It has become something of a truism that many mergers and acquisitions fail to meet the expectations of investors. Through a myriad of mitigating factors, including poor planning and communication, unaddressed issues surrounding the combination of two companies cultures and a failure to properly assess the leadership needs of the new company, many seem doomed at the outset.
What is required is a strategic plan looking at all these factors before the commencement of any integration. The following case study outlines how a US-based Fortune 500 company with annual sales in excess of $3 billion successfully managed the largest acquisition in the history of the laboratory diagnostics industry.
The integration of two companies and 25,000 people raised several tough questions for a leading clinical diagnostics company. How to integrate two different organisational cultures into a streamlined single entity that could respond to a changing marketplace? Who should emerge as leader of the new organisation? How would the leaders need to differ from those who had led the organisation in the past? And how should the right leaders be selected – to ensure that the right people were in the right leadership jobs?
As a first step towards selecting the right individuals to lead the organisation in the right direction, the specific business, leadership and cultural challenges that confronted the organisation were identified. This allowed the organisation to determine what it was looking for when selecting its new team of leaders.
Secondly, to assess the talents of the incumbent staff, an assessment architecture was developed around the key competencies of change leadership, ensuring customer satisfaction and global market insight, and 170 executives – all deemed high potential leadership candidates – were identified from within the new organisation. Each executive was then asked to complete a personality inventory, a career history form, and a career achievement portfolio that captured and documented his or her experiences.
Thirdly, the high-potential executives went through an assessment centre, including a customised simulation in which each executive assumed the role of vice-president of a fictitious company. Specific assessment activities included building a strategic plan, managing a merger, meeting with a potential alliance partner, meeting with a direct report who was not supporting the merger, preparing a presentation and creating a marketing plan for a new product. Through this ‘day in the life’ simulation, insights were revealed that predicted how the executives would perform in those roles. As part of the assessment centre, each executive also participated in an interview conducted by a management consulting representative.
Lastly, based on the assessment reports and other data, the CEO staffed his direct report positions. These executives then staffed their own direct report positions, with this cascade of strategic staffing continuing down to the director level. The result was that the individual who was the best fit for each position was placed in the role best suited to him or her. This allowed the company to acquire the leaders it needed for future success and growth.
The executive assessment conducted not only allowed the company in the identification of the right leaders, it also proved instrumental in helping the CEO to make decisions about what organisational structure was needed. In addition, the individual leaders benefited from the guidance provided by management coaches, who assisted them in devising individual executive development plans that leveraged their strengths, prioritised deficient skill areas and set strategies for accelerated development.
One year after the merger, the market value of the company’s stock had increased by more than 300 per cent – a gain that can be largely attributed to the focused and successful integration of human capital.
In Australia, where mergers and acquisitions are increasingly becoming commonplace, there are a few key lessons that can be learned from this example. While there is a perception that “bigger is better”, over 75 per cent of mergers fail to recoup the cost of their investment because they don’t address the fundamentals up front to assure success. These companies need to focus on the people side of their mergers, making it possible to unify cultures, not just combine assets.
By Bruce Watt, DDI general manager, Sydney. For more information please contact Richard Baker at Weber Shandwick on 02 9994 4463.