Why is it so hard to integrate newly acquired organizations?
I read a staggering statistic which stated that upwards of 80 percent of mergers and acquisitions (M&A) fail to fulfill the strategic goals that justified the merger and/or acquisition within the expected timeframe. What is even more shocking is that in many cases, the resulting organizations are less effective and less successful than the original two by themselves.
My personal experience and observation have led me to believe that this repeated failure is almost always due to the fact that most teams and organizations focus almost exclusively on the content and process but they don’t invest enough time and effort on the cultural, personal and human aspects of their integration. This almost always leads to a reality in which the acquiring executives end up with a well-articulated plan that doesn’t work because it is disconnected from the actual reality.
Even though I hear more and more executives acknowledge that the biggest challenge in integrating an organization they have acquired is “People” and “Culture”. That declaration is rarely reflected in their priorities, investments and actions.
I have supported many integration efforts and I have found that there are four areas that are closely related, that if addressed effectively – no matter how large or complex the M&A may be – could ensure a much more successful integration of the newly acquired organization:
- Establish an environment where people can communicate and dialogue about the M&A in a candid, authentic, courageous, and effective way. M&A efforts are often stalled or undermined because the executives try to quickly address the redundancies, overlaps and duplications. This includes the nuts and bolts of reorganizing, restructuring, scaling and letting people go inside an environment and atmosphere of mutual suspicion, guardedness, and defensiveness, as well as lack of trust, respect, candor, and authentic communication. Trying to do things fast often slows them down because people say all the politically correct things, but when they can’t really express how they feel, they walk away paying lip service to whatever has been agreed to.
- Elicit genuine ownership on both sides for the success of the M&A. In most M&As, one party feels ‘taken-over’ or victimized by the other. While this dynamic is understandable, it undermines the ability of both organizations to succeed in their integration. From the start, it is critical for the leaders to create an environment in which everyone on both sides of the aisle genuinely owns, feels committed to, and is accountable for the success of the integration process and its outcome.
- Enable both parties to complete their respective pasts in an honorable and empowering way. Each team or company has its own unique legacy of culture, brand name, competencies, ways of doing things, heritage and identity, which its people often feel proud of, and attached to. In order to move forward with a new shared identity, people need to ‘complete their respective pasts’ – or differently said ‘grieve for the end of an era.’ When both sides – especially the acquired – feel respected, heard, considered, included, recognized, and validated for their legacy, it creates space for all parties to enthusiastically partner in order to make the next chapter bigger than anything any of them have achieved in their past.
- Align the newly combined teams around a shared future and identity that embody the best of both cultures and operations. To create a reality where the new whole is greater than the sum of its historical parts, the two organizations or teams have to articulate and align on a new bold and compelling shared future. Both parties have to equally own, feel committed to, accountable for and energized about their new joined future. Unifying the teams around a shared future and identity will immediately create genuine excitement and urgency on both sides to clarify, align, streamline and scale roles, functions, structures, and responsibilities. When creating the future, it is important to consider and include the positive attributes and uniqueness of each organization in order to avoid the trap of one company feeling crushed by the other.
There’s no doubt that it is hard to integrate newly acquired organizations. However, there are some basic common-sense things that could be done to make the task more successful, that in most M&As are still not being done.
If executives stop paying lip service to the cultural, personal and human aspects of their integration and they start putting their money where their mouth is, I am confident that we will start seeing the grim M&A statistics change course.
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