Communicating Gut Wrenching Change

Quote

Communication [in acquisition integration] is about more than backslapping and ego-boosting. It’s about mobilizing support and removing uncertainty. It’s about honesty and candor. It’s about supplying honest answers to the hard questions that good people ask when they’re in the dark and worried…. Straight bull_frogtalk itself is a highly important value driver. It’s anchored to four firm rules: no secrets, no surprises, no hype, no empty promises.

Source: Feldman, Mark and Michael Spratt, “Five Frogs on a Log: A CEO’s Field Guide to Accelerating the Transition in Mergers, Acquisitions and Gut Wrenching Change”

 

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You Said WHAT??

So last time we were looking at a target company that was in the middle of announcing to its staff that it had agreed to be sold (All Quiet on the Working Front). The Merger Verger was lucky enough to have “fly on the wall” privileges for two conference calls that were part of the internal announcement process. We continue our previous commentary with one more Simple observation.

The second call was focused on the target’s sales team, giving insight into the acquirer and food for dealing with potential customer concerns about the transfer of ownership. Again, all mostly Acquisition Integration 101 stuff. But as the call neared its end, one of the participants asked, “what are we not supposed to tell our customers?”Robert Osborn cartoon

OMG … what a fantastic question!! And all too often overlooked (as it was in this case).

It’s not The Merger Verger’s intention to list the million and one possible issues for non-disclosure (or even just one, for that matter), but we do point out that guiding staff – particularly those who are to be ambassadors of change to such outside stakeholders as customers or suppliers – about what they should not discuss is just as important as guiding them on what they should say. A simple “that information is not being disclosed [for competitive reasons, or whatever]” is usually enough to do the trick without sounding evasive or unhelpful. If, for some reason, that is not enough for the stakeholder, make sure your team knows what it is permitted to say and – also Keep Mumimportant – where the concerned party can go either for more help or for a more senior (and therefore presumably more satisfactory) explanation of the non-disclosure.

So when you are developing your core FAQs to prepare insiders for their conversations with outsiders, make sure you pause to include potential questions that they should not be answering and what they should be saying or doing instead.

Simple enough. But don’t be so focused on perfecting your outgoing messages that you overlook it.

Happy Harry

About the Art: It’s all 1940s.  Top: a US Navy propaganda cartoon by artist/satirist Robert Osborn encouraging civilians to keep their mouths shut.  Middle: a British equivalent by artist Gerald Lacoste (1942). Bottom: the very definition of “better to say nothing.” Harry S. Truman holds up the morning edition of the Chicago Daily Tribune announcing – erroneously – that he had been beaten by Thomas Dewey in the race for president. November 3, 1948.

All Quiet on the Working Front

The Merger Verger spent some time earlier this week in the office of an executive whose company had announced its sale only 15 minutes before. We had the privilege to eavesdrop on two conference calls, one hosted AllQuietOnTheWesternFrontby the two CEOs to introduce the sale to their staffs and the other with the sales teams to go into details directly focused at them.

Both of these calls are part of Acquisition Integration SOP and they included all the usual Rah Rah stuff about how well the merged companies will perform in their new togetherness. But two interesting observations did surface – one simple, the other subtle – to which we draw readers’ attention. In this posting, we’ll look at the Subtle observation. Subtle but corrosive.

Now, our contact at the seller is a very busy guy. We’ve been in his office when he had multiple conference calls, emails and texts all actively going at once (to what effect we cannot say). But on this day – in the two hours immediately following announcement of the deal – his phone did not ring.

Silence. The breath of God. What’s up with that?

Answer: nothing. That is, no business was getting done … that kind of nothing.

If you’re a executive who’s closely involved with the mechanics of a deal or are charged with making sure the trains run on time during the period of post-announcement transition, you’d serve yourself well to remember that people think first, long and hard about themselves. Themselves; not you, not your wonderful deal. They will do little or nothing but wander mentally around that topic shell-shocked until they get answers, satisfactory ones. If they get no answers or the answers they get are lame, you will get no work or the work you get will be lame.

All Quiet on the Western FrontThe Merger Verger in Words of Two Syllables or Less:

On the spectrum of Satisfactory versus Lame, no one gives a hot damn whether you think an explanation is satisfactory. If your audience thinks it’s lame, it’s lame. So do yourself a favor: set aside the rah-rah, strap on the boots of your audience and only then start crafting your message.

About the Art:

Top: the cover of the first English language edition (1929) of All Quiet on the Western Front, written by Erich Maria Remarque and considered by many to be the greatest war novel of all time. The cover design is based upon a 1917 German war bonds poster by the artist Fritz Erler. Bottom: a transitional scene from the original 1930 movie version of Remarque’s book.

Mixed Messages and Crossed Wires

To every thing there is a season and a time to every purpose under Heaven.

Ecclesiastes 3:1

In a recent discussion with a company about to make its first meaningful acquisition The Merger Verger was asked a fairly typical but nonetheless important question:

“What do we tell our people about the merger and do we say the same thing to our own staff as we say to the company we’re buying?”

Messages to your stakeholders should be tailored to address the specific concerns of each group. But do not confuse targeted messages with mixed or conflicting messages. They are very different indeed.

Telephone Wires NYC 1887

For example, saying to one group that the deal is being done to enhance growth and to another that you will be focusing on operational efficiencies would be a classic case of mixed messages. As soon as the word circles back around – which it will, trust the old Verger on this one – you have lost your credibility and may easily lose more than that.

In a quite different example, a buyer might tell its own staff that the new company brings additional products to its existing portfolio but then turn around and tell the target’s staff that the acquisition provides them with stronger channels through which to market their products. Those are not mixed messages. They are differing takes on the same message, both focused on the strategic intent of the merger but aimed with purpose at the two different audiences.

Recommendation:

When speaking to diverse audiences your scripts should have the same overarching message as to the rationale behind the merger. With that as your foundation, you can then home in on different subsidiary elements of the story as best meet the needs and concerns of varying audiences.

For Another Time:

What to do when you must have differing messages because there’s good news for one group and bad news for another?

Leadership Counts

A lot of acquisition integration guidance focuses on the people handling the day-to-day grunt work of managing a deal’s integration. But it should come as no surprise that corporate leadership on both sides of the deal plays a large role also. Consultant J. Keith Dunbar has written a short but interesting piece for the September issue of Harvard Business Review that quantifies this effect.

Dr. Dunbar concludes that there are key attributes in a leader that can be predictors of deal success. Jaume PlensaThey differ as between the leadership of the acquirer and the target but not by much. For example, leaders from both sides of the more successful transactions were found to be strong on motivating others, influencing others, and building relationships. Other strengths on the side of the acquiring leadership were the ability to develop others, act with integrity, show adaptability and focus on customer needs.

Let’s pause on these attributes for a moment. What can we learn if we look at Dr. Dunbar’s conclusions from 35,000 feet? The MergerVerger has some thoughts:

The likelihood of deal success increases when acquirer leadership takes an active role. Why? One would hope that leadership is able to keep out of the daily muck of deal administration and make sure that the integration team is keeping their eye on the strategic objectives of the deal. Lose sight of those in the morass of daily details and your team’s way can get lost very quickly. So the skills of motivating others and focusing on customer needs make a key contribution here.

It is also clear that the visibility of acquirer leadership and his or her power to communicate objectives and other deal factors to the newly combined staff is vital. You cannot influence and develop others without these skills and without putting them to priority use often.

And we can see that deals work better when leaders give their subordinates something to look up to. Why else would integrity or adaptability matter? Particularly in the kind of turbulence that an acquisition represents, giving your staff the belief that their company’s leadership will act rightly in the face of new and changing circumstances will help you keep your best people and will motivate your team at large.

That all sounds like a formula for success.

Read Dr. Dunbar’s full HBR article by clicking here.

Today’s artwork is Irma-Maria (2010), a pair of sculptures by Jaume Plensa exhibited in 2011 at the Yorkshire Sculpture Park in Yorkshire, England. You can see more on Plensa, a Catalan artist, here or the sculpture garden here.

Simple. Elegant. Successful. (Repeat)

As a kid, did you ever play the Pete and Repeat game with your friends? The one about Pete falling overboard and Repeat being left? Then the whole thing plays round again (ad nauseum). Get it? Repeat is all that’s left? (Yeah, I know …)

Anyway, it turns out (observation courtesy of the smart folks at Bain & Company) that this is the most successful formula for sustaining and growing a business: focus on that which you do uniquely well; understand intimately why it is better; communicate that understanding throughout your organization; repeat.

Successful practitioners of roll-up acquisitions get that formula particularly well. Ditto for those whose acquisition sights are set on bolt-on deals. Have you read the most recent annual report from Berkshire Hathaway? There’s a strategic theme there. Sure, the portfolio is diverse but the acquisition M.O. of each of those companies is focused tightly on growing the sweet spot. Simple. Elegant. Effective.

Simplicity means that everyone in the company is on the same page – and no one forgets the sources of success.

Chris Zook and James Allen, two Bain partners, have written a book on “repeatability” in business, concluding that truly successful companies have crisp elements that differentiate them from their competition and they aim to maximize those differentiators to the exclusion of everything else that ambles down the strategic pike. The book, entitled “Repeatability: Build Enduring Businesses for a World of Constant Change,” is available on Amazon and spin-off articles are available on the Bain website (links below). The Merger Verger recommends the recent article in Harvard Business Review; it has many concepts that have direct application for acquisition strategy and integration planning.

There are several elements of the “repeatability” concept that bear on dealmaking and acquisition integration. First (as always) is the message of strategic intent; get that part right and many of your acquisition risks will be behind you. But … this is not just a process of thinking you are good at this or that; you must really understand your uniqueness in the marketplace. No fluff allowed.

The next key element is to articulate that message throughout your organization. In fact the Bain authors state in no uncertain terms that the greater the distance between a company’s strategic plan and the men and women who are called upon to carry it out, the greater the risk of dissipation, digression, disinterest and disaster. Keep your competitive differentiators clear and make sure that your team knows them and is invested in them.

The final key is the simplest to describe and potentially the hardest to do. Repeat. That is, repeat without straying from your strategy and your differentiators.

In closing, let me pause on the second of the three elements: articulating the message. The Bain authors imply that this step is too often overlooked, under the theory that everyone already knows what their employer does and what it stands for. Not true, they say. But if going the extra mile to articulate issues of strategy and competitive uniqueness is a value driver in normal settings, how much more so in the context of an acquisition?

A link between well-defined, shared core principles and frontline behavior was more highly correlated with business performance than any other factor we studied.

Take the time to truly understand, articulate and sell your company’s strengths to your newly acquired staff. They will be better performers and better apostles for it.

Some useful links:

Bain & Company website

Bain specialty site on Repeatability in business

HBR article: the Great Repeatable Business Model

Amazon.com: Repeatability

About the Art: Danish architect Bjarke Ingels Group’s award winning design for Kazakhstan’s new National Library, modeled on a möbius strip.

Too Many Balls (and Too Few Planes) in the Air

So the woes are official.  United’s recent announcement of its 2Q 2012 quarterly results confirmed what virtually every customer already knew: the merger of United and Continental is still causing problems.  It’s not quite Jeffrey Smisek with his Head on Fire but it’s not good either.

Even the most carefully orchestrated integrations can hit clear air turbulence, particularly when merging entities as complicated as airlines.  Let’s look at some of the issues in hopes of finding a little preventive medicine.  (Ahem … American, are you out there?)

The UAL announcement noted the following problems:

  • Cut-over to a single reservation system has been more complex than anticipated.
  • Changes to the frequent flier policies have wrought confusion and pissed off customers, particularly at the most-active flier levels.
  • On-time arrival metrics have slumped.
  • Flight cancellations have increased.
  • Baggage handling mishaps have increased.
  • Spare plane inventory was cut back only to have to be rebuilt.
  • Reservation transaction times have increased, making them more expensive and more frustrating to customers.
  • Changes to the company’s revenue accounting system have led to revenue adjustments.

Continue reading

The “Lesser Whole Theory” Bites United

Poor United Airlines has been receiving a lot of unfavorable press recently, mostly about unhappy premier customers. The Merger Verger has discussed the integration process with United at some length over the last few months and basically believes that they have done a good job at planning for and executing the merger.

So what’s going wrong? And are there lessons for the rest of us in this turbulence?

Much has been written about the “need for speed” in the integration process over the last few years. (Who hasn’t read the Band-Aid metaphor a zillion times?) But does that need apply to all aspects of the integration process or is it better used selectively? Clearly in the case of financial controls and employee (and management) reshuffling, speed counts.  But United’s problems seem to center around customer service issues, in particular the combined software systems and the training on those systems.  That suggests three possible explanations:

  Continue reading

Merger Integration Gets (Some) Respect

The Good News: The power and value of proper acquisition integration has dawned on the rating agencies.

The Bad News: They’ve realized that poor integration can hurt a company (and its credit strength) more easily than good integration can help it.

Despite having seen a ton of integration checklists over the years, I can recall few that focused any special attention on the rating agencies.  Lots of lists talk about stakeholders and about investors and even about lending banks, but the needs of bondholders and rating agencies generally get short shrift.  Maybe it’s because few if any of the spokespeople announcing a company’s latest and greatest deal want to shine any spotlight on the risks that it poses.

But that is the rating agencies’ job, assessing the downside.  And like other forms of stakeholder communication, the integration professional’s choice is to shape the message or let the message randomly shape itself.  Take your pick.

Here is where the importance of addressing your content to the needs of the precise audience becomes absolutely critical. 

It is not overly simplistic to differentiate between the debt and equity audiences in the investor base in this way:

  • Equity analysts and stockholders want to know that the deal brings upside potential.
  • Ratings agencies and lenders want to know that the deal WILL NOT bring downside potential.

As you can see, their interests are fundamentally different.

So your messages should be fundamentally different.  Not the facts obviously; the focus.

Illustration: Express Scripts’ acquisition of Medco Health Solutions

At the time of the acquisition announcement, here are some of the value drivers that the two companies identified as behind the deal:

  • Generating greater cost savings for patients and plan sponsors
  • Creating more efficiency in the supply chain
  • Closing gaps in care and achieving greater adherence through our combined behavioral and clinical approach
  • Optimizing our ability to respond to an increasingly complex Medicare and Medicaid environment
  • Enhancing mail pharmacy technology to optimize patient care and satisfaction
  • Accelerating the research, development and deployment of trend management solutions to address inefficiencies in the marketplace

Each of those goals will require an enormous amount of analyzing, strategizing, and planning, followed by intense amounts of coordinated “picking and shoveling.”  The good news is that Express Scripts has a long history of successful integration so the right framework is there.

That said, the rating agency S&P is still concerned and announced this past week that it had put a negative outlook on the debt of the newly combined company.

“The acquisition introduces integration risk, in addition to a temporarily stretched financial risk profile.  Express Scripts will need to rationalize the combined back office functions, distribution capabilities, and claims adjudication platforms while maintaining its existing customer base.”

Translation: The success or failure of this $30 billion dollar deal will rest with the integration process.  FULL STOP. 

Recommendation: This is a clear case where there needs to be an entirely separate set of stakeholder messages aimed at the lending side of the investor base.  And it has to be not just about “what” but about “how.”  How are all of those goals going to be met? How are the two companies working together to achieve that? Accepting that all of those goals are bold and good but that you will not be able to achieve them all at once, what are the priorities and why? What are the systems in place to achieve them and what systems to track results?  What things could impair progress and what fallbacks do you have for them?  Make me comfortable that this is all going to work.

Don’t Forget Visual Communication

There’s a good piece on the difference between brand managers and brand leaders in The Mergers Daily and I recommend it as a seed for thinking about the role of not just oral and written communication in post-merger integration but visual communication.  Here’s a snippet:

“Brand leaders understand the fundamental proposition that brand is not just a logo but is the sum total of the experiences customers have when exposed to their products and services.”

This is not artsy-fartsy stuff with little meaning to an integration process.  This is the visceral visual connection between each and every customer and their experience with your company.  Think of it as the graphic manifestation of your deal’s strategic intent: an absolutely key issue.