Traditionally business growth developed organically over the longer term as a company improved its operations and market penetration from year to year. A merger can seem an attractive strategy for leapfrogging into new markets instantly and for a fraction of the trouble involved with growing organically but, in fact, more than 50 percent of all mergers are considered a failure.
Studies of successful mergers suggest a number of areas in which things must go right.
The impetus for a merger should emerge naturally from the overall business strategy so that there is a clear vision of how the entities in combination will be better able to increase revenues and gain market share than either could on its own.
A merger without a sound strategic rationale is akin to impulse buying and just as likely to result in the acquisition of something that isn’t really needed or can’t deliver increased competitive advantage.
Establishing strategic compatibility requires a thorough due diligence to establish the internal strengths and weaknesses of the target company as well as the opportunities it will allow. Anything that could present problems further down the line, such as dealing with relocations and layoffs, compensation changes, hardware and software compatibility or the consequences of an unresolved lawsuit, should be considered.
There is general agreement that the earlier the integration program gets underway the better the end results. Planning the integration should begin as early as the merger comes up for consideration and integration issues should be considered in the due diligence process.
Before closure, all major integration decisions should have been made at least in principle. For instance, what the new organization structure will be, which product lines will continue and which be terminated, which/whose business processes and IT systems will be adopted as company standard.
Integration decisions are best made, when possible, by joint teams who can bring full information on the capabilities of their respective company’s systems and process to the table. Rather than spending time in an attempt to design the perfect business process or system, it has proved equally effective to choose the best aspects of each organization as the standard for the merged company. Company A may have the best IT system; company B the better customer service protocol. Adopting the best each company has to offer speeds integration and retains the practices that have delivered superior performance in the past.
Maintain Focus On Doing Business
Where integration issues haven’t been adequately addressed before the merger and there are delays in setting up systems, it’s possible for the new entity to lose its focus on doing business. Employees are diverted from their core roles of driving sales and maintaining customer service to tasks around integrating business processes, IT systems, and product lines. The business loses contact with its customers and impetus in its marketing and sales activities.
Customer defection follows and the merger starts to bleed.
The difference between success and failure can turn on the ability to remain focused on doing business throughout the merger process. Pre-merger planning and post-merger allocation of integration tasks must work to ensure that customer-facing employees retain the time necessary to continue their customer acquisition and sales work.
Communication, early and often, to customers, employees, partners, and other stakeholders is integral to managing a merger. Part of the strategic positioning of the new entity should involve developing messages around why the merger is taking place, what it is expected to achieve for the company and what’s in it for customers and employees.
Address Human & Cultural Issues
Mergers mean uncertainty for employees. Layoffs and redeployment or re-grading are a frequent adjunct of the process. And uncertainty translates into decreased productivity. It’s estimated that the majority of mergers fall short of their objectives because management has become bogged down with finance and technology issues and failed to spend sufficient time integrating corporate cultures and management styles. Senior managers involved in mergers regularly identify talent retention as one of their biggest challenges.
Cultural fit should not be underestimated. One of the most costly merger failures was the 1994 acquisition of WordPerfect by Novell. After just two years and numerous troubles, central to which was a colossal culture clash (the two firms disagreed on everything from decision making to customer service) Novell sold WordPerfect for about $1 billion less than it paid