Why Do Mergers Go RIGHT?
Walker, James W., Price, Karl F., Human Resource Planning
A great many articles and studies on mergers dwell on why mergers fail to achieve their potential. A common theme is that people-related issues were not addressed early enough or effectively enough in the merger process. For example, a Forbes survey of 500 CFOs found that the top reasons why mergers failed were not financial issues, but people-related issues: incompatible cultures, inability to manage the acquired company, inability to implement change, synergy overestimated, failure to forecast foreseeable events, or clashing management styles or egos.
Mergers often go right in part because HR leaders applied expertise, opportunity, and responsibility by working with senior management to ensure mergers and acquisitions are well-conceived, planned, and executed with regard to the people involved or affected. As leaders, we can ensure communication of a clear business rationale, attention to people-related risks in the "deal," and effective integration planning. A merger can be effectively implemented if vital talent is integrated and retained, commitment and performance are maintained throughout the transition, and people-related systems, processes, and organization are aligned with the new entity's strategic direction. Seven questions should be addressed:
1. Does the merger make sense?
2. What are the people-related issues?
3. How will we integrate and retain talent?
4. How will we integrate cultures and transfer knowledge?
5. How will we maintain commitment and performance during the merger process?
6. How will we align people-related systems, processes, and organization?
7. How will we implement the merger quickly and effectively?
Does the Merger Make Sense?
As part of the leadership team, HR leaders need to articulate a clear, convincing business case for the merger. We can influence communications and perceptions regarding the merger rationale, and thereby affect implementation success.
Many companies believe mergers and acquisitions are a key means of growth. By combining, companies may gain market share, new markets, a wider range of product offerings, control over the supply chain, and cost efficiencies. What matters is not just being bigger; a greater capacity to compete effectively can create greater shareholder value. People may not always agree with the merger rationale, but their understanding of it guides decisions and actions, motivates them to devote energy and time to change, sustains performance and retention during the merger, and develops enthusiasm for a better future.
Merger announcements should not simply be cliche. Stating that the merger will enable us "to become more competitive globally" or to "become the technology leader in our industry" says little to employees. Beyond increased shareholder value, an acquiring company should define the specific benefits expected and how they will be realized. Managers need to evaluate assumptions regarding costs, risks, and benefits early in the process. Companies typically expect to gain:
1. Revenue enhancement: New customers, new markets, marketing muscle, new products or development capacity, customer services and capabilities, access to new distribution channels, sales force efficiency, and cross-selling
2. Operations and cost improvement: Personnel costs/headcount, reduction of overhead duplication, supply chain, procurement, manufacturing, warehousing and distribution, new product development costs, outsourcing
3. Strategic positioning: Market leadership and the benefits of being number one, protecting current position versus competitors, vertical integration (e.g., ensuring ready supply sources, distribution channels, or customer access)
Merger success is more likely when a company explicitly evaluates the synergy expected from a merger. KPMG recently found such evaluation raises the chance of success to 28 percent above the average among mergers. …