How do the “soft” elements (people, culture, innovation, etc.) impact the success of M&As?
by Peter Duschinsky
I recently came across this question in a LinkedIn discussion and thought it worthy of a blog. Because we all agree that the ‘soft’ elements (people, culture, innovation etc.) represent the critical factor in the success or failure of a merger, don’t we?
The problem, as many of the contributions to the discussion pointed out, is how to convince senior management that the ‘just do it’ approach has a significant chance of failing. The secret, I have found, is to develop a quantified analysis and business case for time and resources to tackle these issues and to communicate this in a language that the Board understands – impact on the ROI of the project.
But how to turn ‘soft’ issues into hard financials?
I came up against this challenge when trying to argue the case for taking a more people-focused approach to change projects. It became clear to me in working with public sector organisations that most projects failed to deliver the planned benefits because the complexity of what they were trying to achieve was not within the capability of the organisation to cope with yet another change initiative. But senior management were not interested.
So I came up with a Project Readiness Healthcheck methodology to:
1. Map the predominant culture (or cultures – depending on the size of the organisation, there’s probably more than one) of the two organisations. For example, the level of knowledge sharing, silo working, alignment…
2. Assess the maturity of their capability to manage process – weakness here can spell disaster when it comes to bringing in new systems
3. Measure the level of distrust and lack of respect in relationships between people – the higher the high level of distrust, the harder it will be to achieve integration and the more time and effort you will need to overcome the barriers.
4. Establish where the project lies on an Exponential Complexity scale, from ‘Simple’ to ‘Too Complex’, where the components include the scope, number of stakeholders and timescales.
The resulting findings provide a ‘dashboard’ of indicators which accurately predict the potential for success and can be expressed in terms of quantified impact on the project business plan’s projected ROI.
With a merger, the first three factors are the critical ones. Map the organisational cultures of the two organisations, assess their process management capability and establish the relative levels of distrust. If these are very different between the organisations, or if they show significant weaknesses in both organisations, you are in for a bumpy ride and, at the very least, need to allocate a skilled and experienced manager to handling the transition and integration. Worst case, you have the ammunition to oppose the merger.
The most important stage in the merger is before you start. With the right insights, you stand a chance of investing wisely. Going in blind makes no sense. Companies understand this when it comes to balance sheets and financials, but don’t seem to have grasped the need for a parallel due diligence analysis of ‘capability’.
I advocate the use of the Project Readiness Healthcheck as a due diligence tool when planning a merger or acquisition, to supplement whatever other methods are used. There are no other methodologies around that I have found as useful, to help you to assess and benchmark these ‘soft’ aspects, quickly and objectively.
Peter Duschinsky founder director of The Imaginist Company is a change management consultant with over 30 years of experience of bringing best practice and new ways of working into the UK business and public sectors