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Mergers: Why Most Fail and How to Ensure Yours Won’t
By David Gebler, President, Skout Group LLC
As Wall Street Journal writer Heidi N. Moore notes, “Mergers often prove troublesome, but few have set the land-speed record for disaster as fast as Bank of America’s $50 billion acquisition of Merrill Lynch.”
Moore attributes part of the massive merger’s troubles to the “clash between Bank of America’s cautious commercial-banking culture and Merrill Lynch’s ties to the more risk-hungry Wall Street and Chicago business communities.”
There are many difficulties inherent in merging two companies but perhaps the greatest impediment to a merger’s success – and the detail that is most often overlooked or minimized – is the difficulty in merging two distinct corporate cultures.
There is perhaps no greater demonstration of this than the following story about a Number 2 pencil: For three decades after the original merger of Douglas Aircraft and McDonnell Aircraft into McDonnell Douglas in 1967 -- Boeing since acquired the firm 30 years later -- engineers from one legacy company were still sharpening their pencils down so they didn’t have to look at the name of the other company on their writing implement.
It’s not surprising that studies show two out of every three mergers failing to earn back their cost of capital: What we’re finding at Skout, a global advisory firm that helps organizations boost their performance by identifying and curing their corporate culture deficiencies, is that transforming two organizations into one involves more than a bottom line focus. Acknowledging the significance of -- and the differences in -- corporate cultures can spell the difference between a merger’s success and failure.
In fact, studies conducted by Deloitte Consulting have identified corporate culture clashes as causing 30 percent of all merger failures. Moreover, 55 percent of survey respondents identified “incompatible cultures” as a major obstacle to integration. Now more than ever, when more firms are being forced to pool assets and talents to reduce the cost of doing business and companies’ very survival depend upon the viability of those mergers, it is crucial that organizations recognize the key role that corporate culture plays in the success – or failure – of every merger.
I often see this scenario played out with our Skout clients. In today’s environment, when many companies are merging and consolidating to save costs, failure to confront the human factor can be a costly mistake.
Since fully integrating two distinct cultures lies at the heart of any successful merger, the process needs to focus on the human -- not the financial -- influences that can trip up even the most beautifully engineered merger.
Deloitte Consulting has demonstrated that there are six critical actions needed for successful merger integration: leadership alignment, organizational design, talent retention, communications, minimizing culture clash and, significantly, preparations for day one.
We’re finding that Skout’s tools support both teams by quantifying these non-financial dynamics and nurturing the merger integration process every step of the way. And, since each organization’s culture is made up of key individuals who determine much of the way business is conducted, Skout brings in its Management Drives tool to assess and measure individual and group patterns of communication and decision-making, identifying each team’s dominant values and patterns.
Management Drives also reveals where individuals and teams get their energy and drive. We also look at what triggers “de-motivation” and help leaders understand how to convey messages to bring all of their employees along on the merger process.
Time and time again, I’ve seen that the success of a merger ultimately relies on leaders who understand the power of culture. Too many leaders ignore morale issues because they either do not understand its impact on the success of the deal or they shy away from measuring something that strikes them as too subjective.
This is why a designated “integration manager” is vital, working to bring the teams together right from the start. The person who takes on this pivotal role needs to understand each team’s patterns of decision-making and communications. Here, listening, respect and fairness are key.
When leaders understand the differences in company cultures, it allows them to develop checklists of actions that need to be taken proactively to ensure success.
The result is a better, more cohesive team – that’s getting it right from the start. Priming the newly merged staff to work well from the get-go means they’re focused on pulling together to make their new entity a success, and dramatically cuts both the severity of a culture clash and the time it takes to adjust and become fully productive.
It also saves on a lot of unnecessary pencil-sharpening.
As president of Skout Group LLC, David Gebler works with senior leadership teams to accurately measure what motivates and drives behavior in organizations, using those results to improve their performance. He can be reached at .
