Key Issues Today
Most M&As fall far short of their expected returns due to shortfalls in six critical ingredients:
- Failure to effectively integrate cultures
- Inability to define a clear strategy and direction for the new organization
- Slow decisions regarding leaders and employees after the merger or restructuring
- Too slow to “burn in” the new plan throughout the organization
- Inability to get functional silos to work effectively together to achieve process improvements and cost reductions
- Inadequate measures of key elements of the merger integration
Many of these same factors contribute to gaps in internal restructurings as well. Many fail for political and
cultural reasons, a failure to eliminate duplicative activities, overlapping or ineffective processes that chase customers away
rather than enhance their loyalty, and weak strategy implementation.
The model depicted in the diagram above
captures the critical elements of an effective integration strategy. Metrus’ approach is a major advancement over the traditional
approach to M&A management in which market, supplier, and people issues are addressed far too late to ensure success. The
approach seeks to ensure that the six issues above are addressed by creating riveting focus, re-aligning the organizations,
generating high self accountability for results, creating leading indicators of success, and using a process that maximizes learning.
There are four stages in a merger, acquisition, or internal integration that can make or break the
outcome: (1) Preplanning; (2) Due diligence; (3) After-close evaluation and integration planning; and (4) Integration implementation.
Many of the success ingredients described above need to be considered during merger and integration
planning and during due diligence. There is still an opportunity to say NO.
While all of the success ingredients carry risk when not
addressed effectively, the least analyzed — and frequently overlooked — element is culture fit. While not all
mergers require
culture integration, for those that do, our experience and many research and case studies have found that culture fit can
make a large difference in the length of time it will take to reach the targeted objectives of the integration.
The most frequent M&A and restructuring failure is the inability to achieve the M&A
objectives (financial, market, customer, product) in the necessary time period. Contributing to this is a lack of
leading indicators, measurable milestones, and clear success criteria, The first cause of this problem occurs
at the planning or due-diligence stage.
The Solution
Preplanning for a merger, acquisition, or other structural integration.
During planning, the key is more effectively identifying target organizations that will fit on multiple important
dimensions
of success, not only financial. Metrus has worked with clients on target profiles that include financial, market, customer,
product, technology, and culture. Again, the culture fit is the most neglected of the above areas. For example, Metrus
used a cultural profiling technique with a well-known health-care company, thus enabling it to understand the speed and
likelihood of successful integration of potential acquisitions.
During due diligence, many organizations gather far too little information regarding culture,
leadership, organizational capabilities, and customers. There is usually a plethora of information available about the
human capital, hidden cultural black holes, management talent, leadership strength and philosophy, customer focus, and
employee commitment that goes well beyond the financial and market data that is being analyzed.
100-Day plan. The first 100 days are crucial. New information is being discovered, conflicts
over assumptions, resources, style, and roles are frequent, process integration needs to begin, and customers must be
protected. Metrus has a proprietary process for working with senior management during this crucial period. Metrus
specializes in the development of both an integration strategy — and the development of an integration
scorecard that measures all of the important elements that must be tackled during this period, with clear success
targets and accountabilities. It is also important during this period to quickly assess the cultures of the different
organizations to develop a plan for leveraging the commonalities of the different cultures, and actively anticipating
and managing the differences that will lead to conflict.
This period is also one of the highest risk periods to customers. Many will have negative
experiences due to systems’ conversions, changes in client relationships due to downsizing or location changes, a
lack of clear customer policies across the organizations and many more reasons. Service recovery, communication of
policies, and setting correct expectations will be paramount for success.
Another risk is the loss of key talent. Metrus can help an organization move rapidly to settle important
people issues than will reduce this risk.
Integration implementation. The last stage can also create problems. Risks that must be
managed at this stage include slow plan execution, lack of buy-in, one-time versus systemic changes, reward incongruencies,
and cultures that clash and burn. Metrus provides tools for managing action plans and accountabilities and goal-measure
alignment, culture blending and change management capabilities, reward design and coaching of managers among other
support services.
Even when progress is moving allow smoothly, there is often a tendency to lose momentum. For
example, customer, process and culture integration is rarely complete at this point. Changes need to be baked in. Strategic
metrics, such as customer loyalty, employee commitment, core process cycle times and so forth are critical to ensure that
the limited resources of the organization are focusing on the really important activities — activities that produce
value in the new context.
Metrus has worked with many organizations during this stage, for example, to provide
objective tracking of progress on both internal (operational, employee engagement) and
external (e.g., customer loyalty) measures.
Benefits
The benefits of this new approach are substantial, and include:
- Greatly enhances the speed of integration
- Reduce top performer and customer defection
- Establish an early warning system of information that can be used to avert disasters, make course
corrections, and predict important results
- Create a platform for integrating strategy and realigning the organization
- Finding common ground and best practices across the diverse organizations and cultures
- Accelerating decisions on talent
METRUS RESOURCES
INFORMATION
The following articles are available at our Recommended
Reading page:
- Creating the Measurement-Managed Organization by William A. Schiemann, 2002 Handbook of Business Strategy, Pg. 207-219
- Organizational Change Starts with a Strategic Focus by William A. Schiemann, Journal of Business Strategy, May 1994
- The Human Side (of M&A) by William Schiemann & Jeff Zilka, The Daily Deal, 2004
PRODUCTS & SERVICES
Metrus offers a range of consulting services and tools that support M&A efforts, which include:
- Cultural assessment of target or acquired companies
- Leadership assessment of the newly integrated team
- Strategy review
- Integration scorecard
- Customer satisfaction and retention
- Key employee commitment and retention
- Investment scorecards for managing newly acquired businesses
Contact Us for more information.
