Recently, I was asked to give a talk about my experiences with mergers at a European conference. The two main sponsoring organizations were about to merge and were interested in learning why some mergers work and some don't. Because I am an American living in the land of merger mania, they figured I'd observed countless mergers. They also knew I'd worked with a number of companies during the past few years that had gone through mergers, acquisitions and various alliances, so they thought I might have something useful to say.
After accepting the invitation to speak, I began thinking about past mergers, sifting through many observations and trying to reach some conclusions about critical success factors. Over the years, I've asked people from several companies why their organizations were merging so well -- or so badly. The following summarizes their observations.
The first observation is obvious, but often ignored: Cultural issues are the most important, as well as the most difficult. Many companies spend millions on financial and market analyses before agreeing to a merger, but they rarely spend a cent learning whether the two companies' cultures are compatible. When two companies merge, they must develop and execute a well-designed plan to join the two cultures. Yet, that's often the furthest thing from the executive's minds as they scramble to preserve their own power base.
The second observation concerns the importance of developing a clear strategic plan for the newly formed organization. The plan should be shared with all personnel. Too often, the only real reason for the merger is the hope for significant cost savings by eliminating redundant offices and plants, and the expected gains from substantial labor reductions. This is not lost on anyone in either organization, and anxiety over job security paralyzes everybody. It's imperative to state clearly and honestly the expected extent of the cuts, where and when they will be made, and the decision-making process.
However, in many cases the reasons for the merger go far beyond mere cost cutting. Merging companies actually feel that, together, they will be stronger and that they will gain new markets and market share. They are planning to grow, but their people are so worried about job cuts that they are updating their résumés.
The biggest merger difficulties often are political, not technical or cultural. As soon as the merger is announced, people start jockeying for position, protecting endangered empires and building walls around power bases. Past friendships, loyalties and connections, rather than talent, skills, experience and knowledge, often are the deciding factors underlying new leadership positions, organizations and responsibilities. Successful mergers I've seen have quickly determined and widely published the new organizational structure, the criteria for filling key positions and the process for selecting people. One organization did this so well that several people in that company who weren't selected to keep their high-level positions told me they nevertheless considered it the best and most fair process that they had ever seen.
Companies committed to total quality management and best practices sometimes think that merging presents a wonderful opportunity to make a performance improvement. They determine which of the merged companies had the best way of doing a certain task and then impose the method on the other company. This never seems to work. Designating winners and losers, and forcing changes, create smoldering resentments that undermine future success. A better approach takes the best parts of each practice and creates a new, better-performing process.
Organizations that have successfully weathered mergers have studied both current and best practices of benchmark organizations, then created entirely new ways of performing these critical tasks.
It's impossible to decide which best practice to implement if an organization doesn't have agreed-upon measurements. It's impossible to convince people that the new organization is performing better than the old if it doesn't have goals against which to compare performance. But, just as important, building a strong new organization requires treating everyone with dignity and respect throughout the process. Giving people enough time to discuss and resolve issues also is necessary.
Finally, organizations must set the right goals. Reducing costs may be essential, but it doesn't excite many of the people in the trenches. They want assurance that they are actually going to make better products, provide new levels of world-class service and will be prouder to work for the new organization than they were to work for the old.
About the author
A. Blanton Godfrey is chairman and CEO of Juran Institute Inc. at 11 River Road, Wilton, CT 06897.
© 1998 Juran Institute. For permission to reprint, contact Godfrey at fax (203) 834-9891 or e-mail email@example.com.