Charlie E. Smith, Ph.D.
"Synergy" itself – the human factors, cooperative attitudes, and actions which actually produce desired benefits – are too often ignored or given scant attention
Facing the Truth: Most Mergers Don't Work
In 1998, a record of 10,700 merger and acquisition deals were negotiated. Of the six thousand that went forward, two-thirds - 66% – were failures. And of the remaining third, fewer than half returned the cost of capital. While more and more companies are exploring, beginning or in the middle of a merger every day in expectation of immense benefits, reality is often disappointing. (Source: NY Times Almanac, Securities Data Co., "Understanding" Fact Compendium by Richard Saul Wurman)
As we step back and examine what happened in many examples, there never was much cooperation between parts of the original company. Business units were secretive and competitive. There was little commitment to any goals outside of one's own area. Actual company focus was always on financials, not on how the parts of the company worked with each other, nor on creating a sense of accomplishment.
A friend and CEO of a Fortune 500 company told me, "From my perspective, the real problem is that the original estimates of savings are never realistic because the assumptions upon which they are based are typically faulty. What's missing are realistic assumptions as to the real world and what could go wrong." Remember that often, the people who put these numbers together want the acquisition to happen and have a mindset of selling the deal, rather than critically analyzing the transaction. More in depth oversight is usually required. All assumptions must be clearly articulated and challenged by an independent group such as the Board. Also, too often the cultures do not fit well together, and the anticipated changes just do not happen or do not happen in a timely manner.
In a research report from Roffey Park an executive education and research organization, the authors argue that most mergers fail to realize their value because senior managers often lack a clear strategy for driving the merger through and they frequently mismanage the people issues – leading to loss of key employees, restructured responsibilities, derailed careers and diminished power. Also, they often underestimate the level of integration required and they fail to respond to the cultural issues which arise.
It is important to recognize that "Synergy Benefits", the intended financial and logistical results of a merger are not the same as the "Synergy" that produces these benefits. You can recognize synergy in a merger or alliance when you see people spontaneously willing to cooperate. Any reorganization of physical circumstances does not increase cooperation, vitality and coordinated action unless people change the attitude, tone and essence of how they have been behaving with each other.
Therefore, regardless of the going in conditions, merger success, in one's own terms, comes from the ways the merged company explores, measures and "places in the crucible" the six ways the "Synergy" actually occurs in any merger activity. These are the human factors that increase the likelihood of merger success. They are:
A New Look at Merger Management
What's needed is a management process that increases the positive, predictive effects of leadership and management in a merger.
"Synergy Management" is based on periodic review of results from a 24 item, self-diagnostic, questionnaire by members of selected merger initiatives using personal computers or laptops. The assessment uses questions that measure the human factors essential to cultural and business alignment in the initiative.
The process begins with workshops and a dialogue, and subsequently, a "contract" between all parties, establishing frameworks, uncharacteristic measures and best practices that deal explicitly with the business, relational, and cultural aspects of a merger in a balanced and committed way.
Synergy Management at Work
In one example of post-merger integration where the principles and practices of Synergy Management were, by design, made part of the regular management process, a merger of two substantial container shipping companies with routes to Europe, the Middle East, India, South Africa, Canada and the Nordic countries had occurred......The leader of one of the merged companies said,
"As a result of adopting and using the Synergy Management process as part of the ongoing management process, I came to appreciate my own previous lack of directness; my unwillingness to go to uncomfortable places with people to find out where they really stood; and the unwitting price I was paying in having people go along superficially." Initially, key relationships were not straightforward and there was little attempt to innovate together.
By measuring what they typically did not measure (using the Synergy Management assessments), management encouraged very direct conversation that would otherwise not have occurred. They created a shared vision for the new company and then did what was needed to put this vision into reality.
We Can Make Mergers Work
My commitment and evidence is that it's possible to manage the Six Qualities of Alignment, Performance, Resolution, Relationship, Inventiveness and Principles only when leaders take personal responsibility for the real reasons why mergers usually don't work.
With the Synergy Management process we now have the ability to assess how a merger is doing against objective criteria and to manage it in a strategic, purposeful way. Along the way, leaders are challenged to examine their willingness to grapple with the emotional and confrontational issues that underlie all attempts at altering peoples' perspective and practices. Leaders and managers are usually just people doing their best, and are unconscious to the fact that if they don't manage for Synergy, they probably won't get it.
© Charles E. Smith, Ph.D., 2001.
[Excerpts and posting with permission of the author.]