Organizational Issues in Mergers & Acquisitions

Ansell Leadership Development Program
PEOPLE MANAGEMENT
AND
ORGANIZATIONAL CHANGE IN
MERGERS & ACQUISITIONS
Prepared
By
Dr.Fredric William Swierczek

School of Management,
Asian Institute of Technology
27 April 05
Email: fredric@ait.ac.th
Address : P.O. Box 4, Klongluang Pathumthani 12120
Tel : 02524-5659
Ansell Leadership Development Program Dr.Fredric William
Swierczek
M&A
What causes Failure
1. Lack of research on the internal/external environment.
2. Cultural incompatibility
3. Lack of communication
4. Loss of key personnel
2
Swierczek
CULTURAL GAPS
1. Insufficient time to resolve cultural problems/personality

issues.
2. No building of trust and commitment.
3. No resolution of conflicts (p.16)
3
Swierczek
PROBABILITY OF FAILURE IN M&A
1. Drastic change in environment (.56).
2. Cultures too different (.44)
3. Poor Leadership (.43)
4. Ambiguous Leadership (.43)
5. Poor integration (.34)
4
Swierczek
5
Swierczek
PERCENTAGE OF COMPANIES CITING ISSUE AS RISK
Source : Watson Wyatt

2005 6
Swierczek
TYPE OF INFORMATION GATHERED DURING DUE

DILIGENCE
The information most often sought during the due diligence process relates to
Financials and market shares.
Cultural incompatibility was consistently rated as the biggest barrier to successful

integration, yet results indicate that this area is least likely to be researched during
Source : Watson Wyatt 7

2005
Swierczek
PERCENTAGE CITING REASON FOR SUCCESS
Source : Watson Wyatt

8
2005
Swierczek
THE KEY TO SUCCESSFUL INTEGRATION
Source : Watson Wyatt 9

2005
Swierczek
FOUR STEPS TO M&A SUCCESS
A successful merger or acquisition involves four key steps, says Tom Grubb, co-author of
Capitalize on Merger chaos: Six Ways to Profit From Your Competitors Consolidations
and Your Own (Free Press):
1. Plan. Determine which areas will be integrated and which will remain intact. Also
identify who will lead the projectboth for the integration as
a whole and in functional areas such as IT and HR.
2. Allow people to participate. Mergers and acquisitions involve change, and that
means resistance. The more people involved in the integration process, the more
likely you are to gain buy in and the better your chances for a successful merger.
3. Assign accountability. Establish clear accountability for all activities pertaining to the
merger, including milestones and measurable results. That applies to executive
leadership as well as the rest of the workforce. Every employee should understand
how he or she contributes to the mergers.
4. Act fast. Major integration efforts must be completed quickly as a rule of thumb,
within the first 100 days. The sooner youre done integrating, the sooner your
people can focus on serving customer and competing in the marketplace.
10
Swierczek
LESSONS LEARNED
In most of the successful cases, skills and systems transfer had

a
greater impact than the financial benefits.
Skill transfer is often achieved by transferring senior managers

in key
positions who identify and direct integration efforts.
11
Swierczek
SUCCESSFUL COLLABORATION IN M&A
1. Personal commitment (People make partnerships work).
2. Spend time to make it work.
3. Mutual respect and trust.
4. Mutual benefit.
5. Relationship know socially.
6. Mutual expectations on objectives & time
7. Flexibility
8. Appreciate the differ and celebrate the partnership
12
Swierczek
LEADERSHIP AND CHANGE
Groves genius has been to align strategy and executive as the

forces of globalization were creating enormous discontinuities in the
business environment. This necessitated creating a vision that was
tempered by the realities of an industry in constant
Grove had an exceptional ability to create a work environment that

married entrepreneurialism with discipline. He gave his colleagues a
wide berth to be innovative and to anticipate the future but he
demanded they measure their performance every step of the way.
Groves greatest accomplishment :
Its that I have played a significant part in developing the work

environment and culture at the company and with the directors.
Business Week 11 April 05 P.14
13
Swierczek
LEADERSHIP AND CHANGE
Carl Ghosn
People who try to impose one system onto another only wind up destroying
it. Nissan had to be changed from the inside.
In Japan you cannot implement change quickly unless you clearly explain
why change is needed, how will it be done and what is the committed
outcome. Once the men and women of Nissan were give a clear vision,
clear strategy, clear priorities and a framework for action, they did change.
Howard Stinger
Failure happened because the silos were not the slightest bit interested in
coordinating or there was no one to coordinate them.
I will fail fairly quickly if I cant fix that. There will be a huge resistance to
the kind of change we re talking about. There will be anger which you can
direct at me as a foreigner, which is fine but if you dont act you will kill the
company by kindness. The pride of Sony will turn this place around.
14
Swierczek
15
Swierczek
16
Swierczek
17
BEST PRACTICES OF MERGERS AND

Swierczek
ACQUISITIONS
This checklist of best-practices solutions provides a sampling of proven and practical

approaches used by leading companies to address critical issues and challenges in the
area of mergers & acquisitions. As you read the list, you may want to place a checkmark
next to the best-practice solutions that you could adopt or modify to add value to your
companys unique situation.
1. Over communicate all aspects of the merger or acquisition with employees.

This is a stressful time and people often need to receive information several times and
by several different means before they truly "hear" it. Be creative with your
communications: hold group meetings, utilize the corporate intranet, write submissions
to company newsletters, and send information home.
2. Establish integration task groups made up of key individuals from each of the
combining organizations. Not only are these your best and brightest choices for
those actually working within the process and helping make decisions, but they will play
a pivotal role in gaining buy-in from the rest of the ranks when they take informed,
positive information back to their workgroups.
3. When restaffing, evaluate and then select the best candidates for new
positions. It is a mistake to assume that the best candidate will necessarily be from the
acquiring firm or even the larger firm. Take time to determine who has the best fit with
the new organizations culture and goals.
18

Swierczek
ACQUISITIONS
4. Begin planning integration immediately, even before due diligence has

begun. Waiting to act until the close of the deal will undoubtedly be too late.
When you identify a target company to acquire, develop a vision of how much
integration is desired.
5. Remember that no merger or acquisition is perfect and obstacles are

inevitable. Stay focused on the outcome and if mistakes happen (and they will!),
own them, be honest with employees, and move on.
6. Make it a family affair. Do not ignore the influence family members can have
on employee attitudes and readiness for a merger. Make certain to include
spouses and significant others among those receiving information about the deal.
7. Pick up the pace. Moving through the deal quickly will mitigate instances where
too much time allows uncertainties to brew. Dont be afraid to sacrifice some
precision in the process in order to achieve critical speed of decision making.
8. Involve HR in the entire process. If HR gets involved too late, it will be playing
catch up and correcting problems rather than participating in the development of
a strategy that will avoid problems from the start. HRs participation is essential at
all stages of the merger or acquisition process.
19

Swierczek
ACQUISITIONS
9. Retain the services of a consulting firm with a well-established
background in mergers and acquisitions. Consultants provide valuable help,
as well as an objective viewpoint, at all of the various stages of the process.
10. Heavily emphasize due diligence and do not hesitate to "Just say no!"
Dont forget cultural due diligence. Sometimes even the greatest integration
efforts will not be able to meld two disparate organizations. Not all potential
mergers are meant to be. Increase the odds for success by knowing just what you
are getting into.
11. Answer "Me" questions immediately. Once employees know how their jobs,
pay, benefits, and work environment are likely to be effected, they will be able to
focus on their work and on their activities that will further integration.
12. Do not sacrifice core business or customer service during transition.

Merger and acquisition processes are time and energy consuming.
13. Design the features of the merger or acquisition process with the
cultures of the participating organizations in mind. Consider culture in all
communication efforts, especially. Culture dictates how people process
information and how well they adapt to changes, both sudden and planned.

20

Swierczek
ACQUISITIONS
14. Identify each organizations best practices. Then, determine what from each
organization should be carried forward. Do not automatically continue only the
practices of the acquiring company, larger company, older company, or even the
most profitable company.
15. Accept the fact that sometimes neither organizations process, system,
manager, etc., is right for the new, combined organization. Be open to
developing something new to service needs strategically, since all parameters have
likely changed with the merger.
16. Be certain to conduct "external" benchmarking of competitors and non-

competitors, alike, to enhance your own best practices. "Raising the bar" can
increase the success of transition processes and the newly combined organization.
17. Ensure that communication efforts support unification and alignment of

the two cultures. The wrong messages, or even the right messages by the wrong
messenger, can sabotage the best-intentioned program
18. Include training in the list of post-merger activities. This will serve to
facilitate integration and cultural alignment on top of the other, more traditional
benefits of training. Training topics should include: benefits and retirement,
administrative procedures and information technology, career development,
corporate vision, product and services, customer make-up, and communication skills.
21

Swierczek
ACQUISITIONS
19. Remember that change is the only constant. Employees need help
understanding the changes taking place. They also need assistance
anticipating changes yet to come. Educate your workforce in the change-
management process.
20. Focus attention on career opportunities. Many times concerns about

the negative career impacts of a merger overshadow the many great
opportunities it presents. Get information out there about career growth,
training, and advancement opportunities.
21. Be willing to listen to employees. It is normal, and even productive, for

a certain amount of anxiety and uncertainty to surface for employees during
the process. Face it, discuss it, and be honest with your advice. Keep
business as usual as much as possible for the sake of reassurance and be
sure to offer praise and positive feedback wherever warranted.
22. Present clear opportunities for employees to participate in the

process and be rewarded for the success of the new business. This
will serve a dual purpose: to motivate employees and to encourage their
"ownership" of corporate growth.
23. Keep managers and HR representatives abreast of all information.

These are the people to whom employees, in general, will turn when they
have questions. If buy-in is secured from these individuals, they will be able
to positively represent issues when asked.
22
Sources:
1. www.watsonwyatt.com/services/integrated/mergers/
2. www.mckinseyquarterly.com
3. www.unisys.com/execmag/strategy
4. www.refresher.com/!laswhy.html
5. www.workforce.com/archive/article/23/28/34.php
23

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Ansell Leadership Development Program

Dr.Fredric William Swierczek

What causes Failure

1. Lack of research on the internal/external environment.

4. Loss of key personnel

1. Insufficient time to resolve cultural problems/personality

2. No building of trust and commitment.

3. No resolution of conflicts (p.16)

PROBABILITY OF FAILURE IN M&A

1. Drastic change in environment (.56).

2. Cultures too different (.44)

3. Poor Leadership (.43)

4. Ambiguous Leadership (.43)

5. Poor integration (.34)

PERCENTAGE OF COMPANIES CITING ISSUE AS RISK

Source : Watson Wyatt

TYPE OF INFORMATION GATHERED DURING DUE

Cultural incompatibility was consistently rated as the biggest barrier to successful

Source : Watson Wyatt 7

PERCENTAGE CITING REASON FOR SUCCESS

Source : Watson Wyatt

THE KEY TO SUCCESSFUL INTEGRATION

Source : Watson Wyatt 9

FOUR STEPS TO M&A SUCCESS

In most of the successful cases, skills and systems transfer had

Skill transfer is often achieved by transferring senior managers

SUCCESSFUL COLLABORATION IN M&A

1. Personal commitment (People make partnerships work).

2. Spend time to make it work.

3. Mutual respect and trust.

5. Relationship know socially.

6. Mutual expectations on objectives & time

8. Appreciate the differ and celebrate the partnership

LEADERSHIP AND CHANGE

Groves genius has been to align strategy and executive as the

Grove had an exceptional ability to create a work environment that

Groves greatest accomplishment :

Its that I have played a significant part in developing the work

LEADERSHIP AND CHANGE

BEST PRACTICES OF MERGERS AND

This checklist of best-practices solutions provides a sampling of proven and practical

1. Over communicate all aspects of the merger or acquisition with employees.

BEST PRACTICES OF MERGERS AND

4. Begin planning integration immediately, even before due diligence has

5. Remember that no merger or acquisition is perfect and obstacles are

BEST PRACTICES OF MERGERS AND

12. Do not sacrifice core business or customer service during transition.

BEST PRACTICES OF MERGERS AND

16. Be certain to conduct "external" benchmarking of competitors and non-

17. Ensure that communication efforts support unification and alignment of

BEST PRACTICES OF MERGERS AND

20. Focus attention on career opportunities. Many times concerns about

21. Be willing to listen to employees. It is normal, and even productive, for

22. Present clear opportunities for employees to participate in the

23. Keep managers and HR representatives abreast of all information.

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