11.54 AM Monday, 4 March 2024
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 05:22 06:35 12:33 15:53 18:26 19:39
04 March 2024

Put the fun back into mergers

By Dan Denison


One group vice-president with experience of a merger once said: “Buying is fun; merging is hell.” The “hunt” for the right company, while taking a lot of time and research, creates a buzz and excitement for the future. But the literature is clear: It’s the quality of the implementation and integration process that determines whether or not you get value at the end of it.


There can be many good reasons for buying another company. You may want to grow or globalise faster than you can manage organically. Or you want to add new capabilities or new technology, drive innovation or gain new market share. Either way, your strategy to “buy it” poses another set of challenges – one of which is creating a culture strategy.


All too often, culture is a second, third or even fourth consideration and it does not get the attention it deserves. Working with several IMD partner companies, I have been able to develop a model to measure the effectiveness of organisational cultures. The results show a clear connection between how a company performs and its management culture. So in my view, a culture strategy should be a priority in any merger or acquisition plan. Integration will not happen overnight; it takes time. Too many companies get fixed on the negotiations of the day: “We get the CEO, you get the CFO and so on.” But the companies that manage the integration process well look to the future. They see it as a strategic acquisition and find a common reference point to which they guide their efforts, learning more about the two companies on the way.
Of course the way forward will depend on what type of merger or acquisition you opt for. There are several routes to follow:


Stand Alone: KLM and Air France have merged but they operate independently so as to preserve their valuable brands and their exclusive identity.


Absorption: Cisco has a rule that it will never acquire more than 20 per cent of its own size. It prefers to absorb acquisitions into the Cisco culture.


Reverse Acquisitions: Where the company acquired is going to drive much of the future of the combined organisation. This is a great way to create innovation and add the dynamics of a smaller firm to a large, established firm.


One example in our research is a large, well-established medical insurance company that wanted to innovate. The company bought a well-managed HMO because it thought it would revitalise them. However, the team from the traditional company thought it knew best and squashed a lot of the innovative value that it had just paid top dollar for.


Transformations: DaimlerChrysler, Hewlett Packard and AstraZeneca are all examples of companies that made a profound change in their own identity and future through an acquisition.


When doing any deal there are three stages, and your leverage point at each stage is different:


Before: Planning the Deal. When carrying out cultural due diligence, you will not have direct access to a company. It is important to get as much information as possible from industry insiders, suppliers, competitors and customers. And there is always someone in your organisation who has worked with or for the potential acquisition targets. It’s also important to know your own culture. We work with many companies that use our model to analyse their strengths and challenges. This helps them to be more realistic about what they bring to a merger.


During: Waiting for Approval. In any M&A situation you spend a lot of time waiting. Despite huge uncertainty, a transition team is usually busy at this time building an integration plan.


I recall working with a transition team on an acquisition in the chemical industry. The team comprised 26 people – half from the parent company, half from the acquisition. We measured their perceptions of their own company and the other company. It raised some interesting discussion points. Both sides of the table shared the same view of the strengths and challenges of the merger. Even though the parent company had the stronger set of assets, the team realised that the acquisition company was better at customer focus and adaptability. It made them look closely at how they would preserve this.


After: This is when you can make the biggest difference. Now there are no barriers (affecting) who you can talk to, involve or gather data from. But to develop a strategy and create a culture that is distinctive and a powerful asset to the firm, you need the continued attention of top management – the people that negotiated the deal. Beyond that, you need several integration teams, people who know a particular area can develop a plan with their colleagues in the new firm. In the HP/Compaq merger, there were hundreds of teams – business by business, function by function and geography by geography.


Finally, you need to keep the attention focused on culture as a strategic issue that will drive the performance of the business. Get it right and you will have a powerful force to take you forward. Get it wrong and you might end up like too many other companies – buying at a high price and selling down the line at a low one. (The New York Times Syndicate)