A system approach on mergers & acquisitions
by Holger Nauheimer and Rik Berbé
Change Facilitation s.r.o.
Research shows that 70-80% of mergers fail. They do not pay off in terms of returns on investment and even show less healthy performance after the organisations are integrated. Of course, there is not one cause for failure. Merging companies is a complex and mostly unpredictable process. People who think mergers and acquisitions are about making cutting costs and simplifying structures, please read further.
To introduce our perspective we ask you to look at a simple metaphor. There is a family living in a house at the countryside. Ted and Susan have three children and they are quite happy in their home. They love gardening and quiet evenings at their fireplace. On the other side of the country there is another family, Bob and Kimberley with a 2 months old baby. They are living in an apartment in the middle of a large city and enjoy an urban way of living. Ron, the father of Bob and Susan, a man with some influence, decides the two families should come to stay in his large country house. He tells the two families this will save money and the children could play together. Some more benefits are in the proposal. The families have no negotiation power and they have to merge within two months.
What has happened? Two different social systems are forced to live together in one house. Everybody can predict this will not necessarily be a success story. In organisations, it is even far more complicated! The number of people having developed working relations is enormous. There are formal structures, teams, and different kind of relations between people, departments and business units. In brief: there is a high chance that any two organisations have very different corporate cultures. It has all developed in years, sometimes decennia. Organisations are self-organising, like living systems, and after a merger people have a tendency to stick to old habits – like our two families would do.
There are very good reasons for mergers: market pressure, cost cutting programmes, exploitation of new opportunities, etcetera, Even when we know the pay-off is low and the success rate is less than 20%. However, planners of M&As tend to oversimplify reality and to overestimate the capacity of the two systems to integrate quickly. Organisations have very tight structures, specific values and hidden patterns – the corporate cultures - which must be recognized before one can go ahead with the process.
To explore our perspective we have developed a tool (Energy 8®), which can be used to diagnose the personal and organisational drivers of people in various organisations and industries. The tool is web-enabled and people in the organisation are asked to fill in a 10-minute questionnaire. We found more insights about the complexity of organisations. Some conclusions from our research in more than 100 organisations worldwide:
Members of a given organisation have very similar drivers or values. Their competences and behaviour are different but they are driven by the same energy.
The drivers and intentions of people do not change over years. They are archetypical and various change initiatives will not change their identity or the identity of the organisation. Making people aware about their drives can help to understand their identity and find merger or acquisition partners with similar characteristics.
Mergers of organisations holding different values need a systemic approach to change in order to help people understanding the value of diversity.
For mergers and acquisitions we recommend focusing on these deeper layers of both organisations. To see organisations as complex living systems and trying to understand what the organisations really are and how they can merge in an organic way. These change initiatives can be supported by using a staged change management approach and by the application of different tools and methodologies, such as large stakeholder workshops such as Open Space Technology, World Café, and Appreciative Inquiry.
Overall, it is important to take those who will make or break the success of the merger along: the members of the two organizations. Facilitation of such change processes is about
- respecting their fears and hopes,
- building trust,
- co-creating visions,
- leading by example,
- giving ample opportunities to explore new structures and processes,
- providing an environment where failures are celebrated as a great opportunity to learn, offering coaching and mentoring support, and finally
- designing the appropriate communication package to make sure people share a common understanding of the change process they are an important stakeholder of.
If the two families in our example have a chance to meet before, to exchange hopes and dreams, and to co-create their future, there is realistic chance that at the time they will enjoy there life as they did before the merger!
Holger Nauheimer and Rik Berbé are Directors of Change Facilitation s.r.o., A Global Partner That Makes Change Happen in Complex Environments. With its international network of change facilitators, the company helps organizations to understand and master change.
Rik Berbé is the co-developer of Energy8®, a tool that helps organizations to understand their drivers.