“I have an existential map,” said comedian Steven Wright. “It has ‘You are here’ written all over it.”
Joking aside, that’s exactly what every good change agent needs: a map that shows not only where you’ve been and where you’re going, but keeps you well grounded in the here and now.
Years ago, one of my clients (a global engineering firm) was at the eleventh hour of acquiring a British company. All the lawyers and accountants were happy with the deal. Then, almost as an after thought, the acquiring CEO asked me to take a look. Time was short and the budget was small, so I confined my examination to interviewing and conducting 360-degree performance profiles on all the key people in the target company. When I reported to the board of the acquiring firm I used only one graphic. It compared the acquiring firm’s high-trust, collaborative performance culture with what I found to be the target company’s low-trust culture of Machiavellian turf battles. Then I asked a single question: “Do you really want this behavioral DNA to be introduced into your company’s cultural gene pool?”
The board immediately nixed the deal.
Culture really does matter. And smart M&A professionals give it the attention it deserves. One of those is Steve Sapletal, a director in the Minneapolis office of West Monroe Partners, a leading player in the M&A business. His views on this subject are worth a hard look.
Rodger Dean Duncan: Why do so many otherwise smart business leaders seem to ignore or discount the importance of the “people stuff” when planning a merger or acquisition?
Steve Sapletal: They simply don’t know how to effectively deal with issues of culture and change management. These areas require the right resources, processes and tools to plan and implement the required changes as well as measure results. Leadership and boards typically don’t hold the M&A accountable for the softer-side of the transaction.The concentration is often only on the financial success of the deal and the items that can be [more easily] measured.
Duncan: What’s the best argument for considering integration issues during targeting or negotiations rather than at the due diligence stage (or later)?
Sapletal: If integration issues are identified early on, it can help avoid unnecessary time, risks and costs. Depending on the acquirer’s overall investment strategy, certain integration issues may make the deal less attractive or even become a “show stopper.” The sooner these issues become apparent, the less time will be spent on low probability investment options.
Duncan: In what instances (if any) would you recommend delaying integration planning to the due diligence stage?
Sapletal: Never. If you are not considering your integration strategy early on, then you are not doing the process justice. You need to understand the potential end state or end strategy, which starts with your integration strategy and planning. You always want to start planning as early as possible. Even if access to target personnel is limited, you can still access your internal capabilities and resources. If you have integrated an acquisition in the past, a review of “lessons learned” and past project artifacts (i.e., functional and operational plans and governance processes) is a useful exercise.
Duncan: What do you see as communication best practices before, during, and after a merger or acquisition?
Sapletal: Communication should be its own entity, it should not be left to each functional work stream or the HR work stream. Having a leader in charge of communications will help make the process easier. To start, the leader should create a communications plan that addresses all stakeholders both internal and external.
You can break your communications plan into a four-phased strategy. Phase one should start as soon as you start talking with a target. Call this the pre-LOI [Letter of Intent] plan. You then need a communications plan between LOI and closing. Next and very critical is a closing/day 1 plan/day 1-7 plan. Lastly, a communications plan is needed for the rest of the integration and optimization work.
For each phase, you’ll need to identify the stakeholder groups—which should include employees, customers, and suppliers as well as investors and the public. For each stakeholder, the plan should describe the type of communication, frequency, general content, and deliverer. While specific information to each group may differ, the messaging should remain consistent across all stakeholder groups.
Duncan: A study your company did of M&A practitioners shows that more than nine out of ten respondents say in future deals they will place more emphasis on organizational change management. What are some of the experiences that led them to that resolve?
Sapletal: We have seen two primary reasons. The first is higher than expected employee attrition and the second is slower than expected integration timelines due to resistance to change. Another component is the changing of the workforce. The millennial workforce is causing M&A teams to work differently and better address the organizational aspect of a deal.
Duncan: “Culture” is one of the critical parts of an organization that many business people seem to regard as “soft and fuzzy.” What have you observed that highlights the value of understanding culture and ensuring that culture integration is appropriately addressed?
Sapletal: There are many war stories describing suboptimal and in some cases unsuccessful integrations due to major cultural differences. What companies need to understand is that culture is not “soft and fuzzy.” It can be measured across a spectrum of dimensions that range from individual behaviors to knowledge management. And culture can be altered over time using the correct change management programs and reinforcement. It starts by evaluating both the acquirer’s and the target company’s cultural environment, then designing a desired state culture and putting the appropriate change management programs in place to achieve the future state. Of course, all of this can be accomplished only with the total support of senior management.
Duncan: In many organizations, terms like “alignment” have been trivialized into vacant buzzwords. How can you ensure that language is assigned a helpful shared meaning by key players in a deal?
Sapletal: We start all our integration planning work by sitting down with executive management from the acquirer and target company to define the “guiding principles” for integration. These “guiding principles” are discussed and agreed upon by the team and take the form of a prioritized list of six to twelve bullet points. These then become the rules for decision-making throughout the entire integration process and create the foundation for alignment among executive management. These principles help drive alignment from the leadership team to the integration team and also serve as a sanity check back to why you originally went after the transaction.
Duncan: When examining the culture of a target organization, what are some “red flags” that indicate the merger or acquisition might not be a good fit?
Sapletal: The process starts by understanding your own culture. There are a variety of assessment tools that can be used to determine culture, but if you are looking for a target that fits your culture you will need to look for signs that there is a match. Look to external data sources for feedback from customers and employees to get a sense of how the target company operates.
Some red flags surface as inconsistencies between stated objectives and observations. For example, a company may state that they empower their employees to make decisions yet have a very deep and layered organizational structure preventing empowerment. Or, firms that say they are customer focused but have policies and procedures that are not customer friendly.
Listen to employees at all levels. If you hear from multiple levels under management that they don’t trust or value their leadership … run.
This column by Dr. Duncan was also published by Forbes where he is a regular contributor.
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