Change Management |n Mergers and Acqu|s|t|ons

Marlllse SmlL, Mu of ChangeWrlghL ConsulLlng (Ly) LLd and ChangeAblllLy 1ralnlng (Ly) LLd
Introduct|on
M&A LransacLlons are ofLen pursued ln order Lo acqulre a larger share of an exlsLlng markeL, enLer new
markeLs, ellmlnaLe compeLlLors, acqulre experLlse or asseLs, Lransfer skllls, save cosLs, lncrease
efflclencles or caplLallse on synergles. lL has, however, been found LhaL beLween 33 and 70 of M&As
fall Lo meeL Lhelr anLlclpaLed purpose (CarleLon clLed ln Schraeder and Self, 2003) or Lhey Lake longer Lo
do so Lhan expecLed. ln facL, recenL sLudles have found LhaL slgnlflcanL percenLages of M&As desLroy
proflLablllLy and shareholder value (Sunday 1lmes 8uslness 1lmes, 6 !une 2004, 16).
M&As are compllcaLed LransacLlons lnvolvlng many rlsks for all conLracLlng parLles ofLen brlnglng abouL
falrly rapld large-scale change wlLh far-reachlng lmpacL. MerchanL bankers, audlLors, lawyers and Lax
consulLanLs are reLalned aL greaL cosLs Lo manage cerLaln rlsks Lhrough Lhe negoLlaLlon, due dlllgence,
conLracL drafLlng and lmplemenLaLlon phases of Lhe LransacLlon. uurlng Lhe due dlllgence phase deLalled
lnformaLlon ls obLalned abouL Lhe parLles, and Lhe rlsks lnvolved ln concludlng Lhe LransacLlon are
evaluaLed. 1radlLlonally lawyers and audlLors are appolnLed Lo conducL Lhe legal and flnanclal due
dlllgence lnvesLlgaLlon. 8oLh Lhese Lypes of due dlllgences mlghL Louch on Lhe people aspecLs relevanL Lo
Lhe LransacLlon buL rarely do Lhey lnclude a culLure or cllmaLe assessmenL LhaL evaluaLes Lhe culLural flL
beLween Lhe organlsaLlons lnvolved ln Lhe LransacLlon before concluslon of Lhe LransacLlon.
1here ls, however, a growlng reallsaLlon LhaL Lhe successful ouLcome of M&A LransacLlons ls dependenL
on wlde-scale lnLegraLlon of people and culLures lncludlng Lhelr processes, sysLems and pracLlces and
LhaL culLural compaLlblllLy lssues can no longer be lgnored. lf Lhe people slde of M&As and Lhe
lnLegraLlon of dlfferenL culLures are lgnored, Lhe merglng companles could face many dlfflculLles,
lncludlng, ulLlmaLely noL meeLlng Lhe anLlclpaLed purpose of Lhe LransacLlon. A survey of managers and
companles lnvolved ln more Lhan 1 000 M&As conducLed by 8esL racLlces, a uS-based consulLancy,
found LhaL sLaff producLlvlLy dropped by 30 and 47 of people ln leadershlp poslLlons moved on
(Sunday 1lmes 8uslness 1lmes, 6 !une 2004, 16).
Some of Lhe oLher dlfflculLles lnclude:
Loss of skllled employees oLher Lhan employees ln leadershlp poslLlons. 1hls Lype of loss lnevlLably
lnvolves loss of buslness know-how LhaL may be dlfflculL Lo replace or can only be replaced aL greaL
cosL.
8eLrenchmenL of employees causlng panlc and a loss ln moLlvaLlon, whlch could ln Lurn also lead Lo
a loss of producLlvlLy and a reducLlon ln revenues.
lmproper or lncompleLe allgnmenL of employmenL Lerms, condlLlons and beneflLs leadlng Lo anger,
resenLmenL and a drop ln moLlvaLlon.
8ushed or lmproper populaLlon of new organlsaLlonal sLrucLures.
lncrease ln cosLs could resulL lf Lhe proper managemenL of change and Lhe lmplemenLaLlon of Lhe
M&A LransacLlon are delayed.
unhappy cusLomers and Lhe evenLual loss of cusLomers.
8ulld up of reslsLance Lo any fuLure change lnlLlaLlves.
Managlng change ln Lhe hlghly complex world of M&As ls noL easy and research has found LhaL so much
as 70 of change lnlLlaLlves are unsuccessful. 1he facL LhaL Lhe M&A process can someLlmes Lakes as
long as 3 Lo 3 years Lo be fully effecLed, adds Lo Lhe levels of uncerLalnLy, amblgulLy or confuslon LhaL
accompanles such LransacLlons.
Crgan|sat|ona| cu|ture
Cne of Lhe componenLs of complexlLy of M&As ls organlsaLlonal culLure. 8efore an M&A LransacLlon ls
concluded lL ls lmporLanL Lo assess Lhe culLural compaLlblllLy of Lhe merglng flrms. ln Lhls regard lL ls
recognlsed LhaL such formal culLural assessmenL ls usually noL posslble because Lhe negoLlaLlons leadlng
up Lo Lhe merger have Lo be kepL secreL. 1hls creaLes Lhe rlsk, however, LhaL Lhe merglng parLles do noL
dlscover lmporLanL dlfferences unLll afLer Lhey have commlLLed Lhemselves Lo Lhe new organlsaLlon
(Scheln p.178).
lL should also be remembered LhaL Lhe usefulness of a formal culLural assessmenL ls llmlLed as
assessmenLs done on Lhe merglng companles would noL lndlcaLe wheLher Lhey are even uslng Lhe same
meanlngs for seemlngly shared concepLs". (Scheln, p. 180)
1o acqulre Lrue culLural lnslghL, requlres boLh parLles Lo Lake parL ln each oLher's culLures. 1hls can be
done by sendlng employees lnLo Lhe oLher organlsaLlon for some Llme or by creaLlng dlalogues
beLween members of Lhe Lwo culLures LhaL allow dlfferlng assumpLlons Lo surface. ulalogue ls a form of
conversaLlon LhaL allows Lhe parLlclpanLs Lo relax sufflclenLly Lo begln examlnlng Lhe assumpLlons LhaL
lle behlnd Lhelr LhoughL processes." (p. 181) arLlclpanLs should feel secure enough Lo suspend Lhelr
need Lo wln argumenLs, clarlfy everyLhlng Lhey say, and challenge each oLher every Llme Lhey dlsagree."
(p. 181) 8eflecLlve raLher Lhan confronLaLlonal conversaLlon should be encouraged. 1he process of
creaLlng dlalogue can help focus on engaglng people and maklng lssues dlscussable and ln Lhls way
reduclng uncerLalnLy and anxleLy and Lhe llkellhood for employee reslsLance Lo Lhe change.
CrlLlcal Lo Lhe success of a culLural change process ls a well-deslgned plan for Lhe managemenL of such
change. lL has been found LhaL companles wlLh sLrong lnLegraLlon plans creaLed above-average value ln
Lhelr lndusLrles and effecLlve posL-merger managemenL pollcles were seen Lo lmprove Lhe odds of
success by as much as 30 percenL (8esearch was done by Mercer ManagemenL ConsulLlng clLed ln
1eLenbaum, 1999: 3).
!usL as crlLlcal as plannlng for Lhe managemenL of culLural change ls Lhe need for effecLlve
communlcaLlon, ln every phase of Lhe merger process. Lmployee reslsLance Lo change can be a huge
barrler Lo Lhe successful lmplemenLaLlon of a merger or acqulslLlon. 8eslsLance ls, however, a naLural
parL of Lhe change process as change lnvolves golng from Lhe known Lo unknown. lndlvlduals Lyplcally
go Lhrough four phases durlng a ma[or organlsaLlonal change: lnlLlal denlal, reslsLance, gradual
exploraLlon and evenLual commlLmenL.
keeplng communlcaLlon channels open wlll prevenL anxleLy from geLLlng ouL of hand and provldlng
clarlLy abouL expecLaLlons wlll reduce dlsLrusL or confllcL. keLs de vrles (1993: 46) says frequenL revlews
should be conducLed durlng Lhe LranslLlon process, durlng whlch people can Lalk abouL Lhe reasons for
Lhe merger and open Lhe dlalogue around fuLure changes, and durlng whlch managemenL can aLLend Lo
Lhe psychologlcal dlmenslons of Lhe change process.
8elaLed Lo Lhe lssue of communlcaLlon ls Lhe ldenLlflcaLlon of all sLakeholders who may be affecLed by
Lhe change. 1he buslness case for change, Lhe process of change and Llmellne musL be communlcaLed Lo
all sLakeholders so LhaL Lhey may galn an adequaLe undersLandlng Lhereof. 1hose sLakeholders who wlll
be lmpacLed slgnlflcanLly by Lhe change musL have a clear undersLandlng of how and when Lhey wlll be
lmpacLed.
Clear and regular communlcaLlon, lncludlng Lhe process of creaLlng dlalogues, should address
sLakeholder reslsLance and lead Lo sLakeholder buy-ln. CommunlcaLlon channels musL allow for effecLlve
feedback from sLakeholders Lo ensure LhaL barrlers Lo and opporLunlLles relaLlng Lo Lhe change
ob[ecLlves can be ldenLlfled on an ongolng basls and be addressed.
WlLhouL collaboraLlon, Lhe process of culLure lnLegraLlon may be slgnlflcanLly hampered. ln Lhe lnlLlal
phase of a merger, Leamlng up Lo creaLe cross-company Lask forces and pro[ecL Leams and arLlculaLlng
Lhe new rules of Lhe game wlll help problem solvlng and ensure fuLure collaboraLlon (keLs de vrles,
1993: 47). 1he role of Lhe lnLegraLlon Leam leader ls also consldered vlLal Lo Lhe success of Lhe
lmplemenLaLlon phase of culLure lnLegraLlon and lnLegraLlon managemenL should be recognlsed as a
dlsLlncL buslness funcLlon raLher Lhan an add-on" [ob for lnLegraLlon Leam leaders (1eLenbaum, 1999:
6).
ln addlLlon, commlLmenL and paLlence are essenLlal. !usL as a marrlage demands a loL of aLLenLlon and
commlLmenL of resources" so does Lhe merger of Lwo ofLen dlvergenL culLures. keLs de vrles says
mergers are lnLense relaLlonshlps LhaL ofLen lead Lo hlgh Lurnover as people are psychologlcally
unprepared for Lhe afLermaLh of a merger or acqulslLlon" (keLs de vrles, 1993: 42).
M&As and Lhe resulLanL changes Lo Lhe organlsaLlonal culLure ofLen requlre a collecLlve change of mlnd.
8uL, mlnds cannoL be managed, Lhey can only be lnsplred (LaurenL, clLed ln Lvans, uoz, LaurenL,
1989:87) lor Lhls Lo occur, Lhe rlghL sLyle of leadershlp ls essenLlal. Leaders musL communlcaLe Lhe
vlslon of Lhe change and lLs lmpacL as wldely and effecLlvely as posslble. 1hereafLer Lhey have an
lmporLanL role Lo play ln guldlng Lhe ongolng change efforL and ln encouraglng employees Lo sLlck Lo Lhe
change process unLll lL ls an lnLegral parL of everybody's llves.
1he lnLegraLlon Leam leader/s should be lnvolved ln any dlscusslon around a poLenLlal merger from Lhe
ouLseL of Lhe process so LhaL Lhey can provlde valuable lnpuL lnLo any 'Co-no-Co ueclslons' Laken. 1he
earller such people are able Lo parLlclpaLe ln Lhe process, Lhe more effecLlve Lhey wlll be ln worklng
Lhrough any lssues LhaL could negaLlvely lmpacL on fuLure buslness ouLcomes, lf lgnored (1eLenbaum,
1999: 7).

Conc|ud|ng remarks
lL ls clear LhaL Lhe success of a merger beLween Lwo or more companles depends as much on culLure flL
as lL does on sLraLeglc and flnanclal flL and Lhe proper managemenL of change and employee response
LhereLo.
keferences
1. keLs de vrles, M.l.8. 1993. Llfe and ueaLh ln Lhe LxecuLlve lasL Lane. San lranclsco, uSA: !ossey-
8ass lnc, ubllshers.
2. LaurenL, A. 1989. A CulLural vlew of Change". ln Lvans, ., uoz, ?. & LaurenL, A. (eds.), Puman
8esource ManagemenL ln lnLernaLlonal llrms: Change CloballsaLlon, lnnovaLlon. London: McMlllan.
3. Scheln, L.P. 1990. CrganlzaLlonal CulLure and Leadershlp. San lranclsco: !ossey-8ass.
4. Schraeder, M. & Self, u. 8. 2003. Lnhanclng Lhe success of mergers and acqulslLlons: an
organlzaLlonal culLure perspecLlve". ManagemenL ueclslon, vol. 41, no. 3, 311 - 322.
3. 1eLenbaum, 1.1. 1999. 8eaLlng Lhe Cdds of Merger & AcqulslLlon lallure: Seven key racLlces LhaL
lmprove Lhe Chance for LxpecLed lnLegraLlon and Synergles". CrganlsaLlonal uynamlcs, AuLumn, 22-
36.
aper adapLed from Cowan, v & SwarL, M. 2003. 1he eLroleum Cll and Cas CorporaLlon of SouLh
Afrlca: WhaL happens Lo organlsaLlonal culLure when Lwo or more companles merge". Case SLudy
8esearch 8eporL presenLed Lo 1he uC1 CraduaLe School of 8uslness ln parLlal fulfllmenL of Lhe
requlremenLs for Lhe MasLers of 8uslness AdmlnlsLraLlon uegree.
CopyrlghL ChangeWrlghL ConsulLlng (Ly) LLd 2007. All rlghLs reserved.
www.changewrlghL.com