Merger management

Mergers and acquisitions have been the most popular growth and expansion strategies for companies. Mergers occur when two or more separate legal entities become one or more. Recent business research shows that when you consider the stated goals of any merger, only 50-60% of mergers and acquisitions are successful. Non-technical issues (issues related to human resources and culture) have been widely seen as a major reason for post-M&A failure or underperformance.

Aspects of soft issues are more important in Pakistan where the weak corporate culture and judicial system increase the need for better management practices during and after mergers. Even most professionally managed organizations, such as banks, have not been able to effectively overcome the challenges and have faced merger management issues. In 2007, an acquisition agreement between Royal Bank of Scotland (RBS) and ABN AMRO Bank was concluded. Internationally, it was one of the biggest acquisition transactions in the banking sector and the interaction of different cultures (Dutch, British and American shareholders). The consultants on this deal were very concerned about the cultural, employee and union issues that could prove difficult, costly and unfavorable, which has been the case with the end of RBS operations in a number of countries. country. In the Pakistani context, the acquisition of Union Bank by Standard Chartered Bank is an interesting example. Union Bank was a Pakistan-based bank with an organizational culture and working style different from the international culture and operating style of Standard Chartered Bank (Pak) Ltd. These cultural and operational differences between Union Bank and Standard Chartered Bank affected the post-acquisition performance of Standard Chartered Bank with a decline in financial and non-financial performance after the acquisition. Mergers and acquisitions bring transformational changes that create uncertainty, tension and a sense of professional insecurity among employees, which requires effective management.

However, merger and acquisition activities are essential for any developing economy to stimulate economic growth and create commercial / industrial power plants, provided that organizational issues are managed effectively. Mergers tend to create organizational anxiety about the future: in most cases, the operating model and culture will change drastically for one or both of the merging companies. These changes go well beyond a new name or a new management team; they challenge the core of an organization’s identity, purpose and day-to-day work. Even small tactical changes, like new spending policies or fuel allowances, can shake up employees. Anticipating and managing these “organizational emotions” can lay the foundations for seamless and effective integration. Failure to anticipate and respond to them can lead to poor business performance, loss of critical talent, and leakage of synergies.

A key issue in mergers is the tendency of management to focus primarily on changes that would directly help capture the value goals of a transaction while largely ignoring the issues necessary to maintain and improve the operational well-being of the business. ‘business. Organizational design, for example, is always a priority in the early stages of planning a merger, but companies often sidestep cultural differences until difficult issues arise. By this point, the core business will have already suffered, senior managers may have already sought external opportunities, and achieving synergies may have become more difficult.

An effective organizational integration program must proactively address all of the changes that employees will experience during an onboarding. Such a program should involve two main tasks: integrating cultural changes and managing operational challenges. Culture, of course, is what an organization represents and how the work is done. The inevitable cultural differences between the two merging companies must be addressed, from the more obvious issues (such as attitudes towards work-life balance and employee empowerment) to the less visible (feedback styles, openness, punctuality in meetings). Cultural issues typically arise during mergers, as do the frustrations that arise when labor standards and management practices of merging organizations do not match. The second task of mergers requires adapting to changed business models, such as new structures, processes, and governance, and poses some of the most visible and difficult issues for employees. The fundamental problem is that companies often cannot announce these changes early in the merger program. An effective and proactive communication plan is therefore essential to ensure that employees understand the process and the schedule until the company can reveal the decisions it has made. Meanwhile, processes need to be rethought and communicated in a way that illuminates fundamental issues, such as how roles will interact and decisions will be made. To work effectively after the deal is closed, employees need to fully understand these changes. Clarifying operational changes and training employees to master them is usually at the heart of the onboarding team’s planning work.

As early as possible in the integration planning process, it is essential that the board agree on the business model, cultural priorities and integration architecture. All of these decisions must be consistent with the business logic of the transaction. While a full strategic review is never possible before closing, the key elements of the strategy, including, of course, any major changes should be identified up front. Although these movements may seem simple, they are generally difficult to perform.

Legal and regulatory restrictions can make it difficult, if not impossible, for the merging management to have the right discussions in the early stages of integration planning. Either way, executives are often so short on time that they only prioritize what they see as key operational deliverables and tackle cultural issues too late. In some mergers, for example, the management team develops an effective plan to capture the synergies only to realize that they had not taken into account the cultural differences that lead to ineffective execution. In other cases, the cultural workflow is not a priority. So when the new company rolls out the new operating model, the integration planning team struggles to understand which aspects of it represent the biggest change in current management practices and work standards.

It is essential that before accepting and supporting the change, people across the organization must understand its purpose. To help them develop such an understanding, which can also generate energy and enthusiasm, the company needs to make a clear and compelling case for change, and leaders need to show it consistently in person and in all. their communications. The message should be consistent with the strategic logic of the agreement, as well as modular so that leaders can tailor it to the needs and perspectives of different stakeholder groups, both internal and external. This type of communication engages employees and helps make them feel that changes have emerged from the organization as a whole, not just imposed.

As the transition progresses, companies must also implement new processes, policies, structures and governance in the combined organization, focusing on levers such as new performance evaluation and management systems. , decision rights and cross-functional business processes. To make employees comfortable with these changes, companies often put in place large-scale capacity building efforts, from leadership development to training in new systems.

Companies can develop a strong change management plan around the quadrants of the influence model: develop understanding and belief, use empowerment mechanisms, build capacity, and ensure leaders model change.

To support the period of change in building a new combined organization, a company should actively monitor the execution of its change management program, as well as the alignment of the leadership team.

Managing change in mergers can seem daunting as the results are relatively difficult to measure. Yet mergers can create greater value and have lasting impact when effective change management helps merging organizations move in the same direction.

The writer is a staff member

About Donnie R. Losey

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