Genesis of a New Organization

Sep 2nd 2009

By Anupam Prakash

As organizations seek to expand into new and high growth markets and insulate themselves from risk,
increasingly more attention is being placed on accelerating growth through acquisitions. Although, the
upside of such inorganic growth can be tremendous; many organizations underestimate what it takes to
successfully implement and execute a smooth integration process which precludes impacting day-to-day
business operations. The probability of such a successful integration can be enhanced through focusing
on four critical components: retention of key talent, culture integration, communications, and change
management. Both our experience as well as research time and again reinforces that quite often, the
softer side of change is the most difficult to grapple with. An organizations human capital can be
either an enabler or a barrier for realizing anticipated deal synergies. Therefore, adequate attention to
addressing the human side of corporate transactions is critical.

One of the first major hurdles faced by organizations in closing a deal and preparing for smooth
operations ahead is the issue of retention. When deal synergies are initially envisioned and formed early
in the deal lifecycle, it often takes for granted that the acquired organization will maintain current
performance and productivity levels. However, in order for this to occur, continuity in key personnel is
imperative. While many organizations initially focus solely on key leadership positions, it would be
remiss to not expand the focus to include additional critical talent critical to day-to-day operations of
the business. This could include key personnel serving in customer interface roles such as in account
management and sales as well as in back office operational roles such as in finance or information
technology. Organizations need to look at the retention issue holistically and increasingly design
effective retention platforms which are linked to the overall employee experience which address more
than monetary remuneration. Failure to address this issue adequately will have a major impact on
realizing the deal goals and is one of the fastest ways to destroy the anticipated deal value.

Many experienced M&A hands will attest that one of the most complex challenges organizations
typically face during an acquisition is how to approach the issue of organizational culture. Organizations
which have a history of leveraging acquisitions to help drive their growth strategy know that cultural
compatibility is very important to a successful integration. Realizing deal synergies during integration is
driven by how fast the synergies can be achieved. One of the most common factors impacting
integration timeframes is cultural integration. More often than not, organizations underestimate the
level of effort and amount of time required to successfully integrate cultures. To fully set the context, it
just happens to be the case that culture integration can be tricky even under the best of circumstances.

So you may ask why organizational culture is so important and what happens if cultural integration goes
wrong? First and foremost, it is a primary element in defining the employee experience in an
organization. Cultural fit is the reason why an employee chose to work with a particular organization,
when he could easily make more money by working for its competitor. Linking this back to the issue of
retention, employees tend to get up and leave if the culture is incompatible. Now taking the next logical
step, if culture defines the employee experience then culture integration is also directly correlated with
the customers experience. To take this line of thought to its conclusion, it is also thereby linked to the
organizations operational and financial performance.

Addressing culture in integration situation takes a solid, well thought out plan as firstly, one needs to
assess the overall magnitude of difference between the organizations. Secondly, the integration team
should assess the synergy drivers, integration goals, and overall business strategy. Each of these, along
with the cultural delta influence the degree of integration required. Once this is assessed, one can then
drill down into individual components of the organizational culture, which need to be addressed. From a
change management perspective, this can be one of the most challenging and rewarding components in
successful post merger integration.

The inherent change which takes place in the context of an acquisition is oftentimes very significant and
often provokes fear of the change to individuals at a personal level. Organizations, like people, tend to
resist change and fear of the unknown. One of the best ways to address and mitigate this fear is through
comprehensive communications and change management. Initial communication is often focused
around deal announcement and subsequent deal drivers. The value of strategic communication cannot
be overemphasized in successful integrations. Properly executed communications will squash rumors,
keep employees informed and engaged during the integration process, thereby combating retention
issues, minimizing disruption to daily operations, and helping combat the performance dip commonly
found during the M&A integration process.

Post integration, organizations often cite an increased focus on organizational change management as a
key learning and targeted area for improvement prior to their next acquisition. In order for a smooth
integration to occur, the integration team should develop a comprehensive and executable change
management strategy. This strategy should assess organizational impacts resulting from structure,
system, process and technology changes. Once these impacts have been identified, the change
management strategy should outline practical approaches to minimize the impact through stakeholder
management, communication, and training. This will ensure that proper resources are utilized and
capability building takes place to achieve minimal disruption after deal closure.

Effective post merger integration can seem a daunting task and it often is, especially when aggressive
integration and synergy capture goals and timeframes are put into play. Like mentioned before, four
critical components in the recipe for integration success include dedicated focus on retention of critical
employees, culture integration, communications, and change management. These components will not
only lead to capturing the anticipated deal value but also position your organization and its people for
future success.


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