Maximizing your latest acquisition
“We have a lot of good ideas about servicing the customer and we know what works and what doesn’t in this market, but nobody will listen to us.”
If I had heard that statement once during the week that I’d been conducting employee focus groups, I’d heard it 100 times.
The company I was working with -- let’s call it “Reidman Industries” -- has been growing rapidly, primarily through acquisition, although its organic growth over the last five years is in the healthy double-digit range. They have a strong corporate culture and dedicated employee base, which was a central factor in their early success. In fact, many of the original employees who started at entry levels when Reidman was founded are in leadership positions today.
Over the last few years, Reidman has completed five strategic acquisitions, not all of which have gone smoothly. Original employees of the organization still think of their colleagues as “being from that company we bought out three years ago” rather than truly part of the Reidman family. It was clear from recent conversations with employees that some of the “not invented here” resistance to new ideas at Reidman is eroding an important intangible asset from its most recent purchase -- the learning culture established in the acquired company.
Most M&A doesn't fail because the leaders negotiating the deal got the numbers wrong or didn’t understand the potential synergies between the organizations. Most are less successful than they could be because of insufficient attention to intangible assets, things like goodwill, brand recognition, reputation, employee engagement and culture. The financials may work, but that isn’t enough. How cultures and processes are integrated, how politics and power play out, and how employees feel about their daily work experience will determine the ultimate impact of the acquisition or merger.
In the case of Reidman, the desire to maintain the company’s startup culture and the tight-knit community created among its founding employees erected a wall that employees from acquired companies were finding hard to penetrate. The data from the focus groups I conducted indicated that Reidman was in serious jeopardy of losing talent it had acquired through recent transactions, and it would take years to rebuild the institutional wisdom those employees held.
The focus groups revealed several important factors in Reidman’s post M&A integration practices that needed attention, but these lessons are universal:
During the five years that Reidman had been in heavy acquisition mode, the company negotiated great deals that would ultimately enhance their product and service portfolio. Yet, the synergies of the integration didn’t happen as quickly as senior leaders expected.
In structuring the deal and setting expectations with investors, they underestimated the time it would take to align financial systems and the customer interface between the two organizations, including the backlog of product orders, which had doubled with the acquisitions. To avoid disappointing the CEO, leaders pushed employees to deliver on their standard workload and, at the same time, manage multiple integration projects. This created extreme levels of individual and team stress resulting in turf battles and infighting between existing Reidman employees and those from the acquired organizations.
When the level of chaos ultimately reached the CEO, she realigned priorities, reset expectations and established diverse integration teams that included employees from both organizations who reported their progress directly to the executive team.
Lesson: While your role is strategic as the CEO, it’s essential to understand the details and complexities of the integration so that you can determine a realistic timeline for completion before establishing financial targets with investors and potentially overwhelming staff.
After the most recent deal, Reidman’s CEO appointed an individual from the acquired company to lead the integration process. Some among the Reidman existing staff were resistant and fearful of the changes being proposed, so they slow-walked any request through the system. When the change agent looked for assistance from other leaders at Reidman, little was forthcoming.
This is a symptom of a lack of understanding of the new leadership behaviors required for the acquisition’s success. The outcome? Within two months, the change agent accepted a senior position at a competitor company.
Lesson: If you appoint a change agent, communicate their role broadly across the organization, empower them with consistent senior level support, and specify and reward the essential new leadership behaviors required of the team.
As highlighted above, Reidman struggled with cultural integration, at times alienating employees from acquired organizations. Often, HR was brought into discussions late in the process, usually after the acquisition or merger was completed, so inadequate time was available for planning and talent assessment before new employees became part of existing staff.
While leadership’s desire to maintain the best of Reidman’s culture was laudable, it failed to capitalize on some of the best cultural features of the acquired organizations. Doing so would have enhanced employee engagement, invited those with the best ideas to come forward, sped up the integration process and eased the angst I observed in the focus groups.
Lesson: Mergers and acquisitions offer an opportunity to evaluate the best features of each culture in order to create a new and powerful cultural DNA. Involve your HR leaders early in the due diligence process so a culture inventory can be completed and factored into the final decision on the deal.
Onboarding and evaluating capabilities
Some of the most challenging aspects of the M&A process are determining the reporting structure of the organization, how to eliminate redundancies without hemorrhaging talent and where to position teams geographically. It’s especially important to appreciate the key influencers in each organization who are likely to help other employees embrace the new structure.
Reidman leadership learned that it had to become more flexible about work arrangements and locations after its latest acquisition of a startup largely staffed with millennials who worked remotely. Initial instinct was to ask these employees to report to a Reidman leader at the headquarters office each day and work a 9-5 schedule. This was met with tremendous resistance, as these employees valued the flexible work arrangement and were actually giving more hours to the company than the proposed structure would have required.
When word got out that an influential member of that team with a lot of political clout had convinced half of the staff to look for other positions, Reidman reversed the requirement and retained the employees.
Lesson: Flexibility on work arrangements and reporting structures may be essential to the ultimate success of any deal. Identify key talent at every level and understand their needs for delivering their best work. Know who your key influencers are and who has the political capital to sway thinking. Get those people's input about the onboarding process and insights about particular constraints employees may be experiencing. Again, conducting a people-inventory assessment early in the vetting process is key.
Paying close attention to the lessons of failed M&A’s is important, especially with the human factor elements. According to a 2019 study, M&A activity globally was unsuccessful in generating significant shareholder for three consecutive years. It appears that with M&A, the old adage is still true: Culture eats strategy for lunch.
Alaina Love is CEO of Purpose Linked Consulting and co-author of “The Purpose Linked Organization: How Passionate Leaders Inspire Winning Teams and Great Results” (McGraw-Hill). She is a recovering HR executive, a global speaker and leadership expert, and passionate about everything having to do with, well … passion. Her passion archetypes are Builder, Transformer and Healer. You can learn more about how to grow leaders, build passionate teams and leverage passion to create great customer outcomes here.
When she’s not working with her Fortune 500 client base, Love is busy writing her next book, “Passionality, The Art and Science of Finding Your Passion and Living Your Bliss,” which explores the alignment of personality, purpose and passion, and the science of how it contributes to our well being. Follow Love on Twitter, Facebook, YouTube or her blog.