The rate of successful M&A integrations, where the original intended benefits are realised, has remained stubbornly low at around 30 – 40%. Those who sold in the deal have long since made their transaction fees and exited stage right. Those left behind are dealing with the fall out of the unravelling assumptions. Beyond simple poor planning, one of the most common areas we at Skarbek have seen cause years of post-integration value leakage, is in the people dynamics that play out after the transaction. Here we look at some research behind this and the opportunities that have been squandered to address this.
Social psychology, the study of the behaviour of people in groups, has recently been greatly influenced by theories related to social identity. This is very relevant to the world of work and can signpost many forces at work in the ‘hidden organisation’, that go beyond the formal org chart boxes and processes. In particular, social identity theories explain the fundamental human need to belong to groups, and how the status that those groups lend individuals affects the way they think, feel and act at work.
In integration situations, issues around the impact of the perceived status of the respective parties has been extensively researched and provides some key signposts as to the factors at play when assumptions begin to unravel in the people domain. Two key factors will drive the integrating parties’ strategies that unfold post-merger and they relate to the achievement, or maintenance, of a positive social identity for their group:
1. How permeable are the group boundaries perceived to be?
2. How secure is our status (i.e. stability and legitimacy)?
The studies of how this plays out in real organisations show how the outcomes can vary. In airline mergers, the low status party (the budget airline) has been seen to welcome the integration, expecting better prospects, whilst the high status group (the full service airline) collectively resisted the change as a threat to their status. By contrast, in the banking sector, a more powerful and prestigious party readily adopted a new more global identity, whereas the absorbed country banks resisted and revived ‘localism’.
The same patterns have repeated across government departments, hospitals and services. Even where parties seem well matched, for example two similarly performing hospitals, integrating groups inevitably find perceived status differences to fuel their group identity concerns and needs, regardless of how small the gaps may be in terms of formal performance indicators.
Even where the lower status group initially welcomes the integration, this can sour over time. A common outcome is that members of the lower status group leave the organisation at such a rate that not long into the integration, the assumed human capital value that the organisation would provide in the merged entity is effectively lost.
Given the difficultly in resolving these status issues, even over an extended period of time, what can the research tell us that may improve the chances of success? From Skarbek’s review of the research, we suggest the evidence supports interventions that:
1. Utilise the early post-merger window when positive expectations of status are more prevalent – time and effective planning are of the essence
2. Make new united group identities more salient than the legacy identities – such as super-ordinate goal setting and integrated process mapping
3. Actively encourage groups to accommodate and acknowledge each other’s strengths and weaknesses
4. Find important things to celebrate and acknowledge in each other’s cultures
It follows therefore that, as a first step, it is critical to know what those individuals and teams being integrated are perceiving their own reality of the situation as. In integrations there is often a frenzied imperative to push out communications, force fit people into new structures, and deploy new objectives. But comparatively, little capability exists to understand the effect this is actually having on how people perceive what they are being asked to do and how it impacts their status.
Given the high failure rate of integrations; success is not assured. Far greater attention is needed towards the people dynamics post-merger that will determine whether the organisation really works culturally and will create the value intended, beyond the spreadsheets and org charts that only show part of the equation.
Skarbek uses tools such as Mirror Mirror™ that start this process of orientating each individual to how they can do their best work, by taking that crucial read of the impact of the change on the employee’s perception of how their world is changing. We have also found some powerful group tools, such as integrated planning, which can simultaneously resolve both the process dysfunctions and the human frustrations, even many months post-merger.
To Skarbek, the value leakage and sheer human frustration of groups we have worked with, trapped by their identity crises post-merger, motivate us to mitigate these conditions as early as possible. We also hope there are organisations out there equally receptive to early interventions that help realise the competitive advantage imagined when they started their merger journeys.