Mergers and Acquisitions Why 40%-60% of Them Fail
Gerri King, Ph.D.
When mergers and acquisitions fail, the event is often marked by surprise and shock. “The numbers worked, the market seemed ready, and the products were compatible, so what could possibly have gone wrong?”
The literature shows (and common sense supports) that most often the problems can be traced to the lack of attention paid to the integration of cultures, staff, processes, best practices, and philosophies. As a result
Retention of key employees, at all levels, is compromised,
Resentment and fear increases among staff and other stakeholders,
Communication becomes dysfunctional,
Internal conflict is elevated,
Morale, and thus productivity, decreases, and
Business continuity is jeopardized.
Why M&A’s Fail
The explanations given for failed mergers and acquisitions are often directly related to the impact on employees and other stakeholders:
Two major reasons for conflict within organizations are role confusion and lack of clear processes. At best, M&A’s strain both.
The difficulty of merging two cultures is usually underestimated. When working with departments who were trying to assimilate after a merger, one woman said, “This is like IBM merging with Ben & Jerry’s.” She was right. Though their products were compatible, the work environments were total opposites.
Skill and technology transfer is not a given. Employees can be very competent but begin to lose confidence when confronted with a myriad of new protocols, equipment, and expectations.
Though the message given may be “We are equals in this endeavor,” it is a stretch to believe it when the names, titles, and location are skewed toward one of the entities.
Key people at all levels may leave prematurely to ensure their security. Not only is the new company then left with major competency gaps, it has also lost valuable institutional history, contacts, and information.
Customer loyalty is tested because the customers may feel neglected since so much attention is necessarily devoted to making the merger or acquisition work.
With every gain, there is a loss
When two or more organizations come together, dramatic changes occur in the work environment. To address people’s concerns and anxieties, the tendency is to focus on all the anticipated positive results. What is often ignored, however, is that positive change can be every bit as stressful as negative change, because with every gain, there is a loss.
Sometimes it’s as benign as giving up the familiar, i.e. changing computer systems or answering the phone differently, but often the tradeoffs are much more difficult and people begin pushing back.
It’s important to remember that there is good information in resistance, so it’s essential to determine the cause of the resistance and to then allow time for processing it. Finding out why people are concerned will produce useful information and show employees that management wants to know what they think.
Focusing on people is essential at each of the three developmental stages
It is important to share the above developmental stages with all employees so they know their concerns and anxieties fall within the norm and they don’t view themselves as inadequate and abnormal for feeling the way they do. Normalizing the difficulties eliminates the self-judgment and lasting, negative effects.
Why is the human impact of M&As usually neglected?
Professionals answer this in a variety of ways.
People are a less measurable asset than balance sheets.
Leaders are so preoccupied with strategies, tactics, and techniques in acquiring, merging, and selling that frequently the really crucial, human factor becomes, at best, an afterthought.
If addressed at all, there is the erroneous belief that there is plenty of time after the event to take care of any problems. In fact, because the transition process begins with “the idea” and doesn’t end until several months to two years after the “deal is struck,” there is serious risk in doing too little too late.
Suggestions for a smoother transition
Too little time and too few resources are devoted to agreeing on a common vision and on a smooth integration process that ensures both business continuity and enthusiastic support for the new structure.
Keep in mind that employee satisfaction can be responsible for the success or failure of M&As because in every area there are bound to be incompatibilities when two or more companies come together. But when the impact on humans is recognized and addressed, even diverse organizations can emerge as productive and satisfying work environments.
Four Final Considerations To Keep In Mind
Just because it looks good financially doesn’t mean the deal will work. If employees and other stakeholders are not a priority, even impressive financial benefits are not enough.
The merger or acquisition is not the end, but the beginning.
When you think you don’t have time to devote to the human impact, ask
yourselves how much time it takes to deal with dissatisfied employees, inefficient processes, and new hires to replace those that choose to leave. One way or the other, it’s not a matter of taking the time, it’s how you prioritize the time it’s going to take.
And, if you truly view your employees as your greatest asset, it’s important to act accordingly. As the old adage says, “What you say and think is important. What you do really reflects what you believe.”
Gerri King, Ph.D., president of Concord NH-based Human Dynamics Associates, is a social psychologist, organizational consultant and author of the “Duh! Book of Management and Supervision: Dispelling Common Leadership Myths. She can be reached through www.gerriking.com