Integrating Cultures after a Merger

Bain & Company offers a fairly interesting video on the role of culture and its integration. Worth checking out. Three minutes.  There is also a short write-up on the topic available via the same link (below).

Dale Stafford: Integrating cultures after a merger – Bain Video – Bain & Company.

From the Bain article: Culture clashes commonly cause failed mergers, yet few organizations apply the same rigor to managing and steering cultural integration that they apply to creating conventional, hard-dollar synergies.

Portobello Rd DSCN0548a

Photo: Dealmaker, Portobello Road

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.

To Do or Not To Do?

Here’s a great quote that The Merger Verger came across the other day.  It should warm the cockles (whatever they are) of every integration manager’s heart:

Perhaps most important in the overall scheme of things, companies that beat the odds in M&A are prepared to walk away from a bad deal.  They insist on high-level approval of deals and often use the compensation system to encourage executives to ward off ill-considered acquisitions … They also set a walk-away price.

This last step is crucial.  Consider a finding from a recent Bain survey of 250 executives.  Respondents cited “allowing politics of emotions to interfere with decision-making” as the greatest due-diligence challenge.  Successful corporate buyers excel at resisting risky deals.

Source: Rovit, Sam, David Harding and Catherine Lemire. Strategy & Leadership, vol. 32, no. 5, 2004, pp 18-24.

“Successful corporate buyers excel at resisting risky deals.”  Ye Olde Merger Verger could not have said it better himself.

Bain: How to Keep Customers

Friday’s Wall Street Journal offered up an interesting piece authored by two partners from consulting firm Bain & Company on ways to keep customers following a merger.  You can find the article here: After the Merger, How Not to Lose Customers. (link may require registration or subscription)

As with most newspaper articles, this one was short but authors Laura Miles and Ted Rouse did have some sweet points that were both specific and actionable.  Integration professional will want to pack them somewhere neatly in their bag of tricks. 

The Merger Verger highlights:

  • At the very moment when many merged companies have their noses buried in books and numbers or focused on technology issues or cost cutting, customers are looking for clues as to how they will (or won’t) be served in the newly merged enterprise.  Mistiming those clues can be, well, just watch out for Mr. Chairman with a lead pipe in the boardroom.
  • Specifically, the authors state that, “Customers watch carefully after a merger to see if service falls off.  That means that early signals of improved service carry a lot of weight.”  I would go even a step further by saying “early signals of any kind of change in service – good or bad – carry a lot of weight.”
  • Miles and Rouse also suggest the bundling of good news and bad news in communications, citing an example of what sounds a lot like the United/Continental merger.  Their comment about using this technique both to keep people informed and to ease the dissemination of bad news is applicable to suppliers and investors as well as to customers.
  • Their final point was almost frustratingly underplayed, that of the need to authorize customer-facing employees to take swift and free action to ensure consumer satisfaction through a transition.  Their example came from the airline industry but the message is the same for B2B: a merger is no time to be a control freak when it comes to empowering employees to make customers happy.  Just do it.

I caught an interesting undercurrent in the Journal piece: there are inherent – sometimes invisible – conflicts in the management of mergers.  Practitioners would be wise to make them visible in their process.  One example is the conflict between the pressure to cut costs in a merger and the simultaneous pressure to focus on revenues.  Too many dealmakers turn their attention immediately to costs, largely (methinks) because they are crisp and quantifiable.  How do you measure the avoidance of loss of a customer?

Recommendation: If you can’t be in two places at once, focus first on customer retention and then on cost reduction. 

Why?  Because costs will be there to reduce once the customers have been recommitted to the new enterprise.  But the converse will not always be true: customers may not be there to retain once you’re done attending to costs. 

I would posit the following corollary to Poor Richard (with apologies):

A penny not lost is as good as a penny earned.

There are other conflicts here that we should perhaps look at another time: as Miles and Rouse imply, between the empowerment of local employees and the need for central controls in a complex, often disorderly process or between speed and thoughtfulness (an integration classic). 

Question: What are the other inherent conflicts that companies experience in the integration process and how have you dealt with them?

If I am right in sensing that the authors are talking about United and Continental when they allude to “the recent merger of two major airlines,” they should be congratulated for their role.  My reading is that the marriage of UA and CO has been extraordinarily smooth when compared to other highly complex mergers and that shareholders have done (and will continue to do) well by the deal.  Kudos (assuming…).

Earlier postings on the United merger can be found by clicking the blue “United Airlines” link in the “Tagged” section, below.