The Integration Challenge

By Davenport, Thomas O. | Management Review, January 1998 | Go to article overview

The Integration Challenge


Davenport, Thomas O., Management Review


Crunching the requisite numbers is essential before merging two companies, but it's equally important to create a palatable new "deal" for employees.

When two large companies merge, the fun stops - and the work begins - after the deal is made. "Buying is fun," said a senior executive of one acquiring company, "but merging is hell."

Sadly, all of the hard work required to bring two companies together often produces little payoff for shareholders. Consultants, investment bankers and journalists have all studied merger outcomes over the past several decades and reached dismayingly similar conclusions: It's a coin toss at best. About half of all mergers enrich shareholders significantly; the other half produce depressing financial results.

Not surprising to veterans of the merger wars, incompatible culture heads the list of impediments to the successful melding of two organizations. Culture comprises the beliefs, expectations and behaviors that organizations appreciate, reward and reinforce. Think of culture as the DNA of an organization - invisible to the naked eye, but critical in shaping the character of the workplace.

Particularly in companies that must keep key people to succeed (raise your hand if you work in another kind of company), failure to predict a post-merger culture clash can deal a death blow to anticipated benefits. In the 1993 merger between Mellon Bank and the Boston Co., Mellon crunched all the numbers and concluded that the deal looked like a winner. However, the analysis didn't consider how cultural conflict could drain the combined company of its most important acquired asset the talents of Boston Co.'s money-management wizards. Offended by Mellon's cost-conscious management style, a key executive left the organization. Within the next three months, he had taken 30 of his coworkers with him, along with $3.5 billion in assets and many of the firm's clients.

Not all integration stories have an unhappy ending, however. Towers Perrin has observed that organizations can increase their chances of successfully integrating two cultures by focusing on the three I's: information, involvement and integrity. For example, when SmithKline Beecham agreed to buy Sterling Winthrop's over-the-counter drug business from Kodak in 1994, SmithKline's CEO quickly wrote letters to all Sterling managers assuring them that they would play key roles in helping the combined organizations prosper. The outreach not only filled in the blanks for managers who wondered about their futures, but also established a foundation of open communication on which to build a new integrated culture.

Involving key people in planning and executing the merger gives them an opportunity to exercise some control over their fate. When the Bank of America merged with Security Pacific, for instance, transition teams comprised representatives from both organizations. Team members had direct influence over the course of the merger. They also had the chance to showcase their abilities and prove they could work effectively with former competitors.

Sign Here, Please

Once management has established an environment rich in information and involvement, it's time to concentrate on the specifics of each employee's relationship with the new entity.

Of all the things that change when two companies merge, none carries more significance for employees than the implicit psychological contract they have with the organization. This contract provides the context for the workplace arrangement between employee and company. It conveys what each party will provide the other and what each will receive in return. The contract is a symbol and a reinforcing pillar of organizational culture. A formal contract may capture some aspects of the relationship between worker and company, but can never incorporate all the subtle interpersonal elements. The psychological contract is too complex for easy documentation; it encompasses the web of written, unwritten, spoken, unspoken and ultimately ineffable aspects of the interaction between employee and organization. …

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