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Global Merger Integration Ensuring Success After the Shake-Up

Find the right timing, communicate the right messages, and don't avoid those tough conversations.

September 7, 2001
Related Topics: Managing International Operations, Mergers and Acquisitions
B ridges cracking, roads splitting, buildingsshaking, and terrified people screaming -- this is an earthquake.

Much of whatis known to be immutable in life is altered and changed in the course of a fewmoments. The same can be said by anyone who has experienced a seismic mergerof two (or more) companies in different countries. Company leaders who havesurvived such an event will identify with Mark Twain's description of the SanFrancisco earthquake of 1865: "Never was a solemn solitude turned intoteeming life quicker."

The metaphorsabound, but the end result is the same: a merger (just like an earthquake) willrattle the everyday activities of a business and change them forever.

As with an earthquake,very little in an international merger can be controlled. You may be designingand planning to implement human resources practices that will make you competitivein the local labor market, only to discover that the practices you wish to implementin the new, combined entity will not be acceptable in another country becauseof legal or cultural reasons.

Or, you may expectthat providing generous retention bonuses will help you retain key talent, onlyto discover that the strongest players are leaving because they believe thattheir growth and career options will diminish in the new organization. In otherwords, expect the unexpected.

Inthis article, you'll prepare for the unexpected. You'll learn the critical peoplefactors that will have the most significant impact on merger/acquisition integrationefforts across international boundaries:

Define and communicate goals
Create an effective integration/process team
Create a special sub-team focused on people integration
Strike a balance between short- and longer-term focus
Create a third culture
Consider local labor practices
Don't avoid the tough conversations
Remember that timing is everything
Measure the right things

Define and communicategoals
Most deals fail because companies do not pay enoughattention to what happens after the ink has dried. The first step in the due-diligencephase is for management to clarify the goals and purpose of the merger, as wellas direction on key drivers for realizing those goals.

For instance,when one of our clients acquired a division of a competitor, the overarchingpurpose was to fuel growth by broadening and deepening a product line. Managementfirst communicated this purpose. Then, they further defined a set of principlesto guide the integration.

Those principlesprovided direction on which aspects of the product portfolio they believed werekey to realizing the value of the acquisition. Providing this level of directionto the organization not only helped people understand the context of the merger,but also made it possible for them to align their actions and priorities withthose of the organization's leadership. However, it's not enough to only definethe purpose and drivers of the integration. They must be communicated to theorganization and put into action by those responsible for the merger integrationprocess.

Alignment ofpeople in the organization can occur only if they fully understand the contextof the merger and can relate it to some greater purpose, such as strengtheningor building the company. Therefore, the first people challenge is to build andcommunicate a compelling case that engages the entire organization in the integrationeffort.

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Create an effective integration/processteam
The backbone of a merger is the integration team, responsiblefor the high-level road map that will steer the entire integration process.In many cases, the key objective of the team is to drive the creation of a newbusiness with one mission, one strategy, one set of values, common processes,and common systems. Its success will depend on determining the right structurefor the team.

Often a matrixof functional, product, and/or geographic representation serves to ensure involvementand integration across all facets of the business. However, a matrix of thetraditional aspects of the business still does not ensure that the key aspectsof the deal, representing the value for the acquiring or merged organization(a.k.a. "value drivers"), are fully realized.

Therefore, sometype of hybrid structure with representation of the value drivers, as well asthe critical functions, products, and/or geographies, often offers the bestsolution. For example, in one case, the key value of the merger of two companieswas their complementary distribution channels.

One partner hada strong sales/channel footprint in North America and the other had the samein Europe and Asia. Special attention had to be paid to maintaining this competitiveadvantage even though the tendency of the North American managers was to suggestcost savings from the infrastructure of the European and Asian sales organization.As a result, leadership created an integration team with not only a sales andmarketing representative but also another key representative solely responsiblefor ensuring that the anticipated value from the complementary channels wasnot lost.

Selecting teammembers and giving them the necessary autonomy can be tricky. In too many cases,companies choose people they can spare or easily take out of their current jobs.On the contrary, the best global merger integration team members are inevitably:

  • Very strong performers
  • Experienced, seasoned professionals
  • Culturally sensitive
  • Able to represent multiple perspectives
  • Change-ready
  • Technically competent

Pushing the organizationto free up key talent for the integration is a hard internal sell in organizationsthat lack management bench strength. The challenge is to build the businesscase by linking the quality of team membership to realizing the value of themerger or acquisition.

Another considerationin structuring the team is ensuring management's commitment to the effort. Theintegration team needs the senior leadership of the organization for decision-makingand support. To build this support and commitment, many companies create steeringcommittees (with clearly defined roles and scope) that meet regularly with seniorleadership throughout the integration effort.

The steeringcommittee challenges the team's thinking, approves recommendations as needed,and clears organizational roadblocks. Forming steering committees of seniormanagers, then actively involving line management in the integration, will ensurebroader ownership for implementing the integration plans.

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Create a special sub-teamfocused on people integration
A "people integration" sub-team, focusingspecifically on the people practices of the new organization, is critical. Why?Such a team will ensure that people issues are heard and addressed in the generalmelee that often ensues in trying to align business strategies in a merger.

This team willquickly get involved in a variety of aspects of the integration that must becompleted (including talent selection, retention, and benefits integration).

In addition,one of the first tasks of an effective people-integration team is to conducta formal organization assessment to establish a baseline of the most commonpeople practices in each organization, from performance and rewards managementto training and development and work-life. By then comparing the results toboth internal and external best practices, and determining gaps, the team candevelop implementation plans for new people practices best suited to the newstructure.

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Strike a balance betweenshort- and longer-term focus
When a merger or acquisition is reported to the investmentcommunity (either private investors, Wall Street, or funders of not-for-profitorganizations), companies must justify their acquisition/merger decisions. Theydescribe the financial logic of the deal -- typically related to short-termprofitability or cost savings versus the strategic value that will come throughlonger-term investment and growth.

After a publiclyheld company makes these short-term commitments, the eyes of the financial marketare on the new entity, and day-to-day life in the organization is pegged tothe stock price. In privately held and not-for-profit organizations, the scrutinymay come from different sources (including the board of directors or investors),but the phenomenon is similar.

It leads companiesto concentrate their integration efforts on achieving short-term results. Theyfocus on "synergies" -- taking cost and redundancy out and increasingrevenue from areas that provide immediate opportunity. They often make decisionsin every aspect of the business that maximize these synergies but may not effectivelyposition the company for future growth. When it comes to people, for example,some companies are decreasing head-count while disregarding the fact that thecompany is losing key people in a labor market where talent is at a premium.Or, folks are issuing retention bonuses that focus only on the first 90 days,providing no incentive for individuals to stay longer or contribute to the neworganization.

Or, they're avoidingthe tough cultural-integration issues, often because they're intangible andharder to affect in the short run. In other words, the short-term orientationis a theme in all aspects of the integration.

Clearly, thestructure of financial markets and businesses (issues that are out of the integrationteam's control) drives this short-term orientation. However, companies thatput these issues on the table as a reality that could hinder the success ofthe integration ultimately make better decisions. They are more successful atstaying committed and focused on the overarching purpose or goals of the merger.

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Create a third culture
Companies often overemphasize what matters to the dominantcompany, at the risk of alienating key stakeholders in the acquired company,because the cultural issues are so difficult to get their arms around. Avoidingthese issues generally assures that they will arise as impediments to the integration.

While the people-integrationteam is responsible for cultural integration, it's such an important successfactor that it warrants highlighting separately. The one step that is sometimesskipped because it's complicated is building a "third culture." Cultureis such a powerful force. If left unaddressed, it will undoubtedly become abarrier to integration.

Companies thatsuccessfully integrate cultures do it consciously and deliberately. They audit the behaviors and practices of both entities, and clearly describethe two (or more) cultures as they exist. Then, the leaders create and articulatea third culture that will be unique to the new organization. After leadershiphas defined the third culture, the people-integration team can help furtherclarify the behaviors and practices they aspire to in the new organization anddevelop a road map for change.

In an internationalmerger, another layer of culture comes into play -- that of national cultures.Organizations can benefit from cross-cultural coaching to help separate corporatecultures from national cultures and assist both organizations in relating tothe other's cultures. To the extent that a local company's culture affects yourstrategy, understanding the "unwritten rules" can help you maneuverthrough the confusion.

For example,your corporate organization chart may be used very differently in countrieswhere age is more venerated than title. In those countries, the person in thetop box on the organizational chart may not be the true leader. Studying theculture and understanding this reality can help you frame your business strategyin the right cultural context and plan accordingly.

IntegrationFaux Pas

  • Lack of defined common goals
  • Mixed messages
  • Focusing just on short-term financial return
  • Not considering local labor practices
  • Not realizing the best of both organizations
  • Ignoring cultural issues
  • Not having formal communication plans
  • Poor decision-making processes
  • Not realizing that there will be aftershocks
  • Measuring the wrong things

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Consider local labor practices
In an international merger, retain local labor counsel.Work rules, laws related to labor practices, and the cooperation of workers'councils/unions can help or hinder the process. For example, basing core benefitson a 40-hour workweek doesn't make sense in countries where a 35- or 37-hourworkweek is not simply a business practice, but the law.

We've even seensituations where labor unions or local authorities patrolled the company's parkinglot to make sure the company wasn't violating work hours.

In addition,just completing the legal close of the deal can be tricky from a people perspective.A deep understanding of how the merger or acquisition is structured, and therequirements related to people, will provide an important foundation for thenew organization.

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Don't avoid the toughconversations
Inevitably, people are displaced in a merger. Whetherthe leadership structure can't accommodate managers from both organizationsor there's redundancy in operational or manufacturing processes, some employeesare likely to lose their jobs. Companies that are open and honest with peoplefrom the beginning engender trust among the individuals that they hope to retainand maintain the respect of individuals who were critical in the short run,but whose jobs are later eliminated.

Straightforwardcommunication must be practiced both one-on-one and organization-wide. First,having tough one-on-one conversations with those impacted early clears the wayfor new leaders to take ownership for the integration and the newly configuredbusiness.

Second, in communicatingabout decisions that adversely affect large groups of employees, it's essentialto do so sequentially. In other words, after making the decision, even if thedetails are not fully fleshed out, the first step is to share the decision (orintent) in person with all of the employees at that site. Providing this informationto the affected employees before communicating publicly to the press or thewhole company gives those employees an opportunity to get the facts, ratherthan rumors, about their specific situations. In some countries, such personalcommunication not only is good business but also is in line with local laborpractices.

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As you see, mergers demand more frequent and broadercommunication strategies than perhaps any other corporate event. But quantityalone is not enough; communications must be planned, strategic, and consistent.A formal organization-wide communication plan is advantageous; one that integratesmessages across functions and across geographies is critical.

Communicationacross cultures can be especially challenging, as cultural and language differencescan lead to misinterpretations. For example, preferences for communication vehiclescan vary from country to country. In some countries, for example, e-mail isconsidered to be too impersonal, and face-to-face forums are preferred.

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Remember that timing iseverything
Don't go too fast or too slow when merging two organizations.Conventional wisdom dictates that the faster you complete a merger and the integrationassociated with it, the more likely that the deal will succeed. The core ofthis principle is true. Ensuring that decision-making processes are effectiveand that the integration team has the resources and commitment of senior managementwill help with rapid integration. A general rule of thumb is that success increaseswhen mergers are completed within six to nine months.

On the otherhand, moving too quickly and not considering the impact a decision may haveon all key stakeholders will also have repercussions. An example of this mightbe eliminating jobs too quickly without fully assessing the possibility of retainingtalent by redeploying workers elsewhere first.

In an ideal situation,a decision-making framework will be created based on integration goals and timelines. You are best served by mobilizing quickly to assess the organizationand its people, yet recognizing that there will be aftershocks. Unanticipatedissues will inevitably arise after a merger, and the organization must managethem while still running the business.

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Measure the right things
Don't get caught up in measuring the wrong things. Forexample, as discussed above, short-term cost-cutting might fund the cost ofa merger but won't ultimately fuel a company's growth or yield long-term value.Creating and gaining support for measures that balance short- and long-termsuccess is key. Just remember that the real value of a merger is realized twoto three years out.

On the peopleside, pay attention to how people are assessed. If you pay them on a short-termbasis, you will get short-term behavior. If you pay them to build and createsustainable growth, you'll more likely get individuals who take greater ownershipin the success of the business.

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Each of these tips requires diligence in execution. Several of them even requirecourage, because they demand that leaders and integration team members pushback on status-quo practices.

It's not easyin some organizations to provide the voice of balance between short- and long-termresults, or to elevate culture for discussion and clarification. And this isdone in an environment that is typically quite volatile -- where, to use theearthquake analogy, the plates are still shifting.

Build your case,use facts to support it, and sell it to key people. Undoubtedly, the event thatyour company experiences will have plenty of aftershocks, but continued focuson those elements that can have the greatest impact will help ensure the realsuccess of the deal.

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