Integration = Change Management

Wouldn’t it be great if understanding this one factor – that integrating two businesses is at its core about managing change – were enough to make deals work?  Sadly it’s not.  Turns out that most change endeavors fail too, as illustrated in this fairly informative little video from the folks at Strategy + Business.

Click here for the video, just under five minutes long.

Change … Lost – without a map.

1929 Standard (PA)

About the Art:

1929 Road map of Pennsylvania (illustrator unknown), distributed by Standard Oil Company of Pennsylvania, a subsidiary of Standard Oil Company of New Jersey, itself one of the 34 companies that devolved from the breakup of the Standard Oil trust. Standard Oil of NJ marketed gasoline under the Esso brand, which became Exxon in the 1970s. (Author’s collection)

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EMC Acquisitions in a Nutshell

There’s a very good – smart, succinct, helpful – posting on the corporate blog of technology company and active acquirer, EMC Corporation, written by Matt Olton, the company’s SVP of Corporate Development.  The piece (entitled “Explaining EMC’s Success in M&A” and available here) is short and necessarily high-level but still has some juicy tidbits on how EMC acquires companies and how they manage the integration process.  Check it out.

The Merger Verger’s favorite snippet is:

A large part of EMC’s hard-earned reputation as a preferred acquirer comes from EMC’s company-wide commitment to post-acquisition success.

Enjoy (and hurry back).

Too Smart for their Own Good?

What is the difference between a carny barker and an academician with a mission?

Well, really, basically, nothing.

Both are out to sell you something and will use any degree of intimidation to do it.

So The Merger Verger had a good chuckle the other day in running across an academic treatise on M&A that basically slammed academic treatises on M&A.  It came from the Journal of Financial Transformation published by the Capco Institute in the UK.  Author Shahin Shojia’s paper looked at the “practical benefits” to be found in academic studies of M&A and found them absent.

While such studies on M&A do, according to Shojia, “provide a reasonable aggregate of what the markets are doing, they form no basis whatsoever upon which judgments are made about acquisitions or mergers and they certainly are of little or no value when it comes to the strategic issues that are essential” to managing the M&A process.

Whew!  That’s nasty! 

But you’ve got to appreciate a straight shooter, particularly from academia. 

I will leave you with this quote:

If one buys the argument that with the exception of exceptionally bad acquisitions, it is close to impossible to determine the success of [a transaction beforehand], and most managers acknowledge this, then the only issue that is of importance is the management of the post-acquisition period.

Integration professionals take heart: strategists and deal types may get quoted in the press but we are the ones that create value.

Chuck the Checklist? Check!

Being a lifelong Forgetful Guy, I have constructed little organizational systems to protect myself from myself.  One of those systems is checklists.  So I believe in them.  To a point.

When doing acquisitions, checklists are absolutely critical because there is so much information from so many different dimensions to manage.  So we have due diligence checklists (legal and financial, about which there are 487 things to say … another time) and integration process (strategic) checklists.

All successful acquirers build a “book” of know-how, constructed in part from lessons learned on previous deals.  Out of that process comes a thorough integration checklist, cataloging hundreds, sometimes thousands of items requiring attention.

In that setting – amidst thousands of boxes to check – how is it possible to keep your eye on the ball (by which I mean the larger strategic intent of the deal)?  Focused on rows and rows of line items, how can you possibly perceive “trajectory creep” or the surprise rocketing in from some unseen nebula somewhere?

The danger of checklists – and the more “thorough” they are the greater the danger – is that they become substitutes for thinking.

As an integration leader, I insist that my teams pause occasionally to chuck their check lists.  In those pauses I ask them questions designed to pull them from their pages to the big picture:

  • What are we missing here?  What are we not thinking of?
  • What could be different here from any of the other integrations we’ve done in the past?
  • How would or could we respond if [fill in all kinds of blanks here]?
  • What isn’t working so well?
  • What expected problem has not materialized (yet)?

and probably the most important of all:

  • Why did we do this deal in the first place and what else should we be doing or thinking about to make sure we accomplish that end?

Every now and again, chuck the checklist and think for yourself.

Check.

Complexity Squared: Merging United and Continental

There was a very interesting article in a recent edition of Bloomberg Businessweek on the integration of United and Continental.  Makes me glad I’m not in the airline industry (although the deal is a “must follow” for anyone interested in acquisition integration).
 
 
The article doesn’t offer a ton of technical or integration know-how but several interesting points emerge:
 

Top business leaders are beginning to understand that integrating acquisitions can take enormous amounts of time.  Jeff Smisek, President and CEO of the new United is quoted as saying the integration will take “several years.”  How many name brand CEOs have that vision on the complexities and subtleties of an integration process?  Bravo, Jeff.

I wonder is the CO/UA situation made even more difficult by two companies that are endeavoring to create a truly merged entity rather than the usual whale/Jonah strategy.  Does a merger of equals require more tact? (That would seem obvious.) More time? (To be done right, I would say, “yes.”)  Different angles or solutions?  (Now there’s an interesting question indeed.  Any thoughts out there?)

The author of the article makes a very salient point about culture but unfortunately buries it deep in the body of the article:

“Before the new United can feel like one entity to consumers, it has to feel like one entity to its employees.  Ultimately, that’s the most difficult part of a merger – combining cultures.”

Smisek himself reinforces that concern on the company’s website:

“The biggest challenge is making sure that we develop the right culture of the combined companies.”

For fun and profit, I offer a few of the issues that the two companies grappled with in their integration process (all serious but some more amusing than others):

  • Differing labor contracts (duh)
  • Differing premium service classes
  • Onboard coffee service (this was apparently a gigantic issues)
  • Inconsistent flight tracking software algorithms
  • Differing customer loyalty systems
  • Plane boarding procedures
  • Staff uniforms

“God is in the details,” said architect Ludwig Mies van der Rohe.

The final solution for the New United’s logo is almost too simple, too obvious. But it does imply the practical, uncomplicated (?) union of two companies … at least to the outside observer!

The other interesting element of the article was the highlighting of the 2005 merger between America West and US Airways as the airline merger nightmare of all time.  I am impressed that someone at CO or UA seems to have read the playbook from that deal and smartly done the opposite.

Historical note: the perhaps colossus of all merger screw-ups was also a transportation deal: the 1968 merger of the Pennsylvania and New York Central railroads.  Is there something about transportation deals that we should be looking at?

Question: What other industries are prone to this kind of high complexity in merging?  Is it the high technology component? The extraordinary requirement for exactitude and safety? The intense demands of highly stressed consumers?  Something else?  Experiences please ….

In a future posting we will take a look at United’s web site and how it is dealing with the integration process.  Stay tuned.