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The Executive Perspective on

Mergers &
Acquisitions
By Robert C. Barnett
MDA Leadership Consulting

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The Executive Perspective on Mergers and Acquisitions

The Executive Perspective on

Mergers &
Acquisitions
By Robert C. Barnett
MDA Leadership Consulting

ergers and acquisitions (M&As) have which saw an increase of more than $250
M been referred to as the ultimate
change management challenge because of
billion in M&A activity from the previous
year (Association for Corporate Growth,
the complex and often stressful dynamics 2005). 2005 is expected to continue to see
involved in integrating one company with high levels of M&A activity. US deal vol-
another. To be successful, companies need ume increased 11% in the first quarter
to find suitable candidates for merger or over the same period in 2004, while the
acquisition that meet specific strategic, volume of global mergers rose 12% (The
financial, legal, and operational criteria. Investment Dealers Digest, 2005).
In addition, most companies recognize the
need to pay attention to the softer side of Although M&A activity is on the increase,
M&A activities, including determining evidence on M&A success provides little
whether HR and management practices reason to be optimistic. The conventional
are compatible, how employees can be wisdom is ripe with best practices for
retained and motivated, and whether there making mergers successful: focus on syner-
is a fit between the cultures of the merg- gies, move quickly, conduct thorough due
ing firms. Even in situations where there is diligence and detailed planning, dont lose
a good business rationale for the integration sight of your customers, communicate,
of two firms, cultural differences and poor and pay attention to cultural issues.
people practices can be significant factors (DeCamara and Renjen, 2004). However,
leading to merger failure. most studies of M&A integration report
that up to 6075% of M&A efforts fail
M&A activity is rebounding after a signifi- usually measured by changes in stock price
cant decrease in 2001-2002. In 2003, post-merger, return to shareholders, or
M&A activity increased by 29% from profitability metrics (for example, see
2002 levels. This trend continued in 2004, Mergers & Acquisitions, 2005; Business

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The Executive Perspective on Mergers and Acquisitions

Week, October 14, 2002; or The McKinsey This magnifies the need to find and prac-
Quarterly, 2001). tice the most effective ways to address
employee concerns, reduce anxiety, and
Other research confirms what managers, increase employee commitment and morale
HR professionals, and OD consultants in complicated change situations. To
have recognized for some time: declining address these challenges, consultants, psy-
productivity is generally associated with chologists, and OD practitioners recom-
employee stress and anxiety during a merg- mend a number of change management
er or acquisition; and, that cultural and practices that are particularly relevant to
human resource M&A activities. These include the necessi-
issues are of critical ty for strong leadership, clear communica-
In stressful change situations importance to merger tion, employee involvement, and team
when clarity, courage, and successand are at approaches to planning and implementing
engagement are most needed, least equal to finan- change. But most of the evidence for the
managers and employees tend cial factors in making success of these practices in M&A efforts
to become less flexible, less a deal work (The is anecdotaland more is understood
adaptable, less autonomous, Conference Board, about what makes mergers fail than what
2001). This trend is makes them successful.
less self-managing, more rigid,
alarmingly clear in
and more defensive. the results of a recent MDA Leadership Consulting wanted to
national study of study this problem by collecting the opin-
employee opinion and satisfaction (Gantz- ions of key organization leaders about what
Wiley Research, 2004). That is, employees they believed lead to success in complicated
in organizations that are acquired or (i.e., merger and acquisition) situations.
merged with other organizations reported
lower overall satisfaction, lower trust in
Our Approach
management, and a diminished sense of
Our approach was straightforward. Based
job security compared to employees in
on a review of the literature, we identified a
acquiring firms or employees in organiza-
number of commonly recommended change
tions not involved in M&A activities.
practices that were particularly relevant to
Organizational leaders understand the M&A situations. A questionnaire was
implications: higher employee morale and designed that asked organizational leaders
stronger employee commitment lead to to rate how important any of these prac-
increased levels of quality and productivity tices were in helping gain the cooperation
which, in turn, lead to increased customer and commitment of employees in a success-
satisfaction and retention and, as a result, ful merger or acquisition in which they had
stronger organizational performance been involved. Success referred to cultur-
(Heskett, et al, 1994). The opposite trend al or integration successhelping employ-
predicts nothing but trouble. In fact, in ees overcome concerns and apprehensions
stressful change situations when clarity, about the change process and make a full
courage, and engagement are most needed, commitment to the new organization.
managers and employees tend to become
Our intention was to collect as many opin-
less flexible, less adaptable, less
ions from senior organizational leaders as
autonomous, less self-managing, more
possible. We identified approximately 125
rigid, and more defensive (Cameron and
executives experienced in M&A activities
Whetten, 1987).
and invited them to complete the question-

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The Executive Perspective on Mergers and Acquisitions

naire in the Spring of 2004. 62 (57%) 1. Clarifying Strategy & Direction.


returned completed questionnaires. Those Ensuring the business rationale is clear
who responded represent M&A experience and widely understood, developing and
in approximately 30 organizations across a communicating the vision for the new
variety of businesses and industries. Given organization, and helping employees
the number of responses we received, and see and understand the benefits of the
the variety of organizations in which these merger or acquisition for themselves
executives were involved, we were confi- and for the business as a whole.
dent the results would be meaningful and
2. Involvement Strategies. Meaningfully
relevant for other change leaders. (A list
involving employees in decisions and
of the companies represented in the study
plans that affect them in the change
is provided at the end of this paper.)
efforts and initiatives beginning to end,
We did, however, want to make sure that including involving key organizational
our respondents opinions were valid leaders, and making appropriate use
that is, that they reflected the experiences of transition teams and cross-company
of change leaders who had been highly task forces to make and execute plans
involved in M&A integration processes and decisions about the integration of
that were successful, and that had been the two firms.
implemented over a period of time. In fact, 3. Communication Strategies. Extensive,
87% reported that their opinions were candid communication about the status
based on an M&A experience they judged and progress of change, including
to be successful, largely successful, or repeated opportunities for employees
extremely successful. Only one respondent to hear directly from change leaders
categorized his M&A experience as mini- and decision-makers.
mally successful. Similarly, 9 of 10 indi-
4. Staffing Practices. Making special efforts
cated that they were involved, highly
to retain key employees, staffing the
involved, or extremely involved in leading
new organization intelligently, and treat-
the M&A integration process. The average
ing those whose jobs may be eliminated
amount of time they reported for achieving
in a fair and equitable manner.
integration was slightly over three years.
5. Structure/Process Decisions. Ensuring
alignment among key structural elements,
The ResultsAn Overview
systems, and processes through decision-
The results are clear. According to our
making groups empowered with author-
respondents, some practices have a much
ity to act with speed and urgency.
greater impact than others on the success of a
merger or acquisition. We found that six cate- 6. Culture Interventions. Analyzing and
gories of change practices were critical, and re-analyzing culture fit, and establish-
that four others were rated significantly lower ing and reinforcing (new) organizational
in terms of their perceived impact on employ- values that reflect the behaviors that are
ee morale, commitment, and cooperation. desired in the new organization.

The most important change practices that The practices found to be statistically less
respondents believed to be important to important and impactful to integration
the success of a merger or acquisition success included:
effort included (in rank order based on the
analysis of respondent ratings):

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The Executive Perspective on Mergers and Acquisitions

7. Management Training. Preparing strategy, performing financial analyses,


managers to understand, communicate establishing a business case, conducting
about, and lead change. due diligence processes, and developing
preliminary integration plans.
8. Feedback & Accountability. Collecting
employee feedback to ensure that man- Legal Combination PhaseCompleting
agement walks the talk, including use financial and other negotiations, formally
of employee opinion surveys, focus closing the transaction, announcing the
groups, and 360 feedback processes to combination publicly, and planning for
keep the integration effort on track. implementing the integration process.
9. Employee Training. Preparing employees Execution PhaseImplementing the
to deal with change, culture clash or merger plan, and addressing unforeseen
other anticipated difficulties. problems related to combining two firms.
Activities include clarifying roles and
10. Special Employee Support. Special
responsibilities, retaining staff, maintain-
efforts to assist employees who may be
ing employee morale, and developing
especially vulnerable to stress or other
employee commitment to the new
symptoms or merger uncertainty,
organization.
such as financial counseling, career
counseling, or stress management, etc. By analyzing responses that reflected spe-
cific change practices within a change cate-
A closer look suggests that the most
gory, we were able to see not only what
important types of change practices are
our change leaders were endorsing as
those that meaningfully involve employees
important and useful, but also when they
most directly in the business of changing
felt it was important to implement that
the organization. The lower-rated practices
particular practice. Intuitively, there are
are one-offs. That is, they generally
certain things change leaders need to do
represent efforts to prepare people for
throughout a complicated change process.
things that might happen or provide infor-
For example, few would argue that com-
mation that management may or may not
munication should be limited to one
use, rather than ways that most directly
phase or another of integration activities.
involve people in the change or integration
But knowing what to communicate when
process itself.
is a different question.

Digging DeeperWhich Change The table on the following page was devel-
Practices Matter When? oped to help change leaders with this chal-
Successfully implementing the integration lenge. Within each of the critical change
of a merger or acquisition takes time. 80% categories, specific change practices that
of our survey respondents indicated that are particularly relevant to merger and
integration activities spanned two years acquisition integration success are shown,
or longer. One particular aspect unique to along with when (i.e., in what phase of the
M&A activity is that the change and inte- process) it is most important to implement
gration process typically involves three that practice.
distinct phases (Marks and Mirvis, 1998).
The specific change practices included
Planning PhaseSearching for and received clear support from the change lead-
selecting a suitable merger or acquisition ers who participated in the study. They rep-
candidate. Activities include clarifying resent the top 34 (of 54 total) items in the

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Table 1: Change Practices that Lead to Successful M&A Integration

Planning Phase Legal Combination Phase Execution Phase

Clarifying Clarifying the strategic Developing a vision for the


Strategy & intent and investment new company.
Direction criteria. Restating the business case
Conducting a thorough for the combination.
due diligence process. Establishing critical success
factors for the new organiza-
tions performance.
Helping employees see the
benefitsor answer the
question Whats In It for Me?

Involvement Involving key people in Assembling cross-company Providing teambuilding activities for
Strategies planning the transition. task forces to study integration developing effective post-combination
Planning for transition problems. teams.
teams that will identify Using cross-company task
synergies and design forces to make recommenda-
change efforts. tions about the design of the
combined organization.
Appointing key leaders as
transition managers or task
force members.
Appointing the transition
team to provide oversight and
coordination throughout the
integration phase.

Communication Developing a communica- Implementing a comprehensive Implementing a communications program to


Strategies tions strategy that man- communications program for keep employees informed of implementation
ages the rumor mill all employees to keep them progress and successes.
effectively. informed of integration Conducting communications sessions or
progress. town meetings by senior leadership to
Conducting communications build acceptance of the new organization.
sessions by senior leadership
to deepen understanding and
build commitment to the new
organization.
Developing and communicating
a powerful message to employ-
ees to generate enthusiasm for
the combination.

Staffing Designing a plan or making Developing a comprehensive Designing a lay-off policy (if necessary)
Practices special efforts to retain staffing plan for the combined that is fair.
desired talent (e.g. bonus- organization. Administering a lay-off policy consistently.
es). Providing outplacement services, severance
packages, job-location assistance, or other
services to support displaced workers.

Structure/ Clarifying and implementing an Implementing a resource allocation process


Process effective transition structure. to fund priorities to move the combined
Decisions business forward.
Developing good decision mechanisms
for aligning policies and practices.
Developing good decision mechanisms
for aligning or re-structuring teams or
departments.
Developing a structure or a way by which
plans and decisions can move forward
with appropriate speed and urgency.

Culture Formally analyzing the Establishing organizational Continuously analyzing the cultural differences
Interventions culture of the candidate values and principles to guide of the two organizations to improve culture
firm to assess culture behavior and decision-making. fit.
fit. Mapping out and implementing culture
integration activities.
Identifying shared values that characterize
the desired culture of the new organization.

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The Executive Perspective on Mergers and Acquisitions

questionnaire. Not one specific change prac- The table on page 7 borrows some of their
tice from the 4 lower-rated change catgories suggestions and illustrates the skill and
was included in these top-rated items. expertise that good OD practitioners can
offer change leaders in light of the change
The table can be used as both a blueprint practices for successful M&A integration
for planning integration activities, as well emerging from this study.
as a diagnostic tool for understanding
stalled integration. As the table and its
specific change practices suggest, clarifying Peoples Concerns
direction, involving people, and focusing Make a Difference
on communication are particularly impor- In their book, Joining Forces, Marks and
tant in the planning and legal combination Mirvis make a compelling point: people
phases. Change practices that relate to matter! They argue that people have legiti-
staffing and retaining employees, develop- mate questions and concerns at each stage
ing an effective organization structure and of a merger or acquisition. Paying atten-
aligned systems and processes, and shaping tion to their concerns is a change leaders
the culture of the new organization are responsibility, and is one of, if not the key
more important in the execution phase. ingredient, for achieving integration suc-
For those who have already initiated a cess. They describe peoples concerns as
merger or acquisition process, using the they relate to feelings of insecurity (e.g.,
list of practices as a checklist to evaluate What will happen to me?), uncertainty
progress and plans can help pinpoint why (e.g., Whos in control?), and finally to the
problems might have emerged, or help process of adapting to the new organiza-
change leaders pay attention to important tion (e.g., How do I succeed here?).
activities they may not yet planned for. Change leaders that address these ques-
tionsby implementing the practices
describedare those who will likely have
How OD Can Help? the greatest success.
Traditionally, executives look to legal and
financial experts for help in M&A efforts. To test this notion, we included a final
However, OD practitioners are particularly question in our study. We wanted to
well suited to help change leaders design understand how change leaders viewed the
and implement the change practices importance and impact of good management
endorsed by the executives in our study. and people practices relative to other factors
They are trained in evaluating opportuni- such as financial or competitive issues in
ties for designing and implementing inter- achieving success in integrating a merger
ventions that improve organizational or acquisition. Our results clearly support
health and the well-being of the organiza- Marks and Mirvis position. Over 90%
tions employees. They are attuned to the of the respondents indicated that effective
organizations culture, and the organiza- change management and good people
tional dynamics that reflect the interplay practices were as impactful or, in some
among the elements of the organizations cases, more important in determining
strategy, structure, processes, and systems. integration success as financial, economic,
Cummings and Worley (2001) have pro- or other competitive issues.
posed a number of ways OD practitioners
can or should be involved in M&A efforts.

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The Executive Perspective on Mergers and Acquisitions

Table 2: How OD Can Help M&A Integration

Change Practices for Successful The Skills and Expertise that OD Practitioners Offer
M&A Integration

Clarifying Strategy & Direction. Help the M&A team form and develop its plans.
Ensuring the business rationale Facilitate discussion and decision-making about the rationale or
is clear and widely understood. business case for the merger or acquisition.
Participate in due diligence efforts, especially those involved in the
initial assessment of culture fit.
Monitor and advise executive leaders about how to communicate most
effectively with employees.

Advise change leaders on how to specify and optimize opportunities


Involvement Strategies. Meaningfully for employee involvement in the organizational change process.
involving employees in decisions and Provide facilitation, teambuilding, coaching, and conflict resolution
plans that affect them. services to the transition team and other employee task forces or
transition leaders.

Communication Strategies. Extensive, Advise executives on how to integrate a communications strategy into
candid communication about the sta- overall change planning and change management activities.
tus and progress of change. Coach change leaders about how to manage their message and make
their communication powerful and effective.
Design and facilitate employee communication sessions to achieve
maximum exchange and understanding.

Staffing Practices. Making special Advise executives about retention and staffing plans and decisions.
efforts to retain key employees. Design and implement staffing or selection systems for key positions
in the new organization.

Structure/Process Decisions. Contribute expertise on alignment between the new organizations


Ensuring alignment among key structur- structure, processes, and systems to top management and/or the
al elements, systems, and processes. transition team.
Help design reporting structures, human resource policies, work
design, or decision processes.
Provide team development, teambuilding, or role clarification services
for new or combined teams or departments.

Culture Interventions. Analyzing Advise and/or conduct organization or culture assessments, and
and re-analyzing culture fit. provide recommendations about how to enhance culture fit.
Facilitate clarification and communication of (new) organization values.
Advise executives about how and where to best modify practices,
policies, and processes to reflect the organizations values and
reinforce the desired culture.

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The Executive Perspective on Mergers and Acquisitions

As one telecommunications industry Nonetheless, we think the data in our


executive stated: study support several obvious but useful
conclusions:
During integration, its important
to remember why you made the Compelling business reasons need to
acquisition to start withand to drive merger and acquisition efforts.
treat people in a manner that
retains value for yousince in all Peoples concerns matteraddressing
cases they involve a significant them is as important as other factors
human component. In a few cases in M&A activity.
there are acquisitions of technology Meaningful involvement in the execution
or a patent. All others involve key of the change has the most impact on
relationships and know-how. gaining employee cooperation and
commitment to the change.
This executives point is clear: people matter,
their concerns are important, and the full Continually clarifying the direction; and
value of a merger or acquisition can only be extensive, candid, and ongoing commu-
realized by paying attention to them. nication is critical.
Treating people fairly, and designing
Conclusions systems and processes that can flex with
Our study is not representative of all the needs of the organization during the
M&A activity. It focuses specifically on the integration are important.
change practices that work in successful OD practitioners have a clear role in
mergers and acquisitions. Moreover, we guiding and supporting change processes
surveyed change leadersnot the recipi- and change leaders in M&A activities.
ents of change. From their perspective, They are particularly capable and expert
perhaps employees would rank or value in supporting the change practices that
many of the change practices differently. enhance employee involvement, morale,
and commitment.

References

Association for Corporate Growth (2005). 2004 M&A profile. February, 2005, 29.

Bekier, M.M., Bogardus, A.J., & Oldham, T. (2001). Why mergers fail. The McKinsey
Quarterly, No. 4, 610.

Business Week (October 14, 2002). Mergers: Why most big deals dont pay off. 3803,
6067.

Cameron, K.S., Whetton, D.A., & Kim, M.U. (1987). Organizational dysfunctions
of decline. Academy of Management Journal, 30, 12638.

Cummings, T.G. & Worley, C.G. (2001). Organizational Development and Change.
(7th ed.). Cincinnati, Ohio: South-Western College Publishing.

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The Executive Perspective on Mergers and Acquisitions

References (continued)

DeCamara, D. & Renjen, P. (2004). The secrets of successful mergers: dispatches from the
front lines. Journal of Business Strategy, 25(3): 1015.

Han, A.L. (2005). A strong year underway, M&A rises to $599 billion. The Investment
Dealers Digest, April 18, 2005, 1.

Heskett, J.L., Jones, T.O., Loveman, G.W., Sasser, W.E., & Schlesinger, L.A. (1994).
Putting the service-profit chain to work. Harvard Business Review, March-April, 164174.

Marks, M.L. & Mirvis, P.H. (1998). Joining Forces. Jossey Bass, San Francisco, CA.

Schein, L. (2001). Managing culture in mergers and acquisitions. The Conference Board.

Wiley, J. (2004). Work Trends. Gantz-Wiley Research Consulting Group. Minneapolis, MN.

Wall, S.J. (2005). Looking beyond the obvious in merger integration. Mergers &
Acquisitions, March 1, 2005.

Appendix
Companies Represented in the Study
Adayana Ecolab Polaris
ADC Telecommunications GMAC Pentair
Allianz Life Great River Energy Polo Ralph Lauren
Assurant Highland Banks Sunoco
Blue Cross Blue Shield Honeywell Tennant
Bremer Banks ING Thrivent Financial
Cargill International Multifoods Upsher Smith
CenterPoint Energy Lifetouch US Bank
Community First Banks Medtronic Verizon Wireless
Deutschebank Novartis Pharma Xcel Energy

Author Bio
Robert Barnett is the Executive Vice President and a Principal of MDA Leadership
Consulting in Minneapolis, which he joined in 1985. Bob earned his B.A. and his Ph.D.
from the University of Minnesota. He also has a M.S. in Organization Development
from Pepperdine Universitys Graziadio School of Business and Management, where
he serves as an adjunct faculty member. Bob can be reached at 612-332-8182 or
bbarnett@mdaleadership.com

MDA Leadership Consulting 9


About MDA Leadership
Consulting
Since 1981, MDA Leadership
Consulting has helped organizations
evaluate talent and make informed
hiring decisions, diagnose alignment
problems and manage change, and
grow the leadership skills needed
for sustained excellence. From our
headquarters in Minneapolis,
Minnesota, our client teams and
executive coaches work with CEOs
and senior leaders at some of the
most successful public and private

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2005 MDA Leadership Consulting, Inc.

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