Merging companies is complicated. However, if merging is done right, it might lead to competitive advantages. The reality is that many companies do it wrong, resulting in failure rates as high as 70% or more.
The failure rate increases due to insufficient integration design and planning or faulty integration planning.
Lack of leadership, poor organizational culture, and unprepared people lead to failed integration of mergers. Most of the failures point to a lack of design and alignment with people’s needs. This is where Design Thinking can be of tremendous value. Let’s first look at why many mergers fail
Reasons for Integration Failure
Post-merger integration plans typically require creating lengthy checklists, project plans, activities, and tasks basically focused on estimation upfront. Unfortunately, this is where integration goes wrong. The most common reasons for failure are:
- People struggle to work with long checklists since it is difficult to manage the details. Another difficulty in a lengthy checklist is that it is not made to manage delays, directional change, or scope creep.
- Secondly, there is inherent uncertainty, ambiguity, complications, and volatility related to the details of integrating two companies. The primary difficulty that can arise is that as the project progresses, the estimations can go wrong, and discovering new facets along the way can create more difficulty. Specifically, waterfall project management models might not be a good fit for M&A integrations.
After much research done in integration over the years, the listed points are concluded:
● Approaches based on templates and checklists can have constraints regarding memory retention and people’s ability to collaborate.
● Some activities require an agile approach rather than the waterfall model.
● Everything is about people. People integration is about relationships that require the application of emotional intelligence and design. Design Thinking focuses on solving complex problems by focusing on people’s needs first.
What is Design Thinking?
Design Thinking is an innovative way to perceive people’s needs and approach problems. It is people centric.
Solutions are based on evidence with information collected through rigorous research and conversations with people.
“A Design Thinking mindset is human-centered, solution-focused, and action-oriented. “
To bring innovations into the merger process, Design Thinking encourages questioning, assuming, the collaboration of employees, brainstorming, building prototypes, testing the newly created ideas, and getting continuous feedback. This cannot be accomplished in a checklist, or waterfall project management fashion. There is a better way.
Six Steps Process to Better Merger Integration
There are six steps to designing an effective post-merger integration making up for the shortcomings of the templatized approach and the agile principles for uncertainty. Here they are:
1. Alignment of Integration
Most integrations require prominent levels of mobilization and synchronization since they have many inter-functional dependent activities. People will fail to get into a high-velocity project without focusing on key areas. Alignment isn’t accomplished by force. That’s coercion.
“Alignment is achieved by design with people’s needs at the forefront of everything.”
It is important not to overlook the essential areas covered in this article, since they can have massive benefits.
2. Determine the Depth of Integration
Integration requires a principled-based approach through which the depth and speed needed for the sub-functional components can be decided. To determine depth, the Haspeslagh-Jemison model can be used.
It is known that different sized companies have different management practices. Entrepreneurial companies or start-ups are dependent on the founders. They are highly focused on revenue generation and employee integration. The functionalization level managers are limited since the plans and operations decisions are dependent on the founders. On the other hand, larger companies focus on profitability and stability. They focus on market share, as well as enabling operations that are stable and efficient.
When a larger company buys an entrepreneurial company, the operations and management systems need transformation. It takes good understanding, structure, and time to deal with the ramifications of this.
“Problems arise when the acquirer focuses on imposing a new order to the integrated organization without addressing the journey or impact it will have on people.”
These can have a devastating effect where the leaders become frustrated and exit. These issues are caused because an assumption has been made that all will comply, at the cost of eroding the very cultures that made the acquired company, worth acquiring. This is all due to a lack of empathy.
3. Organization Structure Design
Post M&A, defining a new structure and an operating model is required. There are acquisitions where the acquired organization is left alone, and its operating model is preserved. However, there are also acquisitions where the acquired organization is either merged or absorbed. In the later, money is wasted due to inefficiencies from not creating synergies from a new structure and operating model by combining both the companies’ people-centric values.
Sadly, the focus post acquisitions, from a cost synergies perspective is to look for employee redundancies. You will find 30,000 strategies on how to deal with employee redundancies. Many companies cherry-pick the employees who get to stay, but this cherry-picking is done according to the manager’s judgment’s, biases, likes, and dislikes. It is not done by carefully orchestrate design.
While companies spend lots of money on acquisitions, they keep redundancy decisions at mid-management operational levels. However, middle management lacks the strategic mindset to optimally drive synergies. They are measured on their abilities to focus more on check lists, and transactions, often with no regard of the impact on people.
4. Change Management
Mergers require change management and cultural Integration of the leadership, people, and cultural aspects of an organization. All this requires the right level of communication. Managing change requires various tools and frameworks. Tools such as the Kübler-Ross Change Curve with William Bridge’s Transition Model are highly recommended.
For communication, you have access to various approaches. However, the framework that should be used must have the following five components: audience, content, medium, timing, and roles.
“The key to Design Thinking is dialogue, active curiosity, testing and validating ideas, and all these require active transparent communication.”
After going through all the processes, such as the M&A integration process, discussing and debating the depth of integration, organizational structures, and operating models, then you must address the resistances. These processes should then be put into a blueprint.
The blueprint will consist of elements of integration management, roles and responsibilities related to integration, risk management, escalation management, project governance, disputes, and more.
In addition, the blueprint will give deep insights of the process that needs to be followed at the time of exchange of ownership. Such as what is required to happen at first, and other milestones.
Milestones should show real-state consolidation, customer optimization, headcount redundancy plans, re-engagement, and management structure consolidation.
6. Functional Adjustments
This step is especially important for all activities that are multi-functional, multi-business unit or multi-geographical to address silo-thinking paradigms as well as situations where ramification of certain function are much bigger than others.
Integration planning is massive. Therefore, a core foundation should be designed carefully and with empathy according to the structure of the organization, operating plan and change management. Then the integration blueprint should be made ready.
After the integration blueprint discussed in the above step is ready, it is important to share it with departments, functions, and other business units for active input, adjustments, and calibration.
The integration process must be stress tested within the company’s functions. It is an important step considering multi-business, multi-functional, or multi-geographical activities. It is important because it addresses silo-thinking paradigms.
“Most M&A integration efforts often fail because of silo-thinking paradigms that focus on tasks, and checklists, instead of people.”
A lot of effort and steps go into integration. It can be concluded that if managers and members solely rely on only the checklists and task lists, things can quickly go wrong.
With the processes mentioned above, a Design Thinking pattern can be created to help everyone involved think in a more people-centric way.