Which elements of the theory discussed in earlier chapters can be used to inform those leading merger and acquisition activity? We make links with ideas about individual, team and organizational change to help leaders to channel their activities throughout this turbulent process. In addition, we refer to the previously mentioned research into successful mergers and acquisitions by Roffey Park Institute (Devine, 1999) which offers some useful guidelines for organizational leaders.
Managing the individuals
Mergers and acquisitions bring uncertainty, and uncertainty in turn brings anxiety. The question on every person’s mind is, ‘What happens to me in this?’ Once this question is answered satisfactorily, each individual can then begin to address the important challenges ahead. Until that time, there will be anxiety. Some people will be more anxious than others depending on their personal style, personal history and proximity to the proposed changes. And if people do not like the look of the future, there will be a reaction.
The job of the leader in a merger or acquisition situation is firstly to ensure that the team know things will not be the same any more. Second, he or she needs to ensure people understand what will change, what will stay the same, and when all this will happen. Third, the leader needs to provide the right environment for people to try out new ways of doing things.
Schein (Learning and the Process of Change) claims that healthy individual change happens when there is a good balance between anxiety about the future and anxiety about trying out new ways of working. The first anxiety must be greater than the second, but the first must not be too high, otherwise there will be paralysis or chaos.
In a merger or acquisition situation there is very little safety. People are anxious about their futures as well as uncertain about what new behaviours are required. This means the leader has to create psychological safety by:
- painting pictures of the future; visioning;
- acting as a strong role model of desired behaviours;
- being consistent about systems and structures.
But not by:
- avoiding the truth;
- saying that nothing will change;
- hiding from the team;
- putting off the delivery of bad news.
Individual Change addressed individual change by first introducing three schools of thought:
- behavioural;
- cognitive;
- psychodynamic.
The behavioural model is useful as a reminder that reward strategies form an important part of the merger and acquisition process and must be addressed reasonably early. The cognitive model is based on the premise that our thinking affects our behaviour. This means that goal setting and role modelling too are important.
However, the psychodynamic approach provides the most useful model to explain the process of individual change during the various stages of a merger or acquisition. We use the Kubler-Ross model from Individual Change to illustrate individual experiences of change and effective management interventions during this process of change.
Stages of merger or acquisition process and how to manage reactions of staff
Stage
Employee experience
Management action
Merger or acquisition is announced
Shock.
Disbelief.
Relief that rumours are confirmed.
Give full and early communication of reasons behind, and aims of this merger or acquisition
Specific plans are announced
Denial – it’s not really happening. Mixture of excitement and anxiety.
Anger and blame – ‘This is all about greed’, If we’d won the ABC contract we wouldn’t be in this position now.’
Discuss implications of the merger or acquisition with individuals and team.
Give people a timescale for clarification of the new structure and when they will know what their role will be in the new company.
Acknowledge people’s needs and concerns even though you cannot solve them all.
Be patient with people’s concerns.
Be clear about the future. Find out and get back to them about the details you do not know yet.
Do not take their emotional outbursts personally.
Changes start to happen – new bosses, new customers, new colleagues, redundancies
Depression – finally letting go of two companies, and accepting the new company.
Acceptance.
Acknowledge the ending of an era.
Hold a wake for the old company and keep one or two bits of memorabilia (photos, T-shirts).
Delegate new responsibilities to your team.
Encourage experimentation, especially with building new relationships.
Give positive feedback when people take risks.
Create new joint goals.
Discuss and agree new groundrules for the new team.
Coach in new skills and behaviours.
New organization begins to take shape
Trying new things out.
Finding new meaning.
Optimism.
New energy.
Encourage risk taking.
Foster communication at all levels between the two parties.
Create development opportunities, especially where people can learn from new colleagues.
Discuss new values and ways of working.
Reflect on experience, reviewing how much things have changed since the start.
Celebrate successes as one group.
Managing the team
Endings and beginnings are important features of mergers and acquisitions, and these are most usefully addressed at the team level. The ideas of William Bridges (ORGANIZATIONS REALLY WORK) provide a useful template for management activity during ending, the neutral zone and the new beginnings that occur during a merger or acquisition.
Managing endings
The endings are about saying goodbye to the old way of things. This might be specific ways of working, a familiar building, team mates, a high level of autonomy or some well-loved traditions. In the current era of belt-tightening and cost-cutting, there might be quite a lot of losses for people, similar to the effects of a restructuring exercise. (See Individual Change for more tips on handling redundancies.) Here is some advice for how managers can manage the ending phase (or how to get them to let go):
Acknowledge that the old company is ending, or the old ways of doing things are ending.
Give people time to grieve for the loss of familiar people if redundancies are made. Publish news of their progress in newsletters.
Do something to mark the ending: for example have a team drink together specifically to acknowledge the last day of trading as the old company.
Be respectful about the past. It is tempting to denigrate the old management team or the old ways of working to make the new company look more attractive. This will not work. It will just create resentment.
Managing the transition from old to new
This phase of a merger or acquisition, often known as integration, can be chaotic if it is not well managed. The ‘barnyard behaviour’ mentioned above combined with high anxiety about the future can lead to good people leaving and stress levels reaching all-time highs. Conflicts that are not nipped in the bud at this stage can lead to huge and permanent rifts between the two companies involved.
Tuckman’s model of team development is useful to explain what goes on in a new merged management team, or a newly merged sales team. We have also added some suggestions for how to manage these phases.
How to manage the development of a merged team
Stage
Team activity
Advice for leaders
Forming
• Confusion
• Uncertainty
• Assessing situation
• Testing ground rules
• Feeling out others
• Defining goals
• Getting acquainted
• Establishing rules
Be very clear about roles and responsibilities in the new company.
Talk about where people have come from in terms of the structure, process and culture in their previous situation.
Compare notes.
Define key customers for the team and begin to agree new groundrules for how the team will work together.
Storming
• Disagreement over priorities
• Struggle for leadership
• Tension
• Hostility
• Clique formation
Make time for team to discuss important issues.
Be patient.
Be clear on direction and purpose of the team.
Nip conflict between cultures and people in the bud by talking to those involved.
Norming
• Consensus
• Leadership accepted
• Trust established
• Standards set
• New stable roles
• Cooperation
Develop decision-making process.
Maintain flexibility by reviewing goals and process.
Performing
• Successful performance
• Flexible task roles
• Openness
• Helpfulness
Delegate more.
Stretch people.
Encourage innovation.
Timing for this stage is also important. The integration stage should neither be squeezed into an impossible two-week period, nor be treated as an open-ended process that continues unaided for years. The need to squeeze this phase into a two-week period comes from management denial of the very existence of integration issues. Conversely, the need to let things take their course over time comes from a belief that time will solve all the issues and they cannot be hurried. Therefore they are allowed to drag on and possibly get worse, and more entrenched.
Bridges offers advice about managing the integration phase which we have adapted to be directly useful for mergers and acquisitions:
- Explain that the integration phase will be hard work and will need (and get) attention.
- Set short-range goals and checkpoints.
- Encourage experimentation and risk taking.
- Encourage people to brainstorm with members of the new company to find answers to both old and new problems.
Managing beginnings
It is important to recognize when the timing is right to celebrate a new beginning. Managers need to be careful not to declare victory too soon. Here are some ideas for this phase:
- Be really clear about the purpose of the merger or acquisition, and keep coming back to this as your bedrock.
- Paint a vision of the future for you and your team, describing an attractive future for those listening. (ROCE or ROI just doesn’t do it for most people!)
- Act as a role model by integrating well at your own level, and being seen to be doing so.
- Do something specific to celebrate a new beginning.
Managing yourself
There are many challenges ahead for managers as they enter a merger or acquisition. Managers may be uncertain about their own position, while attempting to reassure others about theirs. They may even be considering their options outside the organization while encouraging others to wait and see how things turn out.
Other difficulties include the overwhelming needs of team members for clarity, reassurance and management time. Managers find themselves repeating information again and again, and become frustrated with their team’s inability to ‘move on’. A glance at the Kubler-Ross curves pictured will reveal that this problem comes from managers and their teams being out of ‘sync’ in terms of their emotional reactions. While the manager is accepting the situation and trying out new ideas, the team is going through shock, denial, anger and blame. This is quite a stark mis-match!
Change curve comparisons
Devine (1999) offers a checklist for line managers:
- Get involved. Try to get in on the action and away from business as usual. Show you are capable of dealing with change.
- Get informed. Find out who is going up or down, especially among your sponsors or mentors. Have a ‘replacement’ boss you can turn to if your current one leaves.
- Get to know people. Network hard, get to know the people in the other company. Do not think of them as ‘the enemy’.
- Deal with your feelings. Openly recognize feelings of anxiety and frustration. Form a support network and discuss these feelings with colleagues.
- Actively manage your career. Think carefully before moving function/role at the time of a merger. You are remembered for your current job, whatever your past experience. Do not necessarily accept the first role that is offered to you. Decide what you would like to do, prepare your CV and work towards it – everything is up for grabs!
- Identify success criteria. Often performance criteria have changed or become unclear. Re-benchmark yourself by talking to people involved in the merger. Get informal feedback from subordinates, peers and bosses.
- Be positive. Be philosophical and objective about what is under your control. Do not beat yourself up – you can’t win ‘em all.
Handling difficult appointment and exit decisions
Mergers and acquisitions often involve a restructuring process, which in turn involves managers in making difficult appointment and exit decisions. These decisions need to be fair, transparent, justified, swift and carried out with attention to people’s dignity.
In one company that we know of, top management decided to reveal the newly merged company’s structure chart in a formal town hall meeting of all staff. Those who did not appear on the chart had to make their own conclusions. You can imagine the resentment and lack of trust that this foolish and undignified process generated.
Devine advises:
- New appointments need to be seen to be fair. Try to ensure that selection criteria are objective, transparent and widely understood.
- Stick to company policy and processes. Do not take short-cuts as they are likely to backfire on you.
- Do not dither. This will cause resentment.
- Treat employees at every level with dignity.
Managing the organization
It is important to select and agree a change process that matches the challenges posed by the specific merger and acquisition. If the most important challenge is to achieve cost-cutting goals, then project management techniques can be applied and the changes made swiftly. This may mean the use of a task force to make recommendations, and the agreement of a linear process for delivering the cost-cutting goals. However, if the most important challenges are integration issues or cultural issues, then the ideas of both Bridges and Senge are relevant. Attention must be paid to managing endings, transitions and beginnings for specific teams involved in significant processes. Other teams may remain untouched.
We have used the Kotter model, introduced in Organizational Change, to illustrate the steps from initial news of the deal to full integration. This model is useful because it combines a range of different assumptions about change, so tackles the widest range of possible challenges.
Establish a sense of urgency. This is a tough balancing act for management. They must start to raise the issues that have led to the merger or acquisition without revealing the deal itself. For instance if the company is currently in a dwindling marketplace, then managers should highlight the need to do something about this, without necessarily revealing any intentions to buy or to merge. People will be suspicious and resentful of a deal that does not make any sense. ‘Why are we diversifying now? I thought the plan was to buy the competition!’
Form a powerful guiding coalition. Managers of both companies need to begin working together as soon as they can. They need to spend time together and build a bit of trust. When the deal is announced, managers will then be able to work together at speed.
Create a new vision. A top-level vision for the new company must be built by the new top management team. This vision will be used to guide the integration effort and to develop clear strategies for achieving this. The integration effort needs to be targeted in specific areas rather than be a blanket process, and clear timescales for implementation must be given.
The new structure needs to be put quickly into place, a level at a time, ensuring that customers are well managed throughout. The new sales and customer service structure is therefore also a priority. New values and ways of working should also be discussed and identified.
Communicate the vision. Kotter emphasizes the need to communicate at least 10 times the amount you expect to have to communicate. In addition, all the research about mergers and acquisitions indicates that it is impossible to over-communicate. Managers need to be creative with their communication strategies, and remember to work hard at getting the two companies to build relationships at all levels.
The vision and accompanying strategies and new behaviours will need to be communicated in a variety of different ways: formal communications, role modelling, recruitment decisions and promotion decisions. The guiding coalition should be the first to role model new behaviours.
Empower others to act on the vision. The management team now need to focus on removing obstacles to change such as structures that are not working, or cultural issues, or non-integrated systems. At this stage people are encouraged to experiment with new relationships and new ways of doing things.
Plan for and create short-term wins. Managers should look for and advertise short-term visible improvements such as joint innovation projects, or the day-to-day achievements of joint teams. Anything that demonstrates progress towards the initial aims of the merger or acquisition is newsworthy. It is important to reward people publicly for merger-related improvements.
Consolidate improvements and produce still more change. Top managers should make a point of promoting and rewarding those able to advocate and work towards the new vision. At this point it is important to energize the process of change with new joint projects, new resources, change agents.
Institutionalize new approaches. It is vital to ensure that people see the links between the merger or acquisition and success. If they have had to work hard to make this initiative happen, they need to see that it has all been worthwhile.
THE IMPORTANCE OF TRUST WHEN GOING THROUGH A MERGER
When we were acquired by ITSS we were full of trepidation. Our previous owners had stripped us of costs and then looked around for a buyer. We felt a bit used. So we were in no mood to start building trust.
ITSS kept calling this deal a merger, but we were hugely cynical about that. They had bought us after all. This was a case of vertical integration where a supplier buys its customer to gain access to primary clients and grow the business. We thought they would start to take our jobs and move the company to their own headquarters, around four hours down the motorway!
The whole thing came to a head one morning when some consultants were running an integration workshop for the new management team. ITSS were getting frustrated with our hostility. We were getting angry about their constant questioning about finances and account management and project costs. Someone from our company was brave enough to share his emotions.
The MD of ITSS, who is actually a pretty decent guy, sat down amidst us all and spoke quite calmly for about 10 minutes. He said, ‘Look guys, I will do anything to make this company a success. Anything. But I need to know what I’m running here. I can’t take that responsibility without knowing all the facts. I really want us to make this thing a success. But I need your help.’
After that we trusted him a bit more. Then things got better and better. That was four years ago. Things have improved every year since then. He kept his word, and that was really important to everyone.