M&A: Managing the ´soft stuff´


“Hostile takeover”, “culture clash”, “turf wars”, “us against them” – phrases commonly applied to M&A, often in retrospect to describe why expectations that rode high at the start failed to be delivered. These are telling words of conflict; it’s easy to ascertain that stakeholders involved in any joint venture believe they are entering a war—a war they believe they must win to survive. 

So how do leaders, post merger, prevent loss of productivity and ensure they deliver the anticipated synergies, in the context of such a win-lose atmosphere? A mounting body of evidence points toward the soft side, the human elements, as the culprits of failure to maintain productivity and deliver the expected synergy. Stories abound of integration efforts being undermined by the so called ‘soft stuff’ – where human expectations, anxieties, tribal behaviours, mixed emotions, different mindsets and ways of working, not to mention the win-lose mentality, pull against efforts to achieve the task of integration and post merger productivity. The evidence is there, for all to see, of potential lost, of synergies left on the table, of disappointment – it’s become received wisdom [1] that ‘culture’ is responsible for some spectacular M&A failures.

[1] According to a KPMG study, “83% of all mergers and acquisitions (M&As) failed to produce any benefit for the shareholders and over half actually destroyed value”. Interviews of over 100 senior executives involved in these 700 deals over a two-year period revealed that the overwhelming cause for failure “is the people and the cultural differences”.

Take one of the world’s biggest merger blunders, the  German-based Daimler-Benz acquisition of US-based Chrysler. Contrasting cultures and management styles hindered the realization of expected synergies Daimler-Benz attempted to run Chrysler USA operations the same way it ran its German operations, characterized by methodical, centralized decision making within a formal hierarchical cultural framework. Conversely, Chrysler’s way of doing business was informal, and deeply valued its American adaptability. The result was a $512 million loss during the first quarterly reporting period post merger, and in the end a re-sale at a fraction of the buying price.

This is intangible stuff, and surely the consequences are unintended. Few people, if any, are actively seeking to bring the thing down, are they? They are not deliberately lowering their productivity, are they?  On the contrary, people appear to work harder than ever in a post merger period, they try to make it work; people respond to the demands and urgency of integration, to many new demands as the best they can, they seem to put as much (if not more) effort into their work as before the merge. But, when the emotions and confusion of change coupled with the insidious impact of different company cultures remain hidden, when they are not explicitly surfaced and managed, then the danger remains as high that all this effort gets misdirected and becomes frustratingly unproductive.

Thus it’s a priority for the leaders to direct, manage and tend the climate and culture of their company, such that it flows with the grain and intent of what you want to achieve, rather than against it. As a leader you can delegate many tasks, but people will take their cues directly from you when it comes to establishing what is important and valued. Both in what we do and in how we do it.

This human element is like snow: soft, beautiful and easily moulded when it first falls, under certain conditions can become treacherous – and you may pay the price if you ignore it.

So, how do we handle these human and tribal tendencies – tendencies that seem to act against achieving what our rational minds – or at least the architects of the business case – tell us is possible? What do leaders need to pay attention to if they are to avoid the nightmare scenario of falling productivity post-merger or acquisition, occurring for no ‘rational’ reason?  To answer this question of where to place more attention, consider two separate factors at play, one is peoples’ emotions as they face the upheaval of the change, and the other is the meshing (or clashing) of different company cultures. The first factor, managing through emotional reactions to change, is primarily about how to ensure that anxiety does not undermine productivity in the short term, as people worry about their job, their career, their clients, how to protect what they have spent years building up.  The second factor, a longer term prospect of developing new, shared, mental models is about establishing new unwritten rules about ‘how we do things around here’, ingraining new ways of thinking and working, to achieve the synergistic results that have been promised.

This is not easy – as a leader you are probably under the greatest pressure of your career, expectations are high, many eyes are on you at this time. What do you do to dial down the adverse consequences of anxiety and dial up more focussed and purposeful activity that drives productivity? Let’s look at dialling down the anxiety and reducing its impact on performance. When we are anxious we become:

1. Hypersensitive, hyper vigilant – anxiety makes us jumpy, scanning for threats or problems, we get more territorial, more protective and reactive to events, rendering us less able (temporarily) to be pro-active.

2. Overly detail focussed – we make lists of things that must be done, find it hard to concentrate or hold the big picture, we are easily bogged down in details – anxiety reduces our ability to keep a focussed goal in mind.

3. Suggestible – the longer we wait, the more anxious we get – and the more suggestible we become, the less receptive we are to ideas coming from others.

Leaders can mitigate these risks to business in specific ways:

1. Articulate the business priorities, stay on top of what is important to be productive today – tell people clearly what it is that will keep the business afloat, where you need them to focus, where the results need to come from to prevent productivity falling as the company deals with the merger – be very clear and specific about this, and keep coming back to it.

2. Be as speedy in decision making as you can: don’t think that time softens the blow, act fast, use your influence to move forward at pace, reduce the waiting time wherever you can, and give constant status updates so people feel they are ‘in the know’.

3. Communicate often and directly yourself, listen to what people feel and say, be present; In an anxious state, people make meaning out of small actions (or absence of actions), things may not always land as you intended, stay in contact with what people are making of you and your leadership teams behaviours, decisions, actions; ask people what they understand, be willing to listen and make constant adjustments. Don’t leave this to chance or to the rumour mill.

In a nutshell, move as fast as you can and keep talking with people, involve them in the story and show then where you need them to focus.

So what about the second ‘hidden’ dynamic, of company cultures clashing? As a new top team forms, you start defining the purpose, the values, and the ways of working that you believe to be important for success. You’re developing a new company identity and culture post merger, an important task for the senior leaders to turn their attention, and it needs to be done fairly quickly.

Take the example of US-based cell company Cingular that acquired AT&T, which due to its consumer-centric branding achieved refit of 1,100 stores overnight with new signs and Cingular equipment; CEO Stan Sigman admitted he may have underestimated the importance of culture at first. After the acquisition though, when employees continued to refer to each other as “blue” (the prominent color of AT&Ts old logo) and “orange” (the prominent color of Cingular’s logo), he took notice. Employees were also using dividing language such as “they” and “us.” Sigman, however, picked up on the conflict early believing, “the sooner [I am] able to nip that culture clash in the bud, the better,” and addressed the issue through meetings and training sessions.[2]

[2] Harry R. Weber, “AT&T Wireless merger a challenge for Cingular CEO,” Dec. 6, 2004, Associated Press
 

In another Axialent article we offer a practical, step by step advices for the leadership team in its’ task of building culture post M&A.  Although not easy, this is not uncharted territory, much is understood about what to expect and how the leaders can tackle the challenge.

If there is a single factor, from our experiences, that indicates ‘make or break’ in the journey, I would call it intelligent courage, to speak with honesty and openness, to say it as it is and to encourage others to do the same. It’s the courage that you as a leader bring to allow conflicts to be put on the table and to be tackled, to enable you to set a course and stick to it, to say things straight and clear, to hear the view of others, even their pain, with open heart.  There are two specific points at which this shows up, in addition to the crafting of messages and the quality of conversations and communication.

One point is when you frame the culture you want for the future. Avoid the temptation to announce from the start that you will have a ‘Best of Both’ cultures and take a stand for what you want. While it makes surface sense to say ‘we will choose the best from each company culture’, and it won’t hurt any feelings, the problem is no-one believes it; they hear platitudes, and platitudes simply serve to reinforce fears and assumptions about what is unsaid (eg. they took us over so they’ll win, oh so it’s a reverse takeover). And people will spot examples of ‘winners and losers’ despite what you said, increasing their doubt.  Better to take a more overt stance from the start about what you want to see and how you plan to go about it.

Another point is to not to be tempted to avoid conflict – smoothing the waters and ‘not spooking the horses’ is not going to serve you well in the context of maximising synergies. As social psychologist Jay Hall found in his early research on group synergy, the most effective groups actually exaggerate their differences at first, exploring and seeking out tensions, creating conflicts, more effective action on tasks followed. Less effective groups go straight into cohesion around task.

Is this counter intuitive? To speak plainly about the problems, the conflicts, the worries, to allow them to be out on the table and discussed openly – these are the actions that will help reduce the impact of anxiety on results and serve to open up synergies. If we imagine pussy footing around fears, conflicts, clashes, ignoring different perspectives is what managing the ‘soft stuff’ entails, I think we couldn’t be more wrong. To bring our intelligence to bear on these often vexing issues is what opens up the possibility for the new whole to be greater than the sum of the previous parts – the essence of M&A.

 

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About the author

Cathy is Axialent’s Managing Partner. She leads the UK & Nordic market as well as our Culture Practice, with an eye on continuously developing and improving our approach to culture transformation journeys. She has a passion for pulling the right levers for change, identifying what a company can do to shift to a higher-performing culture. Read more >

 

 

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