision between plans, including 100-day plans critical
acquired CEO and the GE parent to getting off to a quick start.
partnering with the acquired the Use of a Web-Based Knowledge
CEO on integration Management System that enables any
escalating problems and resistance one of the integration teams to access
issues the collective wisdom and knowledge
building a quality integration team of GE on making integrations work.
with cross-functional leaders from GE Clearly establishing what is
and the acquired company non-negotiable in the integration
leading development of integration process; things such as GEs values,
project plans and deploying resources Session C, etc.
making sure practices are consistent Much thought goes into developing

Henry Stewart Publications 1469-7017 (2002) Vol. 3, 2, 134 148 Journal of Change Management 139

measures to monitor the progress of managers role is to create connective

each integration. GE calls them tissue between the acquired company
Dashboards to measure progress. They and GE, connective tissue that is
are very similar to balanced self-generating (Ashkenas and Francis,
scorecards, but tailored to the 2000).
individual integration effort. Like These two companies illustrate key
scorecards, Dashboards are a mixture points regarding a systems approach to
of lead and lag indicators. acquisitions. The rest of this paper will
Work Out,3 characterised as a describe a systems approach in more
problem-solving meeting on steroids, detail.
is used early in the process to
generate quick wins, important to
generating a climate for success in any SYSTEMS THINKING
change effort. There are a lot of similarities between
making M&A work and improving the
It is very clear from the examples given Capital Project Process at a major oil
that GE Capitals acquisition strategy is company. The authors experience in
based on Porters concepts of transferring improving that process over a seven-year
skills and sharing activities, much like period will shed some light on what
Ciscos strategy. GE Capital, however, is needs to be done with M&As.
acquiring assets, customers and other First, every major company has a few
tangible things. They are not dependent macro-processes, the successes of which
on a few talented people to sustain a are significantly related to the
new innovation in the marketplace, as is organisations bottom line. This oil
Cisco. This distinction is very important company spent over $5bn a year on
in the amount of effort each puts into capital projects, a 10 per cent
the importance of culture fit and improvement a year would drive $500m
chemistry in the selection process. GE to the bottom line. Clearly in the case of
Capital apparently turns down very few Cisco Systems and GE Capital, acquisition
deals based on these criteria, while Cisco of companies is a strategic macro-process
turns down a good many. The hypothesis critical to the bottom line. Often,
is that this has much to do with the companies are not aware of these
nature of their business. Losing a small macro-processes, nor do they
number of key people in a hi-tech systematically go about trying to
business can be the kiss of death, not so understand and optimise them. In the case
in GE Capitals business. GE is well of the oil company, they were not aware
known for its storehouse of managerial of this system, which cut across many
talent, losing a few key managers in a functional areas and business units. It took
newly acquired GE Capital business is many attempts and years to get
not as difficult a challenge to overcome commitments at the CEO level and across
as the same problem for one of Ciscos all the impacted organisational entities
acquisition. really to improve capital projects
Returning to a key concept in GEs effectively. The same is true for the M&A
success, integration managers at GE process in any company that is engaged in
Capital are held responsible for M&A activities with similar strategic
developing a good integration plan and intentions to Cisco or GE Capital or is
executing it, not for the P&L that is engaged in a merger with a company of
left to line managers. The integration significant size. That is, there is a

140 Journal of Change Management Vol. 3, 2, 134 148 Henry Stewart Publications 1469-7017 (2002)
Making mergers and acquisitions work

significant macro-process involved, and General Manager was grabbing for

the organisation is not aware of and is not scarce corporate resources, hoping to
trying to optimise the effectiveness of that optimise his domain, even though
process. Cisco and GE Capital are the some of the arguments and data in the
exceptions not the rule. analysis were less than wonderful. In a
Secondly, benchmarking, with real few cases, the General Manager was on
hard numbers gathered by an unbiased a power trip when it came to getting
and unimpeachable source is critical to those resources. Criticisms have been
opening the eyes of line management to similar in M&A. If law firms,
the possibilities of improvement. To my investment bankers, etc. only get
knowledge, there is no good incentives for putting deals together
benchmarking available on M&A activity, they will push more and more deals,
and it is an issue crying out for such who cares whether they work.
independent measurement. Even GE Especially when measure systems are so
Capital has only just reached the stage weak. How can we get these people
where it is measuring internally how it is to have skin in the game? That is,
doing across acquisitions. make more or less money depending
Thirdly, real accountability at the top on the success or failure of the merger
is a key to changing such a as measured by some standard. This
macro-process successfully. An anecdote may sound laughable, but some of the
from this capital project work is most innovative oil projects done in
telling. The CEO of a consulting firm the North Sea by BP used a very
with the hard benchmark data about similar model. Seven or eight
capital project success said this about stakeholders to the project, owners,
accountability at the company ranked construction firms, engineering firms,
one on capital project performance. major suppliers, etc. all were part of an
The company in point decided the agreement that tied project outcomes
outcomes of the projects developed, to final payments, where all stood to
that is, the rate of return on those gain or lose base on the ultimate
projects would follow the General success. Would not financial types pay
Manager proposing the investment for more attention to chemistry and culture
five years after the project was fit if this were true?
completed. The impact on bonus While there are many more parallels
would be very significant. What that could be drawn between fixing
happened? All capital project proposals these two macro-processes, these are
were pulled back for more review, and three of the most important. Before
none came forward for six months. describing the elements of M&A
Why? Because the way most macro-process, a few thoughts are
organisations measure performance and reviewed from systems thinking that are
grant bonuses does not account for very appropriate to improving M&A.
decisions made even two to three years They are:
ago, much less strategic decisions that
often dictate the long-term success of Structure influences behaviour
the company. General Managers are when placed in the same system,
often rewarded for initiating action, not people, however different, produce
for whether the action proved to be the same results. This accounts for
effective. And in a number of such generally poor M&A results in
situations this author was privy to, the most companies and significant

Henry Stewart Publications 1469-7017 (2002) Vol. 3, 2, 134 148 Journal of Change Management 141

Figure 1 A Keys To: Keys To:

systems Front End Success Integration Success
approach to
mergers &


Integration Plans
e Re
Dia nnes tain
log s & Cu
ue sto

Select Right Transition
Time, Resources, Target for Structure Select New
Tools Merger or Based on Leaders Communication Combination

Acquisition Type of
Plan Objectives

ss ue

le I




100 Day Plans


Culture Fit

Measure Progress - Diagnose Problems and Adjust

improvements in companies such as a number of organisational boundaries,

GE Capital and Cisco using a systems seldom do they all report to one
approach. person who owns the system.
Problems involving a long delay Reaction time in a system is a key to
between cause and effect are harder handling change; improving reaction
to fix. M&As invariably involve a time is a significant advantage to an
long time between decisions and organisation. This will become more
outcomes. obvious when communication
Systems have natural boundaries: to processes are discussed.
improve the system, you must People learn best from experience, but
examine all aspects of the system are often prevented from experiencing
regardless of artificial organisational the consequences of many of their
boundaries. M&A activity cuts across most important decisions. This point

142 Journal of Change Management Vol. 3, 2, 134 148 Henry Stewart Publications 1469-7017 (2002)
Making mergers and acquisitions work

clearly talks to the issues of take root and endure beyond the tenure
measurement and accountability of the top leaders.
described above. The second differentiator is the
importance of culture compatibility to
A model describing a systems approach the success of the acquisition or merger.
to successful M&As appears in Figure 1. It is well documented that culture
Issues associated with the different parts problems are a significant reason for
of this model are discussed in the rest of failure in M&A. In some situations,
the paper. All models are simplifications where a larger company is acquiring a
of reality in the hopes of focusing those small company, and the larger company
using it on the key variables. More has an adaptive and positive culture, it
research is needed to support this model, might be less important (GE Capital). In
but it is included as useful, and a any acquisition of size involving two
mechanism to engender discussion. established large companies with
deep-seated cultures rooted in years of
success, or in any acquisition where
THE SYSTEMS APPROACH TO M&A retention of critical people is key to
success, however, cultural fit is critical.
Key differentiators Companies vary significantly on variables
There are four key differentiators that that the one or both of the companies
will impact the system we are about to feel are critical to business success;
talk about. variables such as risk taking, speed of
First, leadership is critical to success. decision making, empowerment, results
This is no surprise, it is the number one orientation, centralisation of control are
factor that contributes to successful the combinations most vulnerable to
change. Any merger or acquisition of problems derived from culture fit. An
significance involves a lot of change. excellent example of just such an
While GE Capital puts a lot of emphasis acquisition is Hewlett-Packards
on the integration leader, in mergers or acquisition of Apollo Computer in
acquisitions that are much larger, mid-1989 documented by consultants
whether they be BP & AMACO or Philip Mirvis and Mitchell Marks. It is a
Chrysler and Daimler Benz, experience fascinating tale of a successful and
shows that effective leadership is needed respected corporation with a respected
at many levels for the organisation to culture trying to bond with a maverick,
integrate effectively. This is consistent with little to no success. It started with
with some of the best thinking on the number three company in market
leadership, and supported in research by share for work stations buying the
Heskett and Kotter (1992). Heskett and number one company Apollo, and ended
Kotter wrote one of the best books on with number two Sun Microsystems
the relationship of corporate culture and running right by the combined
performance, showing the relationship organisation. The story includes such
with hard data over a period of years. fascinating titbits as the CEO of Apollo
Kotters Leading Change (1996) is one of riding his Harley right into the
the standards about leadership and second-storey conference room for a
change. In both books, they strongly significant meeting with HP, emphasising
argue that, for change to occur, there the difference between us and them
must be leadership at many levels in the (Mirvis and Marks, 1992).
organisation for the change effectively to The third differentiator is the degree

Henry Stewart Publications 1469-7017 (2002) Vol. 3, 2, 134 148 Journal of Change Management 143

Table 1 Integration options

High Combine quickly Combine carefully

Importance to Coordinate
strategy savings
synergy Combine slowly

Low Combine as needed Separate

Easy Hard

Ease of integration

of integration needed to achieve success. sequencing can also exacerbate culture

Both Cisco and GE Capital are examples conflicts.
where there is a relatively high degree of The last differentiator is size. The
integration. The higher the degree of most obvious impact of size is that it
integration, the more difficult success makes integration much more
becomes, and the more important a complicated, and requires a different
systems approach is needed for success. structure to succeed from just an
Marks and Mirvis (1998) have put integration leader and the integration
together a table (Table 1) that provides team. Also combinations of size
wisdom on how one should think about frequently mean that the organisation is
the issues involved in integration. The focused on one combination for a few
larger and more complicated the years, as opposed to Cisco or GE
combination, the more one should think Capital, where there are many
through the issues this table raises. The acquisitions going on at one time. This
table cries out for a phased and makes it harder to develop a systems
intelligent approach to integration, approach to the combination. While a
focusing on the sequence of integration. Cisco or GE Capital can and have
In combinations of size, it is not refined their systems for years, two
uncommon for some integration efforts organisations engaged in a huge merger
to be scheduled to occur two to three will struggle to put in place a systems
years or more after change and control. approach. And they must get it pretty
Pushing too quickly for integration, much right on the first try, there are no
particularly on issues either very difficult cycles to learn from. Hopefully, this
to do or not that important to business paper will be helpful to those who must
results can have negative consequences. get it right the first time.
First, the amount of energy and stress
key executives are under during a
combination is enormous, therefore, The front end
ineffective sequencing can have The front end of Figure 1 should result
significant negative impact on the in selecting the right target. The front
motivation of leaders in the middle, key end is critical to success in M&A. The
to integration success. Ineffective front end of almost any process is critical

144 Journal of Change Management Vol. 3, 2, 134 148 Henry Stewart Publications 1469-7017 (2002)
Making mergers and acquisitions work

Figure 2 Impact
of front end

Relative capital cost (industry average = 1.0)

quality on capital




Best Good Fair Screening

Figure 3
Relationship of
time and ability to
Potential to impact value

impact value on a
capital project

Project authorisation

Front end Detailed design Construction Start up

610 months 1836 months

Typical times on large capital projects

to success. Figure 2 shows strong control that occurs in impacting ultimate

evidence of this in research done on outcomes as a factor of time. Figure 3
capital projects. Research is needed to depicts this for capital projects.
show with hard evidence the correlation Experience indicates that this is also true
between doing the front end right in for M&A, but research is needed to
M&As, and the ultimate success of the pinpoint how this curve plays out. How
combination. Another key concept from might this work? In the capital project
research on capital projects that applies to process, much energy has gone into
M&A is the diminishing degree of discovering what value-added best

Henry Stewart Publications 1469-7017 (2002) Vol. 3, 2, 134 148 Journal of Change Management 145

practices have meaningful impact in Anslinger and Copeland (1996) discuss

improving the front end. In M&A, these accountability. They recommend offering
are yet to be defined; one talks very big incentives to top-level executives.
broadly about due diligence. There are a Companies they researched wanted
number of things that need to be done executives to have considerable skin in
in due diligence, but which are the game, that is, have a considerably
value-adding practices that help portion of their net worth on the line,
significantly to improve the success of so they would be willing to do the hard
the combination? Current research is work necessary after the acquisition to
mute on this point. get the pay out. This is referred to as
Ed Liddy, CEO of Allstate would pain equity; companies using this
seem to agree with the importance of approach do not want executives in key
the front end. He said in Harvard roles to feel they can fail.
Business Review (2000), I think All of the above makes eminent sense.
integration needs to start when you are But accountability needs to be more than
planning the acquisition. Allstate this. Those organisations influencing the
integration teams work hand and glove decision to buy, investment bankers and
with the strategic planning organisation the like must begin to have skin in the
to think through the acquisition from the game too. This is a logical conclusion if
start. one accepts the concepts behind the
graphs in Figures 2 and 3. These people
have a great deal to do with the front
Elements of the front end in M&A end, and the success of the outcomes. In
big mergers where hundreds and even
Accountability thousands of managers and professionals
Leaders who either have a significant work at a burnout pace to capture
impact on the selection of target synergies, incentives need to be tailored
companies or are key to the success of to both retain and motivate them to
the integration need be held accountable. achieve the goals set. In essence, this
They need to have a significant amount happens in the high-tech industry
of their bonus tied to measurable success, because stock ownership is so broad.
the easiest of which to measure is the
value of the companys stock, hence Openness and dialogue
stock options are a great way to get This item needs definition. What is meant
people to feel accountable. Cisco is very by this term is the climate that exists
wary of acquiring a company where the among the stakeholder team deciding on
key people in the acquisition have both the strategic targets to acquire and
golden parachutes. They flatly refuse to whether a selected target is a good fit for
do deals where the target company has the acquiring company. Table 2 stands as a
accelerated vesting for employees. If that hypothesis, needing further research to
happens, the minute you buy the prove or disprove its assertions.
company everyone is rich. Cisco wants
some golden handcuffs. They want Time, resources and tools
people to have to work to bring their This title speaks for itself, if these are not
products to market, build the company available, then the possibility for a good
to earn their pot of gold, in the mean front-end analysis greatly diminishes. To
time building shareholder wealth for speak more about these here goes
Cisco (Plotkin, 2001). beyond the scope of this paper.

146 Journal of Change Management Vol. 3, 2, 134 148 Henry Stewart Publications 1469-7017 (2002)
Making mergers and acquisitions work

Table 2 Climates existing within the stakeholder team: A hypothesis

Climate that leads to success Climate that leads to failure

Key decision makers are open to rationale Key decision makers have preconceived
and thoughtful discussion about the best notions of what are the best opportunities.
opportunities. These notions are scared cows.
Key stakeholders, both to the decision to Financial types dominate the analysis group,
buy and to integration success, work the with limited perspective about integration.
The incentives and long-term pay-offs for Self-interest on the part of key executives,
those involved in the analysis encourage a investment bankers, etc. discourages full and
balanced perspective for all stakeholders. open dialogue.
Measurement systems and feedback loops Analysis and decision teams are isolated from
exist so teams are able to learn from past impacts of their decisions.
Leaders in the target organisation are treated Leaders in the target organisation are not
as partners, trust is built, and good data are treated well, poisoning the well, poor data
derived. are derived.

Learning mechanisms communications. Both GE and Cisco

If an organisation is going to take a have staff groups that are clearly focused
systems approach to M&A, it has to on helping the organisation do the four
invest in learning mechanisms that do things above.
the following: In addition, as alluded to above,
benchmarking and learning groups
integrate the front end analysis with cutting across companies and industries
integration efforts are needed if true best practices are
capture lessons learned from past going to be developed so that
M&As corporations can maximise stakeholder
make it easy for new teams involved value in future M&A transactions.
in M&A to access the past learning of
the corporation
enable existing teams to talk to each CONCLUSION TO PART I
other in real time about the issues This two-part series on making M&As
they are encountering and best work has shown that the track record of
practices. making M&As successful is generally
poor. Why that is the case has been
GE Capital has invested in a Web-Based explored, and the beginnings of a model
Knowledge Management System entitled of what leads to success have been laid
Acquisition Integration Tool. It includes out. Elements of the front-end success
topics such as: (1) selecting the best have been discussed that is, what leads
integration manager; (2) deal economics; to selecting the right partner or target.
(3) integration roadmaps by functions More needs to be said about this in part
such as manufacturing, sales and II. It will pick up the discussion with an
marketing, HR; and (4) culture and exploration of the importance of culture

Henry Stewart Publications 1469-7017 (2002) Vol. 3, 2, 134 148 Journal of Change Management 147

fit, and then continue on to explore the Ghemawat, P. and Ghadar, F. (2000) The
importance of leadership and conclude Dubious Logic of Global Mergers,
with a full discussion of key factors in Harvard Business Review, JulyAugust,
integration success. 6472.
Goldbatt, H. (1999) The New World of
M&A, Fortune Magazine, 8th November.
Harvard Business Review (2000) A CEO
Roundtable on Making Mergers Succeed,
1. See the educational website MayJune, 145154.
( for more Heskett J. L. and Kotter, J. P. (1992)
information about Richard DiGeorgio, a Corporate Culture and Performance, The Free
summary of Built to Last and a copy of his Press, New York.
comprehensive change model. Kotter, J. P. (1996) Leading Change, Harvard
2. For those interested in GEs approach to Business School Press, Boston.
leader development and who have access LaJoux, A. R. (1998) The Art of M&A
to the research done by the Corporate Integration, McGraw-Hill, New York.
Leadership Council see their report, The Marks, M. L. and Mirvis, P. (1998) Joining
Next Generation Accelerating the Forces, Jossey-Bass, San Francisco.
Development of Rising Leaders practice Mirvis, P. and Marks, M. (1992) The
# 2. Human Side of Merger Planning:
3. Those interested in the details of Work Assessing and Analyzing Fit, Human
Out, a much cited GE process, should see Resource Planning Journal, 15(3), 6992.
Slater (1999). Plotkin, H. (2001) Ciscos Secret:
Entrepreneurs Sell Out, Stay Put, Inc.
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