a new direction in m&a integration: how companies find solutions to value destruction in...

A New Direction in M&A Integration:How Companies Find Solutions to ValueDestruction in People-Based Activity BEN DE HALDEVANG

We’ve all heard merger-and-acquisition (M&A) hor-ror stories in which ignoring the complex hu-man element in integration led to problems thatleached away some—or much—of the deal’s hoped-for value. The success stories presented here point toeffective strategies for smoothly merging organiza-tions without compromising productivity, talent andcustomer retention, innovation, and other sources ofvalue creation. The author argues that integrationplanning and management, which too often focusnarrowly on process, should also explicitly addressthe people-intensive aspects of planning, speed, com-munication, innovation, culture, and HR issues. Foreach of these areas, he presents actual cases in whichpreparation or intervention kept a postdeal integra-tion on track and shares specific solutions and toolsthat can be adapted to other M&As. © 2009 WileyPeriodicals, Inc.

For the ten years I have worked with companies go-ing through a postacquisition integration process, Ihave had a question that, to my mind, has never beenanswered properly: Why is it that process alwayscomes before people?

Put differently, why is having strong program man-agement skills deemed more valuable than being ableto communicate effectively? Why is understandingand planning for risks that may occur during theintegration process more important than engagingwith key influencers whose knowledge and abilityto change things is considerable? Why is the activ-ity of managing the dependencies as part of an in-tegration management office’s responsibilities morecritical than understanding the acquirer’s inherentability and experience in a project that involves be-

havioral change? Why do companies emphasize de-veloping a target operating model with three-yearperformance goals above articulating the behavioraloperating model that will deliver that performance?

The list of juxtapositions could go on, but I thinkthe point is clear: The credo in the postdeal inte-gration process is the idea that process is critical,while people-based activities are considered “niceto have.”

The history of postacquisition integration makes thisissue (or contradiction) even more of an enigma.The statistics on postacquisition value destructionare well known, and I don’t propose to write aboutthem here. However, in the context of finding solu-tions to address possible weak links, the causes ofvalue destruction deserve our investigation.

If we look at the causes of retrospective dissat-isfaction with integration management—identifiedin a 2008 mergermarket survey1 of CEOs, CFOs,heads of strategy, and other senior managementand shown in Exhibit 1—well over half of the re-spondents identified components of integration re-lated in some obvious way to “people.” The realityis that even a process-oriented issue such as bet-ter planning relies on interaction, communication,trust, and relationships between people. And yet,the same management practices continue, a conclu-sion based on my personal and intuitive observationsgathered over the past ten years.

As a result of close involvement in and monitoringof the integration process as part of our postmergerintegration work, we have also found solutions to

6

c© 2009 Wiley Per iodicals , Inc .Publ ished onl ine in Wi ley InterScience (www.interscience.wi ley .com)Global Business and Organizat ional Excel lence • DOI : 10.1002/ joe .20264 • May/June 2009

Exhibit 1. Dissatisfaction with Integration Management

Source: A survey by mergermarket of 80 C-level European executives involved inM&As in the three prior years, published in M&A Integration, The MergermarketGroup, February 2007, p. 12

Exhibit 2. CEOs’ Perceptions of the Biggest Obstacles in Mergers and Acquisitions

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Source: PricewaterhouseCoopers 11th Annual Global CEO survey 2008.c©2008 PricewaterhouseCoopers. Printed by permission of PricewaterhouseCoopers Services. All rights reserved.

these issues in odd places. People-related issues re-ceive increasing amounts of airtime, with some quitestartling results, as seen in the data in Exhibit 2from PricewaterhouseCoopers’s (PWC’s) 11th An-nual Global CEO Survey 2008. However, the de-cision makers in the vast majority of clients withwhom I have worked look for a robust process ofintegration first and foremost. It appears that fromthe perspective of their internal capabilities, this isthe skill set about which they have the most concern.

This article is built around the six key pillars referredto by the participants in the earlier-referenced merg-ermarket survey:

� planning,� speed,� communication,� marketing—and product—innovation,� culture, and� HR issues.

Global Business and Organizat ional Excel lence May/June 2009 7DOI : 10.1002/ joe

For the purposes of this article, I have expanded the“marketing” pillar with “innovation” in order toencompass both product and market development.

The article makes liberal use of anecdotal exam-ples (or mini-cases, if you will). For reasons ofconfidentiality, the names of the organizations arenot mentioned, allowing me to provide more detailon the issues relevant to each case. At the end ofeach section, I have also included some successfulapproaches to the problems highlighted.

Planning: “Defying Gravity,” or How One Company

Achieved the Supposedly Impossible

Planning did not come naturally to the company inthis first example, which was an interesting mix ofSpanish employees with British management, ownedby private equity primarily from the U.S. and U.K.markets. The British management themselves hadmade certain lifestyle and cultural decisions whenthey joined this business—they had to some degreeadopted Spanish characteristics. Their employeesloved them for their willingness to conduct businessin a second language; demonstrate the same passionand commitment for the company that employeeshad; and take all of August off!

Innovation was at the heart of this technology busi-ness. Its employees mirrored its customer base so-cially, economically, and in their buying habits.Growth had been delivered consistently, and thecompany held a reputation among its customer baseas strong, flexible, highly creative, and in touch.

Despite a complex public/private transaction that in-volved other European bidders, the Spanish companyprevailed in gaining a business that complementedit perfectly in terms of customer coverage acrossSpain with a similar product range.

An opportunity arose to buy market share in twocritical markets through a merger. Despite a com-

plex public/private transaction that involved otherEuropean bidders, the Spanish company prevailedin gaining a business that complemented it perfectlyin terms of customer coverage across Spain with asimilar product range.

In every other way, however, the two companieswere completely dissimilar, and, as a result, the plan-ning challenge was considerable. From the new man-agement’s point of view, the “must-have” integra-tion deliverables were the following:

� an integrated organizational structure withinthree months of completion that would enablesignificant headcount reduction, with implemen-tation under way (the consultation process wasconsiderable and time-consuming, given the legalconstraints on large-scale redundancies);

� a new operating model in place for all supportfunctions and technical operations;

� integrated product offering, to include pricing;and

� a full marketing campaign to be launched in thetwo new territories, reflecting the change in own-ership, new product range, and approach to cus-tomer service.

Having completed the negotiation phase of thetransaction in May, the company had five monthsto develop an integration plan for Day One throughthe initial and critical 100-day period, as well as theplan for the transition to the target operating model.

The deliverables were challenging but not impossi-ble. In all our dealings with the company, the at-titude and work ethic of the workforce lent itselfwholeheartedly to the rigors of integration and im-plementation. Senior and mid-level managers werefully committed to the process, both rationally andemotionally, and were prepared to engage com-pletely in the activities of the business, typicallyworking 10 to 12 hours a day.

The toolkit that our team from Pricewaterhouse-Coopers (PWC) brought to the integration reflected

8 May/June 2009 Global Business and Organizat ional Excel lenceDOI : 10.1002/ joe

Exhibit 3. PricewaterhouseCoopers’ Postmerger Integration Methodology: Framework

c©2008 PricewaterhouseCoopers. Printed by permission of PricewaterhouseCoopers Services. All rights reserved.

a well-structured cycle of events based on experiencedistilled from more than 150 transactions over theprevious five years, including the following:

� the framework for the integration project—seeExhibit 3 for an example;

� a schematic of clearly defined programs and theactivities within each, along with the timeline forthe work—see an example in Exhibit 4; and

� the deliverables for each program, clearly de-fined yet sufficiently flexible to support the overallproject—see Exhibit 5 for an example.

While this structure was seen as important to theproject and, in the words of the CEO, “convincedour investors that we knew what we were doing,”it did not address the internal method of change in-grained in the company’s culture. By this I meanthe ways in which change had been achieved in thepast—most frequently through informal relation-ships, processes, and leverage, which created boththe momentum and the willingness among the recip-ients to accept a new method or pattern of behavior.

By the end of July, two months before the dealclosed, the majority of the plans were unformed.In particular, the plans for Day One, which wasreally critical in terms of the message to the market-place and the opportunity to deliver some powerfulcommunications internally and externally, neededmanagement attention. In addition, the timing anddimensions of the restructuring were insufficientlyclear. Roles were not yet defined at the senior man-agement level, and the process for deciding whowould hold which position was unclear.

This was not from lack of effort. Everyone wasworking hard to ensure that all understood the crit-icality of the planning process to achieving the de-sired integration benefits. What was still missing,however, was a level of internal “take up,” or ac-ceptance, by key influencers in the organization whowere not yet fully convinced of the merits of themerger.

By the beginning of August (when everyone goeson holiday—for a month!), our risk analysis had


Exhibit 4. PricewaterhouseCoopers’ Postmerger Integration Methodology: Timeline and Activities


flagged some very big warning signs. In our esti-mation, given the amount of time needed and theresources available, there was very little chance thatthe tasks for Day One would be anywhere nearcomplete.

What occurred over the ensuing six weeks wasextraordinary. Blockages were removed. Planningtasks were executed in an enthusiastic and drivenway. Negotiations with external suppliers were com-pleted and implemented. In short, the process finallycame together in a cohesive, energetic, and organicway, with exceptionally strong alignment betweenthe top and bottom of the organization. Day Oneand the implementation of the 100-day plan there-after turned out to be relatively smooth.

What happened?

It is easy to attribute the turnabout to an organiza-tion galvanized into action only by the possibilityof poor performance, which led it to develop realpriorities and act on them.

But the potential for failure was only part of thedynamics that contributed to a surprisingly success-ful outcome. The other, more compelling reason wasemergence of cohesiveness and alignment among thekey influencers around the future vision and direc-tion of the integrated company, which removed anyneed for further debate.

As a result, in meetings during this period, partic-ipants could finally move beyond reiterating con-text to making decisions rapidly with a focus on im-plementation. Personal accountability, energy, anddrive toward completion were evident in the actions


Exhibit 5. PricewaterhouseCoopers’ Post-Merger Integration Methodology: Deliverables

• Identify and execute Day One requirements across all functions

• Identify and resolve Day One risks

• Articulate the strategy for the combined company

• Determine the degree of integration and non-negotiables

• Identify and protect core operations out of integration scope

• Customise integration structure and approach

• Designate integration leadership at all levels and establish theIntegration Management Office

• Develop communication plan and execute early communications

Set the Course

Plan for Day One Execute 100 Day Plan• Deliver tactical integration projects

• Deliver quick wins

Pre Close 1st 100 Days Implementation

• Develop method

• Train IM’s

• Review Post Mortems

• Establish stage gatemodel

• Define and clarify roles

Develop PMIcompetence

Readiness and dd

• Profitability

Ensure criticalinsights

PMI stage gate modelPMI stage gate modelAAPMI stage gate modelPMI stage gate modelAA

Internal PMI Tool-kitInternal PMI Tool-kitBBInternal PMI Tool-kitInternal PMI Tool-kitBB

Integration FundamentalsIntegration Fundamentals11Integration FundamentalsIntegration Fundamentals11

Integration LaunchIntegration Launch22Integration LaunchIntegration Launch22

Communication PlanCommunication Plan33Communication PlanCommunication Plan33

Day One Plan44 Day One Plan44• Identify and resolve Day One risks

• Develop 100 Day Plan including quick wins

• Secure resources and implement retention plan

Integration Management Office (IMO)Manage risks, issues, dependencies; deploy status reporting and synergy tracking; develop and execute communication plans;monitor delivery against integration strategy.

• Deliver quick wins

• Design functional and operational "to be" states

• Identify, value, and prioritise key integration initiativesand synergies

• Develop leadership and organisation structure

• Assess cultural differences and develop peoplechange programme

Design the Future State• Consolidate all integration initiatives into an executable

plan

• Ensure plan fits with core business and prioritise withother initiatives

• Assess resource capacity and requirements

• Align incentive arrangements with integration objectives

• Monitor and address dependencies

Create Detailed Integration Plan

• Implement, track and monitorintegration execution to ensuredeal value capture

Maximise ValueThrough Future StateImplementation

Announcement Deal Close 100 Days Post Close

Transitionto businessas usual

• Profitability

• Best practise processes

• Assess transformationalability and risks

• Assess integration ortransformational risks andcosts

• Effects on valuation?

• Effect on early PMI?

Assess PMI risks,costs and needsand integrate in DD

Transformational DDTransformational DDDDTransformational DDTransformational DDDD

Critical Operating CoreCritical Operating CoreCCCritical Operating CoreCritical Operating CoreCC

Day One PlanDay One Plan44Day One PlanDay One Plan44

100 Day Plan100 Day Plan55100 Day Plan100 Day Plan55

Interim and Future Operating ModelInterim and Future Operating Model66Interim and Future Operating ModelInterim and Future Operating Model66

Value Driver Business CaseValue Driver Business Case77Value Driver Business CaseValue Driver Business Case77

Cultural AssessmentCultural Assessment88Cultural AssessmentCultural Assessment88

Organisational Design and Selection PlanOrganisational Design and Selection Plan99Organisational Design and Selection PlanOrganisational Design and Selection Plan99

PwC IMO ToolkitPwC IMO Toolkit1313PwC IMO ToolkitPwC IMO Toolkit1313

Prioritised Integration and Business InitiativesPrioritised Integration and Business Initiatives1010Prioritised Integration and Business InitiativesPrioritised Integration and Business Initiatives1010

Integration Master PlanIntegration Master Plan1111Integration Master PlanIntegration Master Plan1111

Synergy TrackerSynergy Tracker1212Synergy TrackerSynergy Tracker1212


and interactions of all participants. Effectively, thosewith influence reached a “tipping point” of accep-tance, which catapulted the process forward in anextraordinary way.

Let us have a look at some other examples of wherethe “people” piece enabled the “process” piece totake place.

An insurance company’s major structural changeinitiative, its response to exceptionally high cus-tomer churn rates, was proceeding much moreslowly than expected. The breakthrough came whensome of the findings of a cultural analysis wereshared with a group of 150 middle managers whofelt they had not been consulted about the changeprocess and were entirely disengaged from the ex-ercise. Twelve of them (“The Crew,” as they came

to be known) made their feelings clear at the end ofthe presentation. Senior leaders took note and im-mediately brought the group into the process withthe charter to spearhead initiatives around valida-tion of the study findings and implementation ofaction plans. This fueled broader engagement of theworkforce around the initiative; for example, 75 per-cent of the employees participated in a local theaterproduction about the new culture. It bears mention-ing that the company received its first-ever industryaward for customer care six months later.

In another example, management chose the creationof an HR database as a major focus for the integra-tion of a subsidiary of a French bank and a MiddleEastern financial services organization. Character-istic of the process-driven nature of the acquiringcompany, management had envisioned the database


as a means of analysis and a guide for decision mak-ing in the merged organization. However, the rapidpace of change rendered the database, which hadtaken six months to build, obsolete within the firstsix days of operation, greatly diminishing its valueand prompting a change in thinking. The manage-ment team turned to its people, drawing togethera number of influential individuals within the or-ganization on an ad hoc basis to devise a solution.The step might seem tiny, but that engagement ledto drastic improvements in performance and the re-moval of some blockages that had plagued the inte-gration during the prior six months.

The management team turned to its people, drawingtogether a number of influential individuals withinthe organization on an ad hoc basis to devise asolution.

What can companies learn from these examples?

� The elasticity of people from a productivity per-spective. What often looks to be an impossibletask based on sound planning principles and ex-perience can be achieved with the right peopleand focus.

� No shortcuts to engagement. Identifying, build-ing relationships, consulting, and collaboratingwith key influencers may seem a tedious and un-necessary step that lengthens time on the frontend, but when implementation is considered aspart of the total integration timeline, longer de-sign times are more than offset by quicker imple-mentation.

� Aligning change methods with the culture. Lever-aging the preferred or well-practiced approachesto change that are already embedded in thecompany’s culture can be a powerful way offacilitating integration planning and implementa-tion. Too often, merging companies rigidly spec-ify the “how” of each integration step, whereasaffording some latitude around the method ofchange would empower key influencers to use

practices that are familiar—and, therefore, lessfear-inducing—to their organizations. This low-ers the likelihood of generating resistance andraises efficiency—thus requiring less implemen-tation time.

In conclusion, the activity of planning somethingas significant as a postmerger integration accruespower for the person in charge, but that is far lessrelevant to successfully driving the required changethan engaging the organization itself in the planningand execution, often with the direct participationof certain critical people who have the power toinfluence the thinking and behavior of others.

Speed: Tackling the Hardest Things First, or

Dealing with the “Elephant in the Room”

The first of two merging entities in this example wasa bank so embedded in the fabric of society that itwould virtually take an Act of Parliament to closeit down—the kind of firm to which the term “ven-erable” is often attached. Its typically long-tenuredmembers—who were eligible for a long-term serviceaward only after 35 years—were extremely well con-nected in business circles.

The other bank had grown up with a similar raisond’etre, becoming close to its traditional customersand, in its earlier days, limiting its ambitions toserving them. Over the five years prior to the merger,however, its management team had moved the com-pany in a considerably different direction, gaininga strong market position with a track record ofaggressive, highly competitive growth. It hired peo-ple for their apparent competence and connectionsand encouraged personal more than team perfor-mance. It also enjoyed the reputation as the bankthat “crashed” the party of its more establishedpeers.

During the integration stage, these differences be-tween the merging partners manifested themselveson a daily basis in the part of the organizations


Exhibit 6. PricewaterhouseCoopers Trompenaars Matrix on Task Versus Relationship: Differences Between Functional Orientation in

Two Merging Companies


where the need for integration was most extreme,the sales function. The contrast between the twosales organizations was vividly apparent in some ofthe analyses we did. In the Trompenaars matrix oftask versus relationship, shown in Exhibit 6, the twosales teams were in diametrically opposite positions.The team in the “venerable” bank was motivated byrelationship management and long-term client reten-tion, with little concern for expanding the types ofservices provided to the client and, by extension, de-termining which services best met the client’s currentneeds. By contrast, salespeople in the other bank, the“party crasher,” focused on personal performancetargets, complex product offerings, and developinga personal franchise that would assure each membera continuously improving career path.

In considering integration priorities, we became im-mediately aware of the implications of these two

conflicting cultures or behavioral priorities. Deliver-ing revenue synergies, one of the key stated integra-tion benefits, required both teams to share clients,introduce each other to opportunities, and comple-ment each other in the marketplace. The two groups’inherent differences greatly heightened the risk offailure, which, in addition to failing to deliver therequired revenue synergies, would also entail a lossof part of the customer franchise and high levels ofturnover among the sales team that would disruptthe business over the long term. As importantly, thehigh visibility of such a failure could have a poten-tial knock-on effect for the rest of the integrationproject. The integration director was caught in avery difficult position. Not responding would havebeen seen as a significant failure on his part to dealwith the “elephant in the room,” but, equally, ad-dressing it effectively required subtle managementand influence.


The integration director successfully gained manage-ment agreement to a rapid response that entailed afive-part “people-oriented” strategy:

� An organizational structure that maintained thekey strengths of both teams. The relationshipmanagers remained in charge of client relation-ships, while the product sales people became spe-cialists in certain products. This was after con-siderable consultation with key influencers fromboth organizations.

� An incentive program that subtly encouragedboth teams to change. Giving relationship man-agers the opportunity for significantly higher lev-els of income through collaboration and cross-product sales encouraged the right type ofbehaviors.

� Design of the merged teams’ workspace througha collective, consultative process. Sets of key influ-encers from both teams were given the floor planto design, along with a full explanation of theexpected integration benefits for the merged salesorganization. With effective facilitation, the floorplan they created became a tool for creating re-lationships and connections across the combinedteam.

� Coaching for the team’s leader, and eventuallyphasing in someone else who could do the jobover the long term. Monitoring the incumbent’sperformance during the initial six months al-lowed the integration director to not only managethe person’s areas of weakness, but also ease thepath for his exit without any loss of franchise ordisruption. Because he was receiving regular feed-back about his performance, the leader realizedthat he was not the most appropriate person forthe role and exited without causing any disrup-tion to the business.

� Increasing the visibility of the new CEO. In asubtle but very powerful way, the CEO startedto circulate through the work area, greeting peo-ple and getting a sense of their state of mind andthe business being conducted. This was a signif-icant departure from his previous behavior pat-

terns and caused a real change in the sales team’sperformance and willingness to collaborate witheach other.

The rapid decision making and speedy implemen-tation of this five-point strategy sent an importantmessage to the employee group as a whole andhelped to create an environment where real changecould occur. In this case, speed became the cata-lyst for broader-level changes within the mergedorganization.

Giving relationship managers the opportunity forsignificantly higher levels of income through col-laboration and cross-product sales encouraged theright type of behaviors.

This is perhaps best illustrated by the changes reg-istered between the engagement feedback surveysconducted prior to and after the integration process.The predeal survey findings, shown in Exhibit 7,revealed noticeable gaps between the acquiring or-ganization and its acquisition target along nearlyall the cultural dimensions measured. The postdealsurvey results, also shown in Exhibit 7, indicatedconsiderably greater alignment between the acquirerand the acquired on the majority of the cultural at-tributes, a result all the more impressive given thebackdrop of organizational disruption—headcountreductions, workload, pressure—that accompaniedthe merger, as well as the speed with which thesecultural changes occurred—the second survey oc-curred just three months after the deal’s closingdate. The aligned vision and direction for the in-tegrated business served as a powerful motivationalprocess and generated a willingness to engage andcooperate.

According to PwC’s Mergers and Acquisition In-tegration Survey Report 2008, “The reported suc-cess rate for postdeal profitability and cash flowwas sharply higher when integration activities were


Exhibit 7. Sample Analysis: Alignment of Cultural Attributes Before and After the Deal

Source: Based on a PricewaterhouseCoopers engagement feedback survey.c©2004 PricewaterhouseCoopers. Printed by permission of PricewaterhouseCoopers Services. All rights reserved.

performed at a “faster than normal” pace than ata pace that was “slower than normal.”2 Exhibit 8shows the data that led to this conclusion. But basedon responses to other questions in the survey, the re-port goes on to say, “Despite all the benefits associ-ated with early planning and timely execution, mostrespondents report no sense of urgency to accelerateintegration.”3

What can one do to achieve the change in pace re-quired for a rapid transition in an organization withingrained operating patterns? Even if there is a burn-ing platform that is hard to ignore, improving theproductivity of the workforce requires an additional“something” to motivate greater responsiveness andspeed of action.

One of the solutions is found in the example inExhibit 9. Our postdeal engagement feedback sur-

vey for a merger a few years ago clearly showed anegative change in work-life balance, with the workof the integration undoubtedly a contributing fac-tor. However, we found only a minimal impact onoverall productivity, with scores generally improv-ing for key job-satisfaction factors such as careerprospects, reward, and position. These positive re-sults were achieved through the careful alignmentbetween the vision and direction drawn up by theleadership and their own actions and willingness tomove forward in a different way, as demanded bytheir new roles.

There is no doubt that achieving that level of align-ment requires careful planning and structure. Ul-timately, however, what is remembered are small,cultural actions that in themselves represent subtleshifts in behavior that employees can use as modelsfor their own actions.


Exhibit 8. Impact of Speed of Integration on Profitability and Cash Flow

Source: Speed of integration improves M&A success: PwC M&A Integration Survey Report 2008, p. 16.c©2008 PricewaterhouseCoopers. Printed by permission of PricewaterhouseCoopers Services. All rights reserved.

Exhibit 9. Postmerger Cultural Assessment

Overall

CareerProspect

Work lifebalance

Negative Positive

Overall

CareerProspect

Work lifebalance

Negative Positive

Pay

Position

Acquirer Target

Pay

Position

Acquirer TargetAcquirer Target

Source: Based on a PricewaterhouseCoopers engagement feedback survey.c©2004 PricewaterhouseCoopers. Printed by permission of PricewaterhouseCoopers Services. All rights reserved.


One note of caution: Do not confuse speed and im-plementation. In the case of the high-tech mergerhighlighted earlier in the Planning section of thisarticle, lengthy consultation with key influencersduring integration planning was necessary to gen-erate speed for the implementation. In contrast, themerger highlighted in this section used an implemen-tation step (i.e., the floor-plan design process) as atool to encourage collaborative behavior among par-ticipants from both sides of the merger. Both mergerswere able to use a similar technique to move quicklyand achieve an advantage, but the pace of change be-tween decision making and implementation in bothwas vastly different. Clearly, this is a critical culturalissue and one that any acquirer needs to understandprior to engaging in the integration effort.

Both mergers were able to use a similar techniqueto move quickly and achieve an advantage, but thepace of change between decision making and im-plementation in both was vastly different.

Communication: How to Make a Collective

Process Look Individual

The communication work stream in a recent ac-quisition, which spanned a number of Europeancountries but was led from the United States, hadas its cornerstone an integration intranet portal de-signed to give the workforce all the information it re-quired in a highly sensitive, easy-to-navigate, attrac-tive way. Three months into the integration process,after following up on some questions from acrossthe combined organization, the acquirer learned thatabout 50 percent of the employee base could notaccess the portal.

During another acquisition, this in the Middle East,the integration newsletter was published only inEnglish despite the fact that the audience was al-most entirely Arabic-speaking. In the same deal, itturned out that the customer-facing staff frequently

turned to their customers for integration-related in-formation. The external channels were perceived tobe more effective or valuable than those messagesdelivered internally.

I recently conducted an informal straw poll amongpostmerger integration practitioners at a global con-ference. In the five minutes dedicated to communi-cation at the end of a long session on process (!), Iasked the question “Who has been involved in a dealwhere the internal communications were not an ab-solute disaster?” Of the 55 participants (who amongthem had considerable breadth of transactions expe-rience), only eight had a positive story to tell. Amongthese eight, five attributed their favorable outcometo a crisis resolution (i.e., an intervention to fix acommunications program that had been going verybadly, which, inevitably, involved long hours, lotsof collaboration, and high-level, “just-get-it-done”sponsorship).

Contrast this with the two examples that follow.

In a banking acquisition in the United Kingdom, theCEO of the acquired business became an incrediblyeffective spokesperson for the acquisition within hisorganization. He was given the role of translatingto his employees what was happening in the acquir-ing business, to interpret for employees its actions,responses, and behavior as he saw them. Such washis position and the level of trust vested in him byhis employees that in those instances when he hadincorrectly construed the meaning of something, hewas able to come back to the organization and offera new interpretation without any loss of credibility.If anything, this willingness to admit a mistake en-hanced his position. As a result, the business main-tained its productivity throughout the year of pre-closing integration activity. Turnover was minimaland easily managed, giving the acquirer the choiceof whom to retain after the deal closed.

In a second example, during the integration pro-cess of two law firms located in the same domestic


market but in different cities, one of the communi-cation channel identification exercises revealed thata very important employee group (five-to-seven-yearpostqualified associates) was not being addressed di-rectly and was relying on messages from other partsof their respective firms.

The CEOs of both firms resolved to address thisconcern directly via a series of monthly meetingsover lunch in the firms’ respective cafeterias. (As weunderstood, most associates had lunch together as agroup to share experiences informally, making thisan informal yet effective channel.) Attendance wasextremely high, and during the first two years ofintegration, productivity from this group remainedsteady. Overall, the integrated business improvedits profit per equity partner by 30 percent in the firstyear of integration.

In the same merger, it was also discovered that mostemployees knew very little about the new leader-ship team. The deal took place during the secondGulf War, and, rightly or wrongly, the integrationteam resolved to use the “playing card” format (fa-mously used in the war to identify key targets by theU.S. military) to profile some of the new senior ex-ecutives. Inevitably, that communication tool raisedsome big issues internally as to its appropriateness.However, it was extremely effective as a method ofgetting information across and generated a lot ofresponses through the various feedback channels.

A number of key lessons emerge from these twomergers:

Most communication fails because it is conceivedfrom the position of “ease of delivery” rather thaneffectiveness of receipt.

� Most communication fails because it is conceivedfrom the position of “ease of delivery” ratherthan effectiveness of receipt. Successful commu-

nications around integration entail a simple for-mula: What would you like the employees youare addressing to (1) know, (2) think, (3) feel,and (4) do?

� Channels are critical. Selecting the correct onesis a much more complex process than you mightthink but ultimately worth the investment of timeand effort. Consider the number of e-mails youreceive on a daily basis and the possibility thatyou might miss an important message because itcomes via this channel. What primary criteria doyou use to decide which ones to open and readand which ones to delete immediately? For thevast majority of people, the primary criterion iswho the sender is, once again confirming my pointon the people-based nature of change.

� Informal channels are significantly more effec-tive than formal ones. From our experience, toolssuch as newsletters, e-mails, posters, and the likehave a shelf life of about six months. Thereafter,they become invisible to the average employee.

� A message delivered in an engaging or imagina-tive way is more powerful by virtue of its nov-elty. Even if it is perceived to be in “bad taste,” ithas considerably greater impact than a messagecommunicated in a very conventional manner.(Advertisers have long known this.)

� Internal communications within integration is afull-time role and needs proper, senior-level re-sources. Exhibit 10 is a tool that we’ve used ona number of occasions to match the appropriatechannels with the required responses or actionsof employees.

For as long as there are mergers and acquisitions,there will continue to be concern and dissatisfactionabout communications. The reason for this is ob-vious. Each individual, as a member of the humanrace, spends a lifetime communicating and listeningto others communicate and, by virtue of this ex-perience, has clear perceptions about what does ordoesn’t work. But defeatist as this may sound, it isnot an excuse to throw one’s hands in the air andsay it is impossible. On the contrary, the ability to


Exhibit 10. PricewaterhouseCoopers’ Depiction of the Linkage Between Organizational Communication Channels and Desired

Employee Behavior


transform an organization into a productive, value-enhancing, loyal, and business-aligned collective isdetermined in large part by consistent messagingthat engages the workforce and creates trust inleadership.

Marketing—and Product—Innovation:

The Hidden Strength That Exists Behind

Every Successful Business

Increasingly, innovation is being recognized as a crit-ical differentiator in any successful business trans-formation. Despite this, almost all of the typi-cal processes in postmerger integration generatea behavioral pattern that actively discriminatesagainst it.

A European company that I worked with took theissue of innovation extremely seriously. The head of

Innovation reported to the board and had consider-able autonomy. Over 75 percent of the company’snew products/offerings were the result of an inno-vation cycle with a three-year-and-beyond horizon.Of the employees in the innovation arena, the major-ity came from outside the industry sector, and two-thirds mirrored the profile of the customer base froma social, demographic, and economic perspective—in effect, they were designing products and servicesfor people very much like themselves. The companysaw this “closeness” to and understanding of cus-tomer needs as hugely valuable and aligned with thebrand and reputation of the business.

The innovation “mind-set” permeated the rest of theorganization as well, from marketing to operations,where there was a constant drive to think abouteven the mundane or administrative in a creative


way. Employees did not need incentive programs orsuggestion boxes to innovate—they did it as part oftheir day-to-day activities, and it was part of theiroverall engagement in the company.

Following the acquisition of another company in thesame sector and market, the organization’s focusmoved rapidly toward cost reduction and risk man-agement, with all capital expenditure very carefullymanaged and each cost analyzed to precisely deter-mine the expected return.

Following the acquisition of another company inthe same sector and market, the organization’s fo-cus moved rapidly toward cost reduction and riskmanagement, with all capital expenditure very care-fully managed and each cost analyzed to preciselydetermine the expected return. This was a radicalchange for an organization accustomed to thinkingin terms of three-year product-to-launch timelines.

Within six months, the pattern of innovation hadchanged. In the innovation arena, up to 60 percentof the staff comprised experienced industry-sectorstrategists with less intuitive understanding of thecustomer base. More than 70 percent of product in-novation now focused on delivery of enhancementsto the existing product portfolio within an expe-dited timeline of six to nine months, rather than onlonger-term development of new products.

Business performance over this period slumped.Customer churn increased significantly, service lev-els dropped, and voluntary employee turnover roseto its highest level in the company’s history. As thedirector responsible for customers told us, “This sit-uation is not sustainable. The only differentiationbetween ourselves and our competitors had beenour ability to constantly innovate, and we’ve lostthat ability.”

In another case, a European technology companydeclared its intent to acquire small technology bou-tiques (i.e., businesses with an often single piece ofintellectual property), as a way to broaden its overallproduct offering using its own distribution platformand customer base. Not surprisingly, finding busi-nesses interested in this concept was not difficult,as the strategy was attractive to most entrepreneurs.Retaining the key innovators, however, proved ex-ceptionally hard, and so the company launched astudy to discover why—with fascinating results.

As we reviewed the company’s process, we foundthat the early stages of the deal started well, witha high level of alignment in terms of strategic in-tent. In the next step of the process, due diligence,the entrepreneurial innovators in the target companywere subjected to exhaustive and challenging inter-views while price and structures were negotiated.Integration began thereafter, but rather than begin-ning with the key innovation functions—the strate-gic competencies that made the target so attractive—the “vanguard” of the integration process was in Fi-nance, IT, and HR—360-degree review processes,detailed compliance with financial reporting sys-tems, health and safety regulations, and other pro-cesses, most of which, at best, support rather thandrive the business. The amount of work this gen-erated introduced a complete distraction from coreinnovation activities. Within weeks of the acquisi-tion, the innovator-entrepreneur was involved in awhole series of activities for which he or she hadno aptitude and even less interest, all of which con-firmed that this was not the long-term solution heor she had envisioned.

In contrast, let’s look at an example of a companywhere the principle of innovation operated at alllevels.

One of the most innovative organizations I haveever encountered was an insurance company inthe United Kingdom. While the leadership of the


business had an important role to play, all employeesembraced wholeheartedly the concept of innovation.

Following the acquisition of a large division from acompetitor, the integration plan called for the trans-fer of a large number of staff. Employees were askedto consider how this process of induction might bemade easier and more productive.

In situations such as this, the initial six-week pe-riod after induction is often very unproductive anddisorienting for new employees. This leads someto make damaging decisions about whether to stayor leave, with resulting higher turnover, typicallyamong those who find it easier to leave (i.e., thosewith good track records and valuable experience—the very people a company doesn’t want to lose).

In an attempt to mitigate this risk, the insurancecompany’s employees devised an innovation impres-sive in its simplicity and effectiveness. Rather than amap, incoming employees were given a color-codedchart for Day One. Each function had an assignedcolor (e.g., Finance was blue). To get to the Financedepartment, the new employee pressed the blue but-ton in the elevator, stepped off the elevator whereit stopped, and followed the blue color track on thefloor to the blue work area, which was marked withblue overhead signs indicating the locations of dif-ferent parts of the Finance function.

Our people productivity matrices, developed to trackindividual and group productivity throughout theintegration and beyond, indicated that after threemonths, the new employees had reached productiv-ity levels unseen by us in other integrations.

Our people productivity matrices, developed totrack individual and group productivity throughoutthe integration and beyond, indicated that after threemonths, the new employees had reached productiv-

ity levels unseen by us in other integrations. As im-portantly, the overall business was able to maintainits preintegration productivity level despite the dis-ruption of orienting and absorbing many new peopleinto its workplace and processes.

At the beginning of this section, I mentioned theinherent conflict between the need for certainty inpostmerger integration and the creative tension fromlack of certainty required for innovation. Whilethere are specific processes around reward, invest-ment, direction, and the like designed to drive in-novation forward, the real issue is related to people.Simply stated, to put forward a new idea for improv-ing existing practices requires a degree of personalconfidence that outweighs concerns about personalrisk—that is, the risk of being seen as “not focused”or, even worse, as someone who might be show-ing up his boss, who didn’t have the idea first. Inreality, merger integration engenders a great senseof personal risk, and this discourages anyone whofeels at all vulnerable from coming forward withideas. Meanwhile, in the hypersensitivity to coststhat nearly always accompanies a deal, anything thatcannot be quantified and justified as to its cost bene-fit is discouraged. As a result, those individuals withinnovation capabilities either wait for the companyto return to its previous innovative, risk-taking cul-ture or they leave.

When part of a well-designed and executed integra-tion plan, the following measures can help preventdisabling the capacity and drive for organizationaland individual innovation:

� Make innovation a priority. The integrationplanning and program management activitymust reflect the focus on innovation and includea related work stream with a specific deliverable.This might be the joint development of a newproduct or service offering within a certainperiod from completion. The company shouldalso carefully orchestrate communications to


promote the success of this joint effort bothinternally and externally.

� Demonstrate support for innovation. Retaininginnovators and research and development (R&D)people is almost always not about cash. Theirmotivation hinges primarily on whether they willbe able to continue to do their work. In that con-text, the key things they will be concerned aboutare changes in budget, organizational structure,approval processes, reporting lines, marketsegments, or marketing strategies. Actions inthese areas will go the furthest in demonstratingcontinued commitment to innovation.

� Maintain the internal and external innovation“brand.” Innovators and R&D professionalshave both an internal and an external network.Internally, they depend on like-minded individ-uals, sources of information, and key influencerswho act on their behalf. Externally, however,they collaborate and share experiences withother innovators, where the needs of the businessare secondary to the excitement and frustrationof the vocation. The external network is a sourceof confirmation or validation in terms of careerpath and monitors the reputation and positioningof the employer in a peer-group-review type ofprocess. Any acquirer who wants to successfullyretain innovation talent and resources needs tomaintain a positive image with both networks asa supporter of innovation, which can be done ina variety of ways, for example:� Continued funding of external research

projects. In many cases, the cost of these ac-tivities is minimal, but their impact internallyand externally can be significant.

� Inclusion of the innovation message inmarketing/brand/strategic communication.

� Continued recruitment and presence at keyrecruitment fairs for R&D-type people.

� Maintain access to senior leaders. This is notabout reporting lines but about assuring keyinnovators that they have access to and theattention of senior decision makers within thenewly integrated business.

To summarize, the next “big” idea is likely to residein the head of one of your employees right now. Cre-ating an environment where he or she feels willing toallow you access may be the difference between suc-cess and failure. This is not about planning or pro-cess, but again, about engagement and alignment.

To summarize, the next “big” idea is likely to residein the head of one of your employees right now.

Culture: The Way Things Work Around Here

Throughout this article, you will find cultural bar-riers manifesting themselves as specific, definable is-sues that have specific, definable solutions. Earlierin the article, Exhibit 2 showed that cultural barri-ers occupy the top spot in terms of concerns aboutmerger-and-acquisition deals in the minds of CEOsaround the world, alongside other concerns such asachieving “value for money.” This is a significantchange in the level of recognition from just ten yearsago. The reasons probably have much to do with thegrowth in cross-border acquisitions, where culturaldifference is relatively easy to observe, and an in-creasing awareness in many boardrooms of people-related challenges.

This development is also evident in more frequentboard-level appointments for individuals with titlessuch as head of organizational development (OD)or director of OD and change, which also reflects aseparation of these sets of responsibilities from theirtraditional, if sometimes reluctant owner, the HRfunction.

An interesting case of cultural change in a post-merger integration project occurred in a transac-tion involving two European retailers that spanneda number of countries but with a large employeebase in the United Kingdom. I have addressed theissue of alignment elsewhere in this article, and I


Exhibit 11. An Example of a PricewaterhouseCoopers’ Cultural Assessment Feedback Survey


see it as being particularly relevant here. In thiscase, the cultural barrier lay between two extremelywell-aligned businesses—in other words, in the eyesof the employees, there was a strong linkage betweenthe values that they themselves held and those ofthe business in which they worked. Since the twobusinesses were significantly different in their man-agement style and approaches, the situation had thepotential to be explosive.

We asked the individuals we interviewed to charac-terize their own organization along several dimen-sions. Exhibit 11 illustrates some of the areas ofgreatest difference.

For example, Company 1’s characterization as aplace where “internal politics play an importantrole” could be seen as a problem by outsiders—including the employees from Company 2. To thecontrary, Company 1’s employees perceived it as apositive trait that they attributed to a managementstyle in which influence was a critical tool for enact-ing change. Similarly, employees who agreed that

their company (Company 2) was “stifled by bureau-cracy” considered that to be a key element in the col-laborative and consultative nature of the business,whereas Company 1 employees, unaccustomed tooperating in a bureaucracy, could find that attributequite undesirable in an employer.

Our investigation of another area of disparity be-tween the two cultures, “entrepreneurial flair,” re-vealed that the high degree of comfort with “own-ership” in Company 1 stemmed from the fact thatmany of the senior and middle management teamhad been owners of businesses that had been ac-quired by the company—their willingness to takerisks was based on that experience. In Company 2,however, risk was seen as difficult and unattractivesince the impact on the brand was unknown andpotentially dangerous.

Had these differences not been identified and ad-dressed in time, the integration could have beenplagued by misunderstanding, frustration, mis-trust, and other responses with the potential to


substantially damage individual and overall produc-tivity. To prevent this, the integration team devisedand implemented the four solutions discussed below.

The process of releasing the results of the diagnosticwas in itself a solution in that it provided employeesat all levels with a sense of the leadership stylegoing forward, and started to develop some trust inthe merged organization’s leaders.

� Communication and problem solving around cul-tural differences. The diagnostic that yielded theabove results was communicated to a very broadaudience, from executive board to each workstream. In each case, certain decisions were madearound the operational implications of the com-panies’ differing styles and approaches. For ex-ample, within the integration team, agreementwas reached on the level of consultation re-quired for decisions. Individuals were asked toplace themselves in various categories of “needto know,” which forced them to realize the na-ture of their role in the decision-making processand subsequently made it easier for the businessto respond quickly and efficiently. The step alsocreated an environment where “doing” first andasking for forgiveness later was acceptable. Theprocess of releasing the results of the diagnosticwas in itself a solution in that it provided employ-ees at all levels with a sense of the leadership stylegoing forward, and started to develop some trustin the merged organization’s leaders.

� A common lexicon. There had been growing con-fusion about what each party meant by certainexpressions, technical and nontechnical. To helpclarify terms and provide a common languagefor talking about culture and behavior, the lan-guage used in the diagnostic was compiled into acorporate directory and distributed widely. Froma cultural perspective, some of these terms be-came very helpful, nonpejorative descriptions of

behavior that employees from both organizationsused and understood. At a board meeting a yearlater, the finance director used a couple of ex-pressions directly from the directory to explaincertain performance characteristics. The fact thatthis language had migrated into his financial man-agement vocabulary was very powerful for theorganization.

� Rewards that reinforce accountability andcollaboration. The diagnostic informed the pro-cess for developing senior-executive long-term in-centive plans. Previously, these plans applied toa relatively small group of people whose inter-ests were aligned. The process of broadening thereward schemes to encompass a group three orfour times larger reflected a culture of personalaccountability new to both organizations. It alsoprovided a stimulus for more formal collabora-tion and alignment in the combined business thatwas very important to its success going forward.

� Building on successes. The successful launch of anew product generated an exceptional return forthe newly merged business. As the positive public-ity surrounding this product grew both internallyand externally, the organization began to man-ifest a newfound confidence toward developingideas, and the perceived risk of entrepreneurialbehavior began to diminish, a desirable shift to-ward greater innovation and measured risk tak-ing in the culture.

Culture may be the new buzzword in postmergerintegration as senior management gains an appre-ciation for how it is defined, its impact on deals,and how to address the issues. But some consider-able hurdles remain before organizations will see theultimate value arising from culture-focused integra-tion activities.

� Going beyond the diagnostic. The first hurdle isthat a diagnostic by itself (particularly an e-baseddiagnostic, which has little human interaction)is interesting in a kind of “navel-gazing” way,but it does not generate any real change. Telling


your employees to behave differently is unlikelyto work without something else happening.

� Aligning HR systems/processes. Part of any busi-ness M&A integration strategy should be assur-ing that critical systems and processes are fullyaligned with the needs of the new organiza-tion and business. For example, ask yourself thefollowing:� How does my reward strategy reflect the per-

formance I need from my senior management?� Does my induction (orientation) program de-

liver key messages at the start of a person’semployment that are aligned to the overallstrategy?

� Do the communication channels in themselvesreflect how we as a business should be engag-ing with our employees and customers?

Alignment challenges exist all across the board.The more aligned your HR systems and programsare, the greater the level of commitment, pro-ductivity, and the retention of key staff you willachieve.

� Leveraging the power of story. Culture changeand integration need role models and myths,or legends, within the organization. A story ismuch more compelling than a mission statement,particularly if the story is about an individualwhom people have met or interacted with. As anexample, I have no doubt that the only thingsany reader of this article might remember amonth from now might be some of stories I’veshared here. If so, it would be an achievement onmy part.

The more aligned your HR systems and programs are,the greater the level of commitment, productivity,and the retention of key staff you will achieve.

HR Issues: How to Turn Practical Capability

Into Strategic Direction

A large European financial institution was acquir-ing a much smaller one with a similar product mix,

customer base, and geographical footprint. The ra-tionale for the deal was to buy some growth, andthe focus, quite rightly, was on maintaining a closeeye on business as usual and avoiding the usual dis-traction of the deal.

The complementary nature of both partners af-forded considerable opportunities for headcount re-duction, and a senior HR director of the acquiringbusiness took personal responsibility for managingthe HR work stream.

As often happens, the acquirer then made a numberof unexpected discoveries, very positive ones in thiscase:

� There was more to be gained from the deal thanthe customer base—namely, some very talentedpeople, good processes, and systems that, if trans-ferred, could solve a number of problems for theacquirer.

� The management talent in the target was of veryhigh quality and could also prove to be veryvaluable.

� Some of the reward and performance manage-ment structures reinforced a type of behavior at-tractive to the acquirer.

The acquiring company’s CEO recognized theseunanticipated benefits of the deal as an opportunityto transform his organization in a way that would beexceptionally difficult in a “steady-state” situation.

The HR director perceived this to be a negative com-ment on her own structures and policies, which shehad difficulty accepting, and so she ignored the newdirection the integration was taking. Before long, theHR work stream was being undermined by a seriesof actions from business line leaders attempting tocapitalize on the aforementioned opportunities. Thislack of alignment among all the work streams pre-sented some significant overall risks to the project,and ultimately the HR director was removed fromthe project.


Exhibit 12. Differences Between CEOs’ and HR Heads’ Priorities for the HR Function

2003* 2004**

Rank Head of HR CEO CEO

#1 Employee relations Internal communications Commercial acumen#2 Talent retention Maximizing return on people investment Focusing on what matters for business success#3 Effective administration Developing future leaders Optimizing management time#4 Communicating in an understandable way#5 Relevant reportingSources: *PricewaterhouseCoopers 6th Annual Global CEO Survey 2003.**PricewaterhouseCoopers 7th Annual Global CEO Survey 2004.Copyright c©2003, 2004 PricewaterhouseCoopers. Printed by permission of PricewaterhouseCoopers Services. All rights reserved.

In a quite different case, a transaction in the phar-maceuticals industry that involved entities across theUnited Kingdom and Europe, the deal so enhancedthe role of the group HR director and that of hisfunction that he became one of the most importantfigures in the transaction. The impetus for this washis ability to read the dynamics of the two compa-nies and offer his CEO some solutions around orga-nization design, rewards, performance, and culturalchange that were both innovative and pragmatic.None of these activities were part of the originallyconceived integration plan, but his adaptability andhis understanding of the business were instrumentalin responding to some key risks.

In neither of these examples was the power of theHR mandate being challenged. Rather, it was theability of the HR head to adapt and respond thatled to these very different outcomes.

The data from the mergermarket survey shownin Exhibit 1 might seem to refute this conclu-sion, since only 7 percent of the respondentsthought that approaching the HR issues differ-ently might have improved their integration pro-cess. Such a perception, however, can reflect alack of alignment between what the HR functionthinks are its responsibilities and what other func-tions believe it should respond to. To illustratethis point, I cite a finding from Pricewaterhouse-Coopers’s 6th Annual Global CEO Survey 2003,which asked CEOs and HR directors to articulate

from their respective perspectives what they sawas the priorities for HR. The startling contrast inresponses, shown in Exhibit 12, was reaffirmed ayear later when we again asked CEOs for theirperspective on HR’s key priorities (also shown inExhibit 12).

To put this into context, if there was this much dis-agreement between a chief financial officer and hisor her CEO about which actions were critical forthe finance function, the situation would rapidly be-come untenable for one or both of them. In the caseof HR heads, who are often affecting between 30and 60 percent of the cost base of the business, sucha situation is apparently allowed to continue unre-solved in many companies.

In a merger or acquisition, this schism becomes evenmore significant. One would think that HR has acritical role to play in such deals for many reasons,such as:

� The vast majority of cost synergies arise throughheadcount reduction that will require costing,union/works council negotiation, and carefulplanning.

� The organizational structure must be redrawn,from a governance, control, and resource plan-ning perspective.

� Reward and terms/conditions need to be aligned.� There are likely to be some significant learning

and education requirements.


� Payroll systems need to be integrated, or at leastfeed into a management reporting framework ina consistent way.

� The impact on productivity of the workforcemust be managed very carefully.

� Contractual arrangements for the senior manage-ment and potentially the entire employee baseneed to be reviewed.

� A resource plan that is aligned to the new targetoperating model needs to be created.

� Fundamental activities such as recruitment,promotion, and appraisals may require re-view/modification as the business begins totransform.

� Change management challenges are endless andoften overwhelming. For the great majority ofmiddle and senior managers in M&As, the rolesthey perform will change significantly, and inmany cases, the incumbents are poorly equippedto manage this transition.

The agenda for HR is enormous, and yet integra-tion directors and heads of strategy often exhibitonly limited willingness to interact with HR in thepreclosing period.

The agenda for HR is enormous, and yet integra-tion directors and heads of strategy often exhibitonly limited willingness to interact with HR in thepreclosing period. This is symptomatic of a broaderissue across the deal continuum, where the handoffbetween strategy, due diligence, and implementationis not managed particularly well as each party workstoward a different agenda.

That HR is left on the sidelines too long also re-flects a continuing challenge for HR to meaningfullymeasure the function’s impact on the business. Thishas nothing to do with data, by the way—presentlythere are myriad ways in which workforce perfor-mance and, more importantly, productivity can be

measured. For example, within PricewaterhouseC-oopers, the Saratoga business has been benchmark-ing HR key performance indicators for more thanten years, and the level of sophistication is extremelyimpressive.

Rather, HR’s predicament in transactions derives,in my opinion, from a lack of comfort within theHR function with financial concepts and quantita-tive performance measurement. This prevents thefunction from playing the role it ought to in M&As,that of a key decision maker, given the extraordi-nary impact that the human assets will have on thetransaction.

Conclusion

Mergers and acquisitions are here to stay. Theyoffer CEOs a range of strategic opportunities—defensive, aggressive, growth-oriented, geo-graphic/market/product diversification, evencreation of a legacy. In many ways, acquisition asa solution is too easy—although perhaps less sonow than in the last two to three years. But thedecision to acquire or merge is often based on goodstrategic rationale, coupled with the “excitement ofthe pursuit.”

The reality, as this article seeks to show, is that suc-cessful integration is a huge and highly complex un-dertaking. Any attempt to “commoditize” the pro-cess is fraught with danger—each transaction is dif-ferent, and to reduce the process to its lowest com-mon denominator would require so much revisionas to render it useless on the ground.

I offer a few additional suggestions, however, thatcan raise the likelihood of success:

� Approach each acquisition not as “buying a com-pany” but rather as if you had commissionedan executive search/recruitment company to findyou the equivalent number of senior, or techni-cally gifted, or operationally skilled employees.


Think about the effort you would expect yoursenior managers to make to induct, motivate,manage, and get the most out of their new col-leagues, and apply that thought process to yourdeal. There are very few people who show loyaltyto a company that they didn’t volunteer to join.

� Manage the communications process as if youwere a receiver of information. What would youwant to hear from your new management team,and what channel is going to be most effectivefor you?

� Focus the integration so that the things most crit-ical to your strategic objectives are the first to bedelivered. If you are buying a business because ofits innovative capability, find the innovators be-fore you close the deal, get them networked intoyour own equivalents, and give them a task—anew product within three months of completion,as an example. If you are buying because of thesales channel, focus on the sales team first. Un-derstand from them the best way to get them fa-miliar with and willing to sell your product, andcreate reward structures around the function thatmotivate them to deliver.

� Make sure that the people from the supportfunctions involved in integration understandsomething about managing change and not justcompliance!

� If you need to change the culture in your newlyintegrated company, change your own behav-ior first. Find an opportunity to demonstrate thechange you require in your own actions, andwatch as others follow you.

� Finally, for each piece of process you use to cre-ate the newly integrated business, also use onepeople-related action. If you are considering de-

veloping a new target operating model, create avision and mission statement that describes thecompany in two to three years from the perspec-tive of its customers and employees. For everypiece of process re-engineering, engage with thekey influencers and ask for their help in shapingand implementing it.

To conclude, the biggest challenge in any integra-tion is maintaining performance or productivity, bethat with regard to customers, service, quality, inno-vation, or output. Your employees are at the heartof the productivity challenge, and with no interven-tion, their productivity will fall, potentially by someconsiderable percentage. Taking mitigating actionsto prevent this from happening or to minimize itsimpact is not simply a “nice to have” strategy; itshould be core to your integration effort.

Notes

1. mergermarket is an independent M&A intelligence serviceof The Mergermarket Group.

2. Speed of integration improves M&A success: PwC M&AIntegration Survey Report 2008, p. 15.

3. Ibid., p. 22.

Ben de Haldevang is postdeal director, Financial Services In-dustry Practice, for PricewaterhouseCoopers LLP Singapore.He can be contacted at [email protected] case study references, views, and opinions expressed inthis article are those of the author and do not necessarily re-flect the view and opinions of PricewaterhouseCoopers LLPSingapore. If you wish to use the information contained inthis article or wish to receive further information referred toin the article, please contact the author of the article or thepublisher for permission.


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