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In our Vector View, organizational “culture clash” is completely avoidable. Our experience shows there are no two (or more) organizational cultures that cannot be successfully integrated. In other words, failure due to culture clash is just another way of describing “management negligence.”
The only caveat to our unwavering position is that success is achievable as long as a proper due diligence, including culture issues, is performed and based upon that analysis a robust and prescriptive integration plan is developed and implemented in a flexible but firm and responsive manner. Identifying, surfacing and appropriately dealing with differences in culture (“the way we do things around here”) ensures the success of the integration. Most challenges that occur are predictable and can be mitigated appropriately bringing desired results. To carry this further, our experience shows that dealing with most of these issues happens effectively in the first 30 days following the merger or acquisition.
The only thing that can get in the way is management in not stepping up to do what needs to be done and leading appropriately. At a bare minimum there needs to be the perception of involved leadership.
Internationally the track record of M&A activity results remains quite poor. Multiple studies analyzing the last 30 to 50 years of M&A activity have documented a business success rate of less than 30%. One McKinsey study of 30 years of M&A activity concluded that 77% (or higher) of the acquisitions failed to meet their intended business objective, over half failed to ever recover the documented costs of the acquisition and roughly a third were later divested or completely shut down. A company’s own data, while maybe better than international averages, may still show a less than desirable success rate.
Another series of follow-on studies identified organizational culture clash as the primary reason for failure in over half of the thousands of acquisition failures that have been studied. “Culture clash” is defined as disagreements between people in the merged organizations concerning how to go about engaging in and managing the business. These types of clashes consume increasing amounts of energy resources and time to get things done and turn the focus of significant parts of the organization from actually “doing” the business to arguing about how it should or should not be done. Internal issues/arguments consume ever more resources leaving less and less focused upon the customer and actually performing the work.
Working with a Canadian-owned engineering company almost four years ago (late 2011), Vector Group designed a “roadmap” for the success of the client’s growth by acquisition. We designed this roadmap to more clearly define and leverage the role of a human resources team charged with driving the success of present and future acquisitions and bringing desired results.
Undeniably, our Vector View is that HR is in the best position (possibly with an additional transfer of skills and knowledge) to lead aspects of the acquisition process centered on the people issues (organizational culture) that so oftentimes cause failure. The people strategy for the roadmap included objectives and deliverables that identified and surfaced possible challenges with intended outcomes. Our intention of this roadmap is to allow any company to increase its acquisition success rate to at least the 60% to 70%+ range.
The roadmap is a guide to the acquisition process beginning with Target Identification of potential new businesses to buy and ending with the successful cultural integration of the acquired company. Just as a building plan would work, the roadmap brings a logic and a means to successful creation of a new entity. Be aware the roadmap is not prescriptive but does offer numerous tactics and tools that the HR team can use in assessing the potential risks and increasing the potential benefits of a specific acquisition. Portions of the Roadmap do provide some systematic directions but overall brings a way of thinking and doing in terms of bringing in a new organization to a company.
Our generic Roadmap identifies nine stages in the process:
• Phase I -Target Identification
• Phase II -Target Evaluation
• Phase III -Pre-“Go” / “No Go” Decision
• Phase IV -Due Diligence
• Phase V -Integration Planning
• Phase VI –The “Go” / “No Go” Decision
• Phase VII -Share / Asset Purchase Agreement
• Phase VIII -Integration (First two to four weeks)
• Phase IX -Integration (First year)
Each Phase starts with a description of the Phase followed by short sections covering Business Perspective, Business Deliverables, HR Objectives, and HR Deliverables. These sections are followed by a general Hints section which provides guidance and subtleties involved in successfully completing each Phase. A descriptive listing of potential methods, processes and tools to support the activities of the Phase and bring desired results financially and on the people issues follows this.
Each phase also outlines roles and responsibilities. HR must work in tandem with an Integration Manager (IM) from the time he or she is chosen (Phase III) to support and develop the IM. The IM plays a critical role in making the integration work. Each phase has deliverables but just as importantly, each phase references documents and tools (Vector Group IP) of extreme benefit in bringing those deliverables.
The recommended activities and tools are, in most cases, highly flexible and scalable meaning they can, and should, be easily adapted to fit the particular issues involved in any acquisition – be it a 15 person company highly focused upon one activity or a 2000+ person company with multiple and diverse business activities. Our Roadmap to Successful M&A’s is highly customizable to any company’s specific needs.
For more information on Vector Group’s Roadmap to Successful M&A’s, please contact us or visit our website at http://www.vectorgroupinc.com.
Gary W. Craig
Vector Group, Inc.