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Mergers, Acquisitons And Partnerships
By Marie Mosley   Printer Friendly Version

Mergers and Acquisitions worldwide are worth £1.6 trillion and rising.1 With that amount of money at stake why is it that:

53% of MAPs destroy shareholder value and 30% produce no discernible difference?2

Post-Merger Drift causes productivity to drop by 25% - 50% for up to two years?3

Only 30% of possible synergies are realised?4

while: organisations with effectively managed cultures consistently outperform others by generating faster revenue and profit growth and higher share prices?5

Mergers, Acquisitions and Partnerships (MAPs) are now a regular occurrence in business life. The drivers of these MAPs vary from heightened international competition, regulatory changes and an explosion of new technologies to expanding markets, soaring costs of research and the enormous impact of e-commerce.

MAPs are like marriage. Many Boards concentrate on the wedding day and forget to work on the on-going relationship. As with a marriage, different people have different styles of motivation and communication. Different organisations have different styles of working. In a study by Coopers and Lybrand of 100 companies with failed or troubled mergers, 85% of executives indicated that differences in management style and practices were the major problem.

It is the PEOPLE within the organisation who actually implement the consolidation, merge the cultures and achieve the intended results - or not! When interviewed by Fortune Magazine, Jack Welch, the celebrated CEO of General Electric said, "The impact of mergers and acquisitions on employees is consistently underestimated by those individuals making the deal."

Post-Merger Drift

In order for a MAP to succeed, the respective staffs need to share their knowledge, experience and skills at the micro level. They need to co-operate, innovate and create. Yet the impact of a MAP on individuals creates a state of mind that actually inhibits their ability to do these things. The direct result of this is that merged companies routinely experience a post-merger drift that causes falls in productivity of 25%-50% for a period of 12-24 months after the event.

Psychological Shock

Maslow's Hierarchy of Needs demonstrates clearly what is happening. To make a MAP work, the staff need to be open, creative, innovative and proactive. They can only do this when they have reached levels 4 and 5 of the Hierarchy of Needs. What actually happens when the MAP is announced is that people experience a psychological shock and immediately slide to levels 1 and 2 of the Hierarchy. They focus on the probability of cost cuts and job losses. Perhaps their job. Their biggest priority becomes Security. Basic needs are usually met by salary cheques. People begin to wonder how they are going to pay their bills, feed and clothe themselves. Fear of losing this salary cheque creates serious insecurity. The impact on the business is dramatic.

Maslow's Hierarchy of Needs:

Level 5 - Become what one is capable of becoming

Level 4 - Esteem

Level 3 - Belonging

Level 2 - Safety (Physical, economic & psychological) - basic needs

Level 1 - Survival (Food, shelter) - basic needs

Effects of Insecurity

This feeling of insecurity locks people into the Basic Needs levels. They feel isolated and focus on their own doubts and fears, waiting for the axe to fall. They will latch on to others around them who share their insecurities and talk together about their fears, united by their own anxiety. It is this response that directly causes the post-merger drift phenomenon. Until their sense of security is restored, they will continue to be locked into the basic needs levels and will not progress.

A Transition Task Force

Disruptive Tribalism

Some people in the organisation will be stuck at level 3 - Belonging.

We all need a sense of security and belonging. Our self-esteem depends on it. We are born with a predisposition to be social beings - we need other people. Being part of a particular group helps to generate and reinforce our sense of self-respect and self-esteem.

Belonging to an organisation is one way in which we fulfil that need. Any group of people will create 'in jokes', particular ways of using jargon, rituals, heroes and ways of doing things. Following a MAP, this loyalty can become counter-productive. People will still identify with and remain loyal to the original entity - even when it no longer exists. For years afterwards, you will hear people saying "Well, we're all ex-Oldco people here and that's not how we would have dealt with this problem."

Disruptive tribalism within the new entity will cause petty, time consuming and expensive guerrilla warfare. There will be no spirit of co-operation and no sharing of ideas - the exact opposite to what the organisation needs in order to be successful. If the organisation is not to ignore or lose the 55% of potential that MAPs generally forego, staff need to be actively engaged in refining systems, processes and procedures, in thinking creatively and innovatively and sharing ideas about how integration might be optimised.

This is when the integration task force can help by focusing the entire organisation on 'what is best for the Customer.' It is important at this stage to move people away from thinking about their own position and their confused loyalties to thinking about the Customer, service and the purpose and importance of the success of the MAP. This stage, properly managed with sensitivity for egos and insecurities, will save months of time that could have been wasted on dysfunctional tribalism.

Communications Strategy

Planning the communications strategy will be vital. The need for security and belonging can be addressed by sharing positive results quickly, demonstrating the effectiveness of the new entity. Joint results are vital to foster motivation, build up the credibility of the new entity and promote its new image. People need to get a 'positive feel' about the new organisation to enable them to want to be a part of it and feel valued by it. Communication needs to be thought out, focused and frequent. Redundancies and re-structuring must be dealt with as early and constructively as possible, as well as making the people who are staying feel secure in the new entity.

The new entity needs to reinforce the new image. This is when the use of symbols, logos, slogans, rites and rituals is at its most powerful. These are needed to reinforce the feeling of belonging to a new, successful, forward thinking, forward moving organisation.

Dealing with Change

A MAP often means massive change. Yet evolution has engineered into us a perception that 'change equals threat'. People have an in-built resistance to change, they don't like having to adapt to new ways of doing things, especially if they feel they are being forced to. They will automatically push back at major change, even if the change will be more advantageous to them in the long run. That's just how we're made. It took tens of thousands of years for us to develop this trait and yet we need to override it and evolve out of it now in order to succeed in the business environment we face.

Here again the integration task force can have an enormous impact. The timing and sequencing of change implementation is critically important to maintaining productivity in the switch from the old entity to the new. By understanding the process of change and how people are feeling and responding, they can co-ordinate, monitor and manage how and when changes are implemented to maximise benefit to the organisation.

Getting On Purpose and Off Position

Corporate knowledge and experience is tied up in people's heads - if people are to share knowledge then they need to get to levels 4 and 5 as quickly as possible. The faster people feel secure and evince a sense of belonging to the new entity, the faster they will move up to levels 4 and 5 of Maslow's Hierarchy. It is only then that they will begin to get 'on purpose and off position'. Only at levels 4 and 5 will people become flexible, adaptable and co-operative and be willing and ready to share ideas, knowledge and experience.

Everyone has a need to feel valued and to feel a sense of achievement, so it is now more than ever that the effectiveness of the communication by senior executives will become obvious. If senior executives are able to engage the staff's emotions and feelings of belonging, their sense of competence and self-respect, the staff will sense an affirmation of their value in the new environment. They will then focus on adapting to their 'new' world effectively. They will understand that in order to survive, they need to behave in a way that's appropriate to their new environment - not the old one they have left behind. They begin to see the bigger picture and focus on the overall goals of the new entity and how they can begin to make them happen. People are at their best when they have a common goal and compelling objectives that can only be reached by co-operation. They begin to use the intelligence of the WHOLE system to focus on solutions instead of focusing on the problems. They begin to care again about successful outcomes.

Conclusion

The primary function of any manager is to ensure that they get the best out of the people who work for them. By investing a little time and effort in planning and executing a proper strategy for managing the impact of a MAP on the organisation, they will dramatically reduce the duration and effect of Post-Merger Drift, thus making a disproportionately large contribution to the bottom line. How large? A study by Harvard Business School found that organisations with strong shared culture and values outperformed those without those attributes.

Specifically - their share prices grew twelve times faster

their rate of job creation was seven times faster

their profit performance was 750% higher- an amazing return for a relatively small investment of thought, time and effort.

IT IS THE PEOPLE within the organisation who must implement the consolidation, merge the cultures and achieve the intended goals. PEOPLE will either sabotage the success of the new organisation or they will unite and focus their attention, expertise and effort on the achievement of the goals of the new entity.

1Securities Data Company
3KPMG
3Toby J. Tetenbaum, Organizational Dynamics, Autumn 1999
4Mercer Management Consulting
5Kotter and Heskett


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