When a merger or acquisition is precipitated by financial difficulties is it all too easy to lose sight of the critical issues of culture and transformational change in the rush to rescue a failing business. Leaders must recognise that bringing people with you on the journey is a pre-requisite for success.
One consequence of the current recession is an increase in mergers and acquisitions as struggling businesses are swallowed up by their more successful competitors, not least in the ailing financial services sector. For many strong organisations, this is a period of opportunity when they can capture large swathes of market share. However, businesses can easily be seduced by bargain basement prices and should remain wary about what they are getting themselves into. Even at such attractive prices M&A remains a tricky affair often ending unhappily. It takes a concerted effort of leadership to ensure that imagined business benefits are turned into reality.
In calm economic times, it is not often the case that a merger or acquisition fails due to lack of due diligence. Usually, the acquiring company carries out a forensic examination of finances, operational capabilities and order books. Generally, there is also a careful evaluation of the executives and senior managers to assess the capacity of the leadership team run the ship and to identify key players to be kept on board post merger. In the current economic climate, even due diligence may be set aside. You only need look at the disastrous takeover of HBOS by Lloyds TSB to see what can happen as a result.
One of the hardest tasks in M&A, and one that is therefore is more likely to be neglected in the headlong rush to merge organisational structures and operations, is the bringing together of two groups of people with two cultures into a single unified organisation with a single clear purpose and set of values. Ignore it, and a merger will be slow and painful. At best, there will be long periods of dysfunctional behaviour leading to poor business performance and at worst a break-up of the organisation.
When it comes to getting people all pulling in the same direction, organisations embarking on a merger or acquisition need to be guided by some of the central lessons of effective leadership.
Great leaders have a strong sense of what they stand for and a clear vision of the future. Think of Winston Churchill, Martin Luther King and Nelson Mandela. Without an unshakable set of beliefs and strong sense of destiny they could not begin to lead others in turbulent and uncertain times. Not only that, and perhaps just as important, they had the capacity to communicate this in a way that inspired others to follow.
In a the same way, an organisation buying or merging with another organisation needs to have a strong sense of its own vision and values and to communicate them in a compelling way if they are going bring people with them. Take the example of a Dutch bank that acquired a UK financial services company. Whilst their culture was strong it was only really understood by those who had worked in the bank for many years. As a result, the vision and values of the organisation were not communicated to the employees of the acquired company who were left to their own devices to guess what was required under the new regime. As is typically the case in a takeover, people were highly sceptical about the intentions of their new bosses and so every attempt to change structures, operations and IT systems was seem as an attempt to do away with their culture or to threaten their jobs. Despite the fact that the takeover meant greater career opportunities for employees and a similar culture based on integrity, expertise and personalised customer relationships the Dutch leadership team faced a pitched battle with managers and staff to introduce the systems required to integrate the new acquisition into their organisation. Years later, some people have still to make the mental transition to their new company. So leaders must relentless communicate a clear vision and set of values for the new combined company before they can being to get everyone working together to move the organisation forward.
Another important consideration is cultural fit. As with any marriage compatibility is vital to long term success. Assessing the similarities and differences between the ethos and approach of the two organisations involved will tell you how much effort will be required to bring the two organisations together and where to focus your energy. It may even persuade you to abandon the idea before you start.
Desk research on company culture is problematic as, for instance, espoused values may well differ greatly from those actually practised. Statements such as ‘People are our greatest asset’ or ‘Customers come first’ may well prove to be fictional accounts of how an organisation really treats its employees and customers. Fortunately, there are a number of effective tools now available to help you to get a good fix on the culture of an organisation, normally based on questionnaires completed by a cross-section of people in the company. It may not be practical to conduct surveys of staff ahead of time, especially in the case of a hostile takeover, but former employees, customers and suppliers can provide a wealth of information. Once a merger or acquisition has been given the go ahead then diagnosis of cultural similarities and differences is a must.
Some essential areas to assess when gauging culture include leadership style, relationships with customers and suppliers, openness of communication, drive for results, risk-taking, decision-making, performance management, level of affiliation, attitude to learning, ethics and work-life balance.
Take the example of a high street retailer taken over by a private equity firm. A central strategy of the acquiring organisation was to empower store managers to operate as autonomously as possible within an ‘entrepreneurial culture’. Historically, the retailer had been run on a command-and-control basis with store managers given clear direction on what to stock and how to display it, as well as how the store staff should be managed. Giving store managers the freedom to stock items according to local conditions and operate as entrepreneurs led to long periods of confusion amongst managers and staff alike and a damaging drop in performance.
Different national cultures also present a major challenge to companies looking to integrate new acquisitions. One major consulting firm, for instance, struggled to its integrate existing country office into a new structure that required their people serving similar clients in France, Germany, and UK to work as a single cross-border business unit rather than operating according to geographical location. Even the way people from different countries prepared for and ran meetings were found to be substantially different and a barrier to working together as a single unified team. Left unattended these sorts of differences will hamstring organisations for months or even years, so an initial investment of time and resources to identify and reconcile differences will pay major dividends in improved organisational performance.
Another critical issue identified by many M&A experts and practitioners is the danger of ‘politeness’. In other words, the temptation not to tell people the truth for fear of upsetting them. The important insight here, backed up by clinical research, is that people find uncertainty distressing and would rather know a difficult truth than be left in limbo. In point of fact, if you are not communicating what is going on then someone less informed will be communicating messages and rumours that will only have to be unravelled later when the damage will have already been done. As with any change, there is necessarily a period of transition when people are unsure about what will change and what will not and people find themselves straddling two ways of working – the old and the new. The job of leaders is to minimise the length and strength of this confusing period, sometimes known as ‘crazy time’, reducing the drop in performance that normally accompanies it.
In the case of a takeover, for instance, people will be fearful about their jobs, causing them to focus on themselves (rather than on their customers) often doing the minimum to get by at work. If jobs are to be cut it is still far better to be upfront about the situation. If people know who may be made redundant and when the decision will be taken they can get on with the job in hand rather than focusing on the latest gossip. As with any change, the sooner people can get clarity on what will change and what will remain the same the sooner they can move on and focus their energy on delivering results.
One of the most effective tools for providing clarity for people is formal training. People may need to be inducted into their new organisation not only in terms of new tasks and new structures but in terms of attitudes and behaviours. Simply telling people that they are empowered to be entrepreneurial, as in the retail example above, is not going to deliver the goods. People need the opportunity to learn what this means through questioning, dialogue and experimentation if they are going to put it into practice in a way that will reap the anticipated benefits.
Next, there is the challenge of helping people to break with the past and take up a new a different future. In many merged organisations people remain stuck in the past, identifying themselves with their old organisation rather than their new one. In the absence of any support in making the transition, many people in one particular privatised public transport organisation continued to identify with the old values of a nationalised industry whilst ignoring the new commercial realities they faced. This led to a long period of in-fighting and the loss of many experienced people as staff battled to establish a new order. This kind of schizophrenic behaviour where people are being pulled in different directions by culture and circumstances is clearly a recipe for disaster.
An excellent way of helping people loosen their affinity to their current organisation is based on what it known as the Janus Effect. This states that to be able to envisage a new and different future you need a clear picture of where you have come from. In practice, what it involves is getting people to work through the history of their organisation and examine the major changes they have encountered in the past. For each change they examine the reasons for the change, the emotions they encountered, their expectations at the time and the outcome achieved in reality. Through this process people gain a perspective of change as a regular occurrence provoking many difficult emotions, but ultimately leading to new norms of behaviour as well as to progress. This helps people gain confidence in their ability to work through forthcoming changes and live with a period of uncertainty.
The process also involves examining the conditions that led up to the merger or acquisition, such as a change in market conditions making it harder for smaller organisations to compete. This helps people understand the reasons behind a takeover or merger and to see it as an explainable event rather than feeling victim to some random catastrophe.
It is also important for people to work out what they will gain and what they will lose from merger or acquisition in terms of relationships with people (colleagues, customers and suppliers) and things they hold dear, like status symbols or habitual ways of working. As important is to recognise what will remain the same as this often receives little attention and it is those things that remain unchanged (usually most things) that help reduce people sense that their whole world has been turned upside down.
Finally, people need to be given a formal opportunity lay the past rest. This cannot be done by simply mandating that they consign their old organisation to history. What people need is an opportunity to acknowledge the past before they can set it aside and move on. This allows them to escape from the feeling that getting on board with a new company is a tantamount to dismissing past efforts out of hand. It is only once past triumphs and disasters are acknowledged that people can look to the future without feeling like they have somehow betrayed their past.
This transitioning process is best achieved, through ritual and ceremony. Leaders that understand this principle mark times of great change through ceremonially events in which people come together to acknowledge historic triumphs and disasters before setting them aside. In the case of a merger or acquisition such an event may include the ceremonial disposal of the symbols of the past such as old company logos and handbooks. Leaders then turn everyone’s attention to a clear and compelling shared vision of the future and the building of a new unified team.
