Checking for vital signs, post M&A
While some organisations become quite skilled at acquiring, the dynamic of each integration remains unique and the risks of getting it wrong are high. Dr Valerie Garrow, Principal Associate Fellow, Institute for Employment Studies, explains.
Mergers and acquisitions remain one of the most complex forms of change that organisations undertake. They cover, of course, a wide variety of combinations in terms of strategic drivers, size, degree of hostility, cultural compatibility, equality of relationship, strategy and level of structural and cultural integration required. While some organisations become quite skilled at acquiring, the dynamic of each integration remains unique and the risks of getting it wrong are high. At one time it was believed that the success of M&As could be assured solely by getting the price right and a good business and portfolio fit.
The high reported failure rate in realising the projected value of synergies, however, meant that by the 1980s and 1990s, attention had turned to integration problems and the challenge of avoiding ‘culture clash’, ‘merger syndrome’, ‘survivor syndrome’ and a whole range of psycho-social issues. In today’s knowledge and service industries, where the value of an acquisition often lies entirely in people and their skill, knowledge, creativity, customer relationships and professional networks, success depends more squarely on getting the people bit right.
The ability of organisations to develop and fulfil their potential following an M&A depends on their mental and physical fitness; whether people are engaged and committed to future success and whether structures and processes are enabling them to learn, innovate and realise synergies with their new partners. In most cases this requires some specialist OD help. Ambitious 100 day plans, which demand rapid rationalisation and a demonstration to the City of early cost savings, lend themselves to a short-term focus. Organisations are left weakened just at a time when more is demanded from people by way of navigating changes in structures and systems, taking on additional merger projects, maintaining business as usual for customers, dealing with the work of colleagues as they leave and coping with personal uncertainty and insecurity. HR is also at its busiest, often buried under a mound of paperwork of new T&Cs, appointments, redundancies, relocations and so on.
Amidst the ‘busy-ness’ of post-merger life, it is crucial that someone, whether HR, a dedicated OD team or an OD specialist working with the business, takes guardianship of organisational development and keeps an eye on the vital signs. OD as a discipline, draws on the behavioural sciences, and offers a whole system approach to organisational effectiveness that is rooted in humanistic values of respect and dignity. Not to be mistaken for ‘Organisational Doing’, an important role for OD is listening to people as they make sense of change and looking for signs or symbols of friction between new structures, systems and behaviours. The secret is to get a feel for the health and dynamics of the whole system and decide where interventions will have most impact. Embedding a merger successfully can take a good twelve months and each phase from transition through integration to closure has its own characteristics. OD interventions can range from supporting leaders in managing change, line managers in re-building the psychological contract and teams and individuals in coping with transition to running large scale events to explore and embed values, culture, innovation or collaboration.
The transition period is marked by uncertainty and anxiety. The change curve is regularly produced to assure staff that although they are in shock and denial, they will emerge stronger when they come out on the other side. The reality of M&As, unfortunately, tends to be that people experience a whole raft of changes over a considerable period of time. This is the reason some organisations prefer to act quickly and try to get the pain over with, running the risk of cutting too deeply, thereby losing talent and intellectual capital and leaving survivors in shock. There is also the danger of getting the structure wrong, which is why mergers are often followed by a further major restructuring twelve to eighteen months later. It is a time when organisations are most vulnerable to loss of talent as head hunters pick off top performers but also as people reassess their careers and put their energy into looking elsewhere.
When people fail to engage with the new organisation one of the symptoms is a ‘performance dip’, a relatively common post-merger phenomenon. In one pharmaceutical merger it was graphically illustrated by a research scientist who said that many of his team were holding back some of their good ideas until they were sure that they wanted to be part of the new organisation. They called it ‘burying their babies’!Loss of creativity, intellectual capital, energy and commitment are symptomatic of a failure to transfer the psychological contract to the new organisation.
While many formal contracts are transferred under TUPE, an acquiring organisation cannot simply step into the shoes of another when it comes to the psychological contract. Overly optimistic messages, given out by senior managers when announcing a merger, are taken to be part of the ‘new deal’, paving the way for early disappointment. One high street pharmacist, for example, acquiring a set of small family owned stores, introduced themselves as a ‘family firm’ who valued local expertise. Staff were soon dismayed when they called their new head office and had to give a branch number rather than their name and location. The symbolic nature of this became clear when staff said their biggest fear about being acquired by a chain was that they would become ‘just another number’. OD interventions during transition focus on helping people make sense of change, cope with ambiguity and re-engage with the organisation. It is not just about the acquired staff who are sometimes seen as ‘the losers’. Even those who might initially seem to be ‘the winners’ find the acquisition has changed their own organisation and often find themselves less prepared for change than their newly acquired counterparts. There is also OD work at senior level where leaders have an important role in framing, re-negotiating and communicating the new deal to staff so that mutual expectations and obligations are clear and the relationship is not set up for failure at the outset. An appreciation of the business risks of psychological contract breach injects a sense of realism and honesty about the future employment relationship.
Line managers are a particularly vulnerable group who need support during a merger. Often ill-equipped to deal with the emotional and psychological impact of change, they find themselves caught in the middle between senior managers and disaffected staff. Their role, however, is vital both in ensuring senior managers are not starved of feedback about what is happening on the ground and providing support and counselling for staff, as well as managing their performance. It is easier to re-establish a psychological contract when there are a clear set of organisational values that underpin expectations of how people will behave and can expect to be treated. OD work is strongly values-driven and practitioners often find themselves acting as the organisation’s conscience. Major change is a true test of values, which are less easy to uphold when the going is tough. One HR Director described the culture during the merger as being on a ‘war-footing’ where normal values were suspended but would be ‘resumed later’.
In reality research shows that the way change is handled and the respect other people are shown, whether in redundancy, relocation or appointment situations, has an important impact on the emerging culture. As one manager said, ‘you can’t paint the culture on afterwards’. Following the initial transition phase, integration is about ensuring the transfer of strategic capability and generating the promised synergy. M&As, of course, vary with regard to the amount of integration required but the need for high integration provides an opportunity to do things differently. OD practitioners with capability in Organisation Design can offer valuable help in shaping a more agile organisation. Designing for flexibility means understanding how knowledge is generated and shared.OD practitioners are interested in the way informal networks operate underneath the formal organisational structures. These are important routes for knowledge transfer and innovation and major restructuring can unwittingly disrupt this ‘organisational nervous system’. In order to stimulate synergy, people need access to forums and opportunities to exchange ideas and expertise with new colleagues. Hierarchical structures, reward systems, performance targets and organisational culture can all inhibit flexible and innovative behaviours. There are many ways in which people self-organise to maintain the status quo too. In one organisation, staff from merging organisations were co-located in a new building to ensure integration. But within days they had managed to erect a central barrier of filing cabinets down the length of the room and clustered with former colleagues on opposing sides. It is a good example of the behavioural change required to support structural change.An OD intervention prior to an NHS merger equipped teams from each organisation with basic Appreciative Inquiry skills. They were then asked to go into each other’s organisation to find excellent practice and examples of what worked best. This changed the ‘us and them’ dynamic considerably as the teams were not allowed to find examples of things that didn’t work or take part in general moaning sessions. When they reported back jointly it encouraged them to approach the merger in a spirit of learning, more characteristic of strategic alliances where partners are keen to acquire as much know-how as they can from their partners. It also helped to focus on the ‘best of both’, whereas integration too often means settling for the lowest common denominator.Evaluation is built into the OD cycle and, as the merger budget closes and projects return to business as usual, there is an important learning exercise to embed M&A competencies for the future. Reviewing what went well and how problems were overcome is an important way to build organisational capability for large scale change. Attitude survey results on perceptions of leadership, management and change along with engagement scores provide valuable data for an ongoing organisational development strategy.
The impact of M&As on people and organisations should not be underestimated and the outcomes can never fully be predicted. Even the most detailed culture audit rarely reveals the issues that will cause most conflict, regardless of how similar cultures may appear to be. Stories, myths, symbols, the use of metaphor and language all have their place in surfacing hidden tensions and cultural differences. There are opportunities for OD interventions on many levels but listening, talking, reflecting and sense-making become some of the most valuable activities and are well worth the investment of time and space in order to emerge from a merger with resilience and healthy vital signs.
Created on: 02-Nov-11 10:05
By: Dr Valerie Garrow