The Integration ProcessM&A integration is a process that can-and should-be managed in a systematic and structured way. Experienced integrators such
as GE Capital employ well-articulated integration processes they regard as critical growth competencies. Consequently, they
invest the time, people, and resources to develop the processes, roles and responsibilities, templates, and checklists that
integration managers need. They establish integration experts and expertise long before M&A events occur.
Respondents listed their top reasons for engaging in mergers and acquisitions.
GE Capital, for example, uses a structured process called Pathfinder to guide executives and managers through the integration
cycle. The model is broken down into four key stages with multiple tasks at each stage.
Pre-acquisition. Merging companies should identify and assess business and cultural barriers, select an integration manager,
assess leadership strengths and weaknesses, and develop a communication plan.
Foundation building. The next steps are to introduce the integration manager, orient new executives to the corporate culture,
jointly formulate integration plans, allocate resources, and assign responsibilities.
Rapid integration. Managers must also conduct process mapping to accelerate integration, employee feedback, and learning to
continually adapt integration plans and initiate short-term management exchanges between companies.
Assimilate. In the final stages, the integration team should continue to develop common tools and processes, continue long-term
management exchanges, and employ an audit staff to conduct integration audits. (See "Model Behavior," page 53.)
Companies that have failed to develop integration capabilities and resources tend to approach corporate marriages as events
to be managed like giant ad hoc projects. Those who use that strategy frequently suffer what is called "the panda effect."
Panda bears mate infrequently, and consequently, do so clumsily and with poor results. That lack of experience-coupled with
a shrinking habitat-make the panda an endangered species. Corporations that approach major acquisitions as one-time events
tend to perform as clumsily as pandas, hobbling implementation. Poor integration planning and execution often cause implementation
cycles to stretch for months and years beyond target dates. Managers in the study report that the negative impact costs hundreds
of millions-maybe billions-of dollars in lost productivity. The findings also suggest that poor integration prevents many
corporate combinations from executing their stated strategies.
Ironically, financial thriftiness is frequently cited as a reason for not developing organizational capabilities before a
merger or acquisition. According to that logic, why invest in training people and developing process readiness when no M&A
opportunities are on the horizon? Such thriftiness seems shortsighted at best and fiscally irresponsible at worst. Under what
other circumstances would a board authorize investing millions of dollars in stock or cash without also preparing front-line
managers to shepherd that investment toward a positive return? General Electric, Tyco International, and Cisco are examples
of companies that have effectively used M&As to accelerate profitable growth by developing in advance the organizational capabilities
to handle their integrations. M&A integration competencies include such diverse resources as
- integration process models
- integration leadership training and assignments
- comprehensive checklists
- timetables and templates
- project management techniques
- integration team models
- contact lists for accessing experts
- knowledge evaluation techniques and knowledge-sharing databases
- survey forms
- reading materials
- integration white papers.
IBM houses such resources on a database that is available to IBM integration managers around the world.
Cultural IntegrationCultural integration is the most difficult dimension of mergers that affect thousands of people. Veteran integration managers
agree that corporate culture plays a critical role in the success or failure of any merger or acquisition. It's not surprising,
then, that skillful integrators such as Lucent Technologies developed compelling scenarios for why organizations must carefully
tend to cultural integration. A company's approach to bringing together people affects business productivity, quality levels,
employee retention rates, customer service, and the speed at which business integration proceeds.
Field research reveals that cultural integration efforts often suffer three common pitfalls: (1) failure to conduct a detailed
assessment of a partner's corporate culture before making an offer, (2) failure to develop a comprehensive plan for cultural
integration, and (3) failure to communicate openly and regularly with employees about integration activities and their effects
on personnel. The hallmarks of effective cultural integration include several essential practices, including cultural assessment,
cultural integration planning, continuing communication, and leadership involvement. To avoid the pitfalls associated with
cultural integration, companies are wise to embrace the following three basic strategies.
Assess corporate culture in advance to identify differences and similarities. Differences in corporate culture seldom stop
deals from being completed. But cultural differences can significantly shape the optimal approach to integrating the organizations.
Companies such as Lucent, Cisco, and Motorola probe a target's culture before making an offer. Key areas of insight to determine
cultural fit include:
- interviewing target employees and managers
- reviewing personnel practices to identify similarities and differences
- comparing corporate mission and vision statements that reflect corporate direction and values
- evaluating compensation and benefit plans
- evaluating decision-making processes and approaches to identify potential conflicts
- studying corporate focus and orientation: does the company focus on profitability, customers, process, or employees?
- reviewing performance appraisal systems to evaluate leadership and performance management systems
- examining succession planning and incentive systems to understand the behaviors the organization encourages.
Small differences can have an impact on all types of decisions. For example, a recent pharma integration team composed of
members from both merging companies needed vice-president-level executives from each company to approve a global communication.
Two integration team members of equal rank took on the approval task within their respective companies. One team member, accustomed
to direct communication and nonhierarchical decisions in her organization, went straight to the vice-president to request
his support. She accomplished the task within a couple of hours.
The other team member needed a week to obtain approval. In her organization, skip-level communications were frowned upon.
Consequently, she had to send the paperwork through appropriate channels. That relatively minor administrative matter created
a one-week decision-making difference between the companies' teams. Unaddressed and untended, such cultural differences can
slow integration, activities, decisions, and projects to a snail's pace. (See "Cultural Due Diligence," page 56.)
Integrate communications to inform personnel of cultural changes. Mergers proceed through a predictable integration cycle.
Savvy managers orchestrate communications to help employees weather that cycle. They plan activities to reflect the relevant
issues during each stage. Continuing communication through many channels enables the new leadership to build trust and ensures
accurate dissemination of information within the new organization. During integration periods, human productivity can be significantly
reduced for months because of job-related rumors, speculation, worry, and misinformation. Communication is a powerful antidote.
(See "Communication Cycle," page 54.)
Identify and retain key leaders to drive the marriage's success. The loss of key leaders in postmerger integration can cause
irreparable damage to a newly formed organization. To retain talented employees, top-notch integrators develop systems that
identify key executives and managers. Talent identification and retention systems target employees with valuable organizational
experience and the ability to lead and create trust among peers. Key executives often meet with those selected and may offer
promotions and bonuses to encourage them to remain with the company. They further engage such talented managers to lead the
Synergy into GrowthM&A synergy should target cost reduction, operational integration, and accelerated growth. At the start of every merger, as
surely as couples speak vows at the altar, the new executive team announces synergy targets to the public. Such economic projections
outline the company's expected cost savings and top-line growth opportunities. Typically, the cost-reduction targets are more
easily achieved than the accelerated growth projections. But top integrators manage to create value on all three interrelated