Merger Signs of Impending Disaster

Seventy percent of mergers fail* to create value that is greater than the sum of the parts.

So how do you know if your merger is failing while there is still time to do something about it?

Watch for these signs:

The Goat Rodeo: A lack of executive alignment

Arrows withhin an arrow going every which way -lack of alignment

Instead of

Many arrows within and arrow all pointed in the same direction -aligned

Months after the close the executive team is still arguing about whether the merger or acquisition is a good idea.

  • People keep saying, “Tell me again, what was the purpose of the merger?”
  • Everybody has a different thought about:
    • What pieces of the business to rationalize
    • Who the core customers are
    • What the product categories of the future are
    • How to go to market
  • Executive staff meetings take forever!

Navel-gazing overdose

  • Internal focus leads to a lack of attention to customers and suppliers:
  • Nobody has been to see a customer in months.
  • Key suppliers, the ones you thought were your “partners,” are missing deliveries or slipping in quality or complaining about being “squeezed dry by the accountants.”

Arterial bleeding: a talent exodus

Turnover is always an important measure that things have gone awry.  Look deeper.  Are you losing:

  • Key executives or managers (the ones on the “must keep” lists)?
  • R&D scientists or technicians?
  • Long-term manufacturing process knowledge (Old Joe from Quality Testing who knows the releasers at your biggest customers)?
  • Information systems people?

“Fiddle te de, I’ll think about that tomorrow”

Rosy view accounting or forecasting is indicated by:

  • Lack of cash management focus; failure to meet cost-savings deadlines
  • Failure to redeploy or lay off people in agreed duplicate roles
  • Falling sales, which will “turn around next quarter”

(Note:  Someone will no doubt say, “Sales always go down the first year of a merger.” But then remember, most mergers fail, don’t they?)

Goliath coming over the hill: A change in the competitive landscape

Mergers are an aggressive competitive act.  Competitors will respond.  Watch for:

  • Mergers that beget other mergers, joint ventures, and alliances. Horizontal integration that begets competitive vertical integration and vice versa.
  • Competitors that respond by cutting prices, locking up supplies, flooding distribution with product, or in some way nobody has even thought of yet.
  • Competitors are suddenly attacking your traditional strongholds and gaining ground.

Competitive response raises the bar for the merger or acquisition.  What started out as adding a product or increasing capacity becomes a life or death struggle.  If nothing else, it speeds up the optimum integration timeframe.  What could comfortably be done over eighteen months now has nine months before the board starts discussing divestitures.

Spaghetti code and GIGO: information systems breakdown

Information systems touch every aspect of the business. IT and the degree to which the two companies’ systems are combined are critical success factors.  During mergers, people make changes without considering implications for IT.  Programmers make integration-expedient choices without considering the business needs of users.  Sometimes that takes the form of patching two systems together in very arcane and complex ways (spaghetti code). Other times  that takes the form of poorly defined or monitored input data that produces inaccurate or uninterpretable output reports (garbage-in-garbage-out, or GIGO).

Symptoms include:

  • You can’t get data at all or on time or the way you need it or the way you used to get it, and “nothing can be done about it.”
  • The system “crashes” again.
  • “The person who wrote that code left last month.”
  • The IT people ask for overtime, and you give it to them, doubling your IT salary costs.

Best practice Armageddon

Cultural warfare is about whose way of doing things is better.  Some of this will go on no matter what you do.  Some people will fight on for years.  But if most of your organization is paralyzed, if most people are internally focused on the past (as opposed to externally on the future), then there is a crisis.  Symptoms include:

  • A lack of experimentation
  • A lack of innovation
  • A plethora of war stories and anecdotes about the “reason we do it this way”
  • “Stonewalling” implementation of decisions you thought were made months ago
  • Lots of we/they, us/them, and “you don’t understand”
  • More discussion about “whose fault it is” than there is about how to solve the problem

Low-grade fever and general malaise

People are just “worn out” with the stress of integration.  Change is tough.  Change in a merger is tougher.  Sometimes it gets so bad that everything grinds to a halt.  Most people aren’t having fun anymore.  Symptoms include:

  • Organization climate survey scores are declining, “We’re moving too quickly!”
  • Others say, “We’re not moving quickly enough!”
  • Absenteeism and tardiness increase.
  • Employees are taking vacations at critical delivery times.
  • There is a lack of attendance at company social events.
  • A greater than usual number of people are swearing uncontrollably.

If your merger or acquisition is experiencing one or more of these symptoms, it may be time for a restart.  If it is experiencing three or more, it is time for a turnaround.

Key steps of a restart:

  1. Align executives first:
  • Agree on purpose of the merger, and the vision and strategy.
  • Agree on the values of the new organization.
  1. Plan a new integration that:
  • Utilizes a joint-team (from both firms) participative approach
  • Creates a cadre of change agents from both companies
  1. Make IT a critical-path stream.
  2. Mobilize the entire organization to make the change, impassioned by a new sense of urgency.

 

* Source: ”The Big Idea: The New M&A Playbook” Clayton Christensen, Richard Alton, Curtis Rising, Andrew Waldek; Harvard Business Review, March 2011, Updated and revalidated March 2021

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A Friday Some Years Ago:

9:00. Phone rings.

“Hello? Oh, Hi Ken…”

12:00 noon. Phone rings.

“Hi Ken, what’s up?”

4:45 p.m. Phone rings.

“Hi Ken… Say Ken, Are you checking on me?”

“Well, actually, yeah. When I work from home I only get about two hours of work done all day. What with the kids and the dog, trying to work from the kitchen counter, and the TV, and computer games. It’s very distracting. We pay you quite a lot and I was just trying to see if you are actually working.”

“OK, Ken, I get it. But I’m in my office on the second floor of my house. It has a desk, phone, files and computer. There’s no TV. I have no games on my computer. My kids are grown and don’t live with me. The dog is old and goes out before work and after. Besides Ken, I only charge you when I’m actually working. We can review the training I wrote today if you’d like.”

“Well, I’m headed home; can you email it?”

“Sure.”

My client was new to the job and he had inherited a consulting team. To him it was easy to see us working when we were on site, but given his personal experience working from home, he couldn’t imagine us working productively on Friday, when we weren’t on site.

In fact, for certain kinds of head-down individual work, I got a great deal more done on Fridays than I did during the week, when I had to attend meetings with clients and build commitment to change. However, I understood that many managers in offices shared Ken’s experience and the concerns that arose from it.

Then Came Covid

Durin the coronavirus pandemic, workers in factories, healthcare, first responders, retail, and food service risked their lives and office workers learned to be productive “working from home.” Office productivity didn’t suffer as expected and office workers liked the flexibility, the lack of wasted commuting time, and not wearing pants on Zoom calls.

I retired in 2018, so this really didn’t affect me directly. I heard about it from my kids. One time consulting colleagues called to ask how I worked as an independent consultant. People asked about my home office and what the IRS required to deduct the set-up of a home office, (dedicated space, documented use, and expense receipts). I started to see jobs advertised as “remote,” or “hybrid.”

Some people figured out they could work from anywhere and you saw magazine articles of people working from the deck of their beach house. I was always jealous of that because I didn’t have a beach house.

Some people complained about the isolation of Covid-time. As the pandemic died down, some people reminisced about standing on balconies of city apartments banging pots in support of first responders and healthcare workers. Covid was something that affected us all, a unifier after a time of division.

Then Covid was (finally) over

Well, not really over. Covid is still around. We’re just done with it, over it; Covid is so four years ago. For the last four years, there has been a discussion building.

“OK everybody, it’s time to return to work.”

That one pissed off all those workers in factories, healthcare, first responders, retail, and food service who risked their lives.

“We never stopped working.”

So R-T-W became R-T-O, “return to office.”

Some were enthusiastic; some were less so. Sure, there would be less isolation, but more colds and flu (and Covid whispered the risk averse). And then there is wasted commute time. And then there is the flexibility of working when I want. And then there is the fact that I don’t have to stay late because Mary bent my ear about her mom, and Ted just had to relive the highlights of the big game, etc.

“OK, well, what about two days per week?”

“Maybe.”

“Three?”

“I don’t know.”

It’s been a long four years.

This conversation has been slowly accelerating. I must admit that, Boomer dinosaur that I am, I wasn’t particularly won over by the Gen X, Y, Z, Alpha whines about commuting costs and cleaning bills for the pants they would now have to wear. I also thought that some workers were being clearly unreasonable in their demands.

My nephew runs a retail food business and told me about job applicants who asked if they could “do the retail floor job remotely.” Some jobs require face time.

Culture is built by being together. Teams function best if they actually know each other. I began to hypothesize that introverts would want to work at home but extraverts would want to return to the office. It turns out there is no evidence of that.

I have had more and more conversations recently with office workers, people I respect for their intelligence and projected competence, who say, “If they insist on 5-days-in-office, I will leave.” Or “OK, I’ll come in for 9:00 and leave at 5:00, but there is no working till 7:00 and no calls on nights and weekends.”

There have been some famous CEOs who have gone public “R-T-O or else!” At a recent cookout, huddling under a canopy during an inconvenient downpour, I was engaged in conversation with the manager of administration for the board of directors at a money center bank.

“My CEO is friends with another CEO who has drawn a very public line in the sand, but my colleagues, my boss and three quarters of my staff will walk if he enforces the RTO mandate. Most of the board are off site and 90% of my work is email and phone. I have to be here for board meetings and two or three days a week is reasonable. Five is a hard “No!”

I began to think that managers, even CEOs, who insisted on a 5-day RTO mandate, might be driven by their own convenience  ̶  “I want to turn around an give someone a job directly. I don’t want to find out they’re ‘shirking from home’ and have to call them.”

Then, in today’s New York Times, I came upon an article by Adam Grant, et al, at the Wharton Business School, that quotes research, that demonstrates that:

“ One: Return-to-office mandates don’t increase profits by weeding out people who lack commitment. They motivate the most talented people to jump ship. Two: As long as people are together for half the week, remote work isn’t isolating. And three: Hybrid work isn’t bad for performance, innovation or connection. “

Grant et al go on to describe how adamant RTO mandates are most often pushed by narcissistic managers that require constant attention, as demonstrated by the size of their pay packages, offices, and their photos in the annual reports.

So where does that leave RTO?

It depends. There are clearly some jobs that require presence, just like first responders, and retail workers, if your job has a face to the public, well, you gotta face the public. If your job has more individual than team work, you might have more of an argument for remote or hybrid work.

If you are a manager, who just can’t get over the fact that, “Hey, I got up every day and went into the office. I sucked up to my manager and now its my turn,” then maybe look in a mirror. Get over yourself, and see how you can lead change three days a week or on Zoom without any pants.

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4 Comments

  1. Bob Musial

    You had written, “During mergers, people make changes without considering implications for IT. ”

    I totally agree and would like to add, that people also frequently make changes without considering the implications for the customers. It’s the “navel-gazing overdose” you mentioned.

    Another good one, Alan.

    You should write a book.

    Reply
    • Alan Culler

      Thanks, Bob
      Lack of customer focus is a huge problem in mergers.
      Thanks again for your support.

      Reply
  2. David Ford

    Great article Alan. You nailed it with your comments about considerations such as customer impact, I/T (how to integrate a new system into the acquiring company) and leadership alignment (or lack thereof).

    Reply
    • Alan Culler

      Thanks David
      I appreciate your support.
      There are very few actual “mergers;” most are acquisitions, which are hardest on the acquiree. It can be hard on the acquirer’s people to, but it’s never helpful to say things like, “if you were so great, how come we bought you.”

      Billie’s advice for living through them
      “The rumors are usually true.”
      “When they say ‘nothing will change,’ don’t believe them.”

      Reply

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