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
causes productivity to drop by 25% - 50% for up to two years?3
Only 30% of possible
synergies are realised?4
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."
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.
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
Maslow's Hierarchy of
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
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.
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
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
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
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.
3Toby J. Tetenbaum, Organizational Dynamics, Autumn 1999
4Mercer Management Consulting
5Kotter and Heskett