Magazine article Industrial Management

Lessons from a Mismanaged Merger

Magazine article Industrial Management

Lessons from a Mismanaged Merger

Article excerpt

Executive Summary

Mergers and acquisitions are still the rage, but the challenge for both the acquiring and the acquired companies is to execute the goals of this business tactic successfully. Reviewing the mistakes of companies that learned the hard way and applying fundamental business principles can avert the poor management that leads to failed mergers.

Mergers and acquisitions are the rage in business. Unfortunately, about 75 percent of mergers and acquisitions do not work. This failure rate has not deterred businesses from attempting to grow quickly by acquiring or merging with other companies.

Modeling behavior is a powerful tool for improving performance. As I often tell people in my management seminars, if you always do what you've always done, you'll always get what you always got. What can we learn from failed business mergers and acquisitions that will help us understand how to be more successful in the future?

A family founded and successfully ran a manufacturing company for about 75 years. The company grew slowly but steadily, posting profits every year. As mergers and acquisitions became common in the industry, the company was ripe for a take-over by another company. Eventually, a larger company bought the family-owned business. Two years after the acquisition, the manufacturing plant was shut down and all employees were laid off.

Two years of mismanagement destroyed 75 years of success. What can we learn from this example? The merging companies violated several fundamental business principles. Let's look at the lessons we can learn from these violations.

Lesson one

Create a common identity and align the organization. In our case study, the acquiring company failed to create a common identity It failed to establish a sense of who they were, what they were about, and why they existed as a company It didn't align identity with shared values and beliefs. Consequently, the acquired company never became one with the acquiring company The companies failed to find synergy and carve a common identity Instead, competing cultures battled over turf, procedures, control, and power.

Instead of creating a common sense of identity within the company, the acquiring company placed its emphasis on converting the acquired company's computer system to match the corporate system. Again, management focused on the wrong area. They addressed issues of what, where, and how instead of tackling the tougher issues of who and why This is a common pattern in businesses where top managers believe they can overcome identity, values, and behavior problems with technology.

The lesson: Mergers and acquisitions must make sense at the higher logical levels of identity, values, and beliefs, where the major problems for merging disparate corporate cultures relate.

Lesson two

Communicate a clear vision for the company. The acquiring company did not have a long-term vision for the merger or for the acquired company Senior management did not create a common goal for the merging companies. The company didn't establish a clear and compelling outcome for the organization at the beginning of the merger process. They didn't know where they were going. Consequently, they couldn't articulate a compelling future that employees, customers, and suppliers would want to help create.

The chief executive officer of the acquiring company developed a life-threatening illness about the time the merger was consummated. If he had a vision for the company, it was quickly lost as he relinquished control of the company to the chief financial officer. Finance managers rarely have the vision, courage, or innovative thinking necessary to create new and exciting corporate cultures. Instead, they operate and make decisions based on the bottom line. They are often unwilling to take the entrepreneurial risks necessary for building great companies.

People have difficulty getting excited and passionate about financial statements. …

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