60% of merged organizations report lower profitability for at least seven years post-merger and nearly half of the executives leave within three years. Why is it that despite all the detailed analysis by lawyers, auditors, strategists, bankers, investors and leaders, things go wrong in more than half of the cases?
When we view this from a people-first lens, we find that most M&A failures take place because of three reasons, none of which are financial in nature.
1. Integration priorities of ‘org’ and ‘people’ are often in reverse order: Boardroom discussions post-merger mostly prioritize a few key elements – the new company’s brand, assets, strategies, and the like. Leadership discussions before ‘Day 1’ focus on answering questions like “What will be our go-to-market? How will we realize the value of integrated assets? How long will it take to integrate and deliver the synergies we have promised our shareholders?” and so on.
From the vantage point of ‘org,’ this makes logical sense since these are probably the very reasons why the transaction was initiated in the first place. However, from the vantage point of the leaders engaged in these discussions, it is a different story altogether. Most of them in the run up to Day 1 are wondering – “Will I even have a job? Who will be my new boss? And what will happen to my team?”
The order of integration priorities can be lopsided when an employee-centric view is not designed into the integration roadmap. For example, in an extreme case, an organization prioritized integrating their office stationery over “issues related to HR integration,” which they stated, “will be conducted in due course of time.”
It is not that the org perspective is incorrect – but on a standalone basis, it fails to align the boardroom conversations with the ground reality of the watercooler conversations conducted by the very same leaders.
2. The ‘better performer of the two candidates’ may not be ideal: When integrating people into roles, many organizations follow a typical approach of “the best person for the role”. Again, this sounds like a logical and fair approach to take. However, the reality can be nuanced and complicated. This is because the new company is not a concatenation of two companies, and neither is it the best parts of the two older companies. It is the third company altogether and you are forming a new team for the new company.
When you are creating a new team, employee performance in their earlier roles is usually a poor predictor of their contribution and success in the future organization. In one organization, it was observed that some employees with average performance ratings possessed critical capabilities and experiences that were relevant for the future (e.g., in Digital), however the current construct of their roles and structures did not enable them to perform at their best.
3. Pursuit of perfection on Day 1: Most integration efforts focus on the ‘Day 1’ – the most important milestone on the event horizon – being picture perfect. However, the organization is not a set of boxes on a PowerPoint slide – it is more akin to an organism which has a life and culture of its own. And just like most organisms, things are not perfect. They are evolving. This is particularly the case with organization designs and structures – where a focus on solving for the perfect ‘op model’ may destroy intangible institutional strengths, tribal knowledge, and synergies that enabled teams be more than the sum of their parts.
In conclusion, mergers are never easy – Just make it Simple by following these steps.
- Adopt a People-First approach
- Solve for the Future, not Day 1
- Speed > Perfection
(This article is authored by Sandeep Bhalla, Senior Client Partner & Head of Consulting Practice for Korn Ferry in India)
