Executive Education

M&As: How the vision of success must go further than the boardroom

By Graham Scrivener, European Managing Director, and Alex Poppleton, Principal Consultant, Kotter International
Executive Education
Published: 10 July 2017

To get a merger or acquisition right, people – not numbers – are the key to your success. The planning stage is about balancing the demands of potential investors, handling stock market speculation, and making the financing of the new potential organisation look attractive to ensure maximum leverage whilst maintaining the support of the City.

Post-deal, the challenge is to prioritize the integration from a people perspective when the Board’s primary focus is on the numbers promised to shareholders and analysts. Navigating the internal dynamics and restructuring challenges is incredibly complex. To a Board, the people aspect of change often looks and feels more unpredictable and is less easily quantifiable, prompting success to be measured by the hard-and-fast financials. Yet, just because leading people through M&A seems difficult and undefined doesn’t mean that it is.

John Kotter, founder of Kotter International and Emeritus Harvard Professor of Leadership, has spent 40 years analysing the factors that can derail the best laid business plans. His research shows that 70 percent of large-scale transformations do not deliver the anticipated benefits. Major mergers and acquisitions almost always require major transformation to realise the potential benefits that create the rationale for the deal. To be successful, executives need to lead the newly combined organisation forward by taking whatever time is necessary to create an aligned team that understands and is bought into the new, shared vision – all while maintaining focus on achieving financial results.

How does your organisation become part of the 25 percent that doesn’t fail completely in their large-scale transformation ambitions? (Or better still, become one of the five percent that succeeds beyond all expectations?) To ensure that the people aspects of your change are handled as effectively as the financial ones, three key issues must be addressed.

Scope the people challenge during due diligence
Make a virtue of understanding that people change is hard. Change often feels threatening, causing people to react in negative ways, disengage, or even quit when what you need is more engagement, more energy than before. It is important not to make wild promises on how quickly or easily people and cultures can be integrated. Instead, identify how the key teams and processes need to work to realise benefits, and then find out the scale of the challenge during the due diligence stage by investing in diagnostic work from transformation experts at working with people change. You then have the information you need to set out the initial plans for the work involved. The next stage is to involve both the teams to enable them to assess and plan what they themselves need to do.

The best leaders understand that there will be varying opinions and challenges and are open to considering them to bring the best of both together in the new organisation. Senior leaders must act with courage to allow staff from both organisations to process the realities of the merger, including the swirl of emotions that entails, to build a much more engaged final entity.

Human capital is as important as financial capital
It is important to remember the value of ‘human capital’ that can be created and multiplied by getting the merger or acquisition right, or conversely destroyed by getting it wrong – because these are people. Treat employees with the same care as the financial capital. How much does it cost to lose your best talent, to demotivate and distract your employees, or to lose your reputation as a great place to work? Would you invest financial capital in something that you had not properly vetted? Kotter research shows that getting the people and culture aspects of a merger wrong is the single factor most likely to derail the transformation.

People at all levels across both organisations need to feel valued and encouraged to participate in what lies ahead. This means that the senior leadership team needs to express the vision for the new organisation in a way that resonates with every beating heart and build a collective sense of urgency, excitement, and alignment around a common goal. Staff must be given permission to make the vision culturally their own, and to run with it in building the new organisation.

It is critical that organisational knowledge be retained in the short term if the new entity is to function effectively. We have found that in situations where it is clear that some rationalisation and cost-cutting will be inevitable, those at risk respond much better if they are engaged with the process, even if they are going to lose their jobs. Creativity and positivity can emerge from even the most difficult circumstances if people are given the chance to have more input and feel more in control. This requires that senior leaders resist the temptation to tightly manage the integration and instead trust their workforce to make good decisions within parameters set for the merger.

Allow space for the new organisation to evolve
Merging two organisations, regardless of who acquires who, is not a power game. People can be persuaded to embrace change if they have a stake in the new business and believe they are able to influence the shape it takes. Change is complex and constantly accelerating in pace, which means that the 20th century idea of designing a ‘blueprint’ for the new organisation from the top of the hierarchy is no longer viable. Void of flexibility, input and responsiveness, it quickly becomes a blueprint for transformation failure. What’s needed is space to enable the organisation to evolve.

Complex transformation as prompted by a merger or acquisition stands a much better chance when the newly combined organisation creates informal, networked groups to run alongside the hierarchy – a kind of dual operating system. Composed of leaders from all organisational levels who have volunteered to make the vision reality, the network side of the system can infuse the company with more agility, adaptability, and innovation than the hierarchy alone allows. The network quickly adapts to new ways of working, innovates processes, and disseminates new cultural norms that drive toward the company’s goals. Quick wins are generated and made visible, bringing along those who have been complacent or cynical. Engineering these conditions for M&A success prompts belief in what two organisations can achieve together as one.