When seeking to define a successful merger, the discussion will tend to be drawn to hard quantitative metrics. Share price, synergies, or other accounting parameters can provide a public record of success or failure, and are easy to measure. However, it is how effectively people and culture are managed during an integration which will determine whether a newly combined organization is truly set up for success.
Post-integration, ‘people’ is a topic that stretches far beyond just talent retention. Bringing together two leadership teams, technology infrastructures, and cultures creates complex challenges which need to be handled with care to mitigate disruption and negativity. Get it right, and the integration will be an opportunity to enhance all of these areas.
However, the people aspect of integration is often overlooked, especially in the early stages of the journey. Below we set out six key people challenges which should be addressed when undertaking any major integration initiative, and offer our recommendations to ensure organizations achieve their integration goals.
Our insights reflect the thoughts of key leaders from across our financial services clients, who have been involved in delivering major internal and external integration programmes, including CEOs, COOs, HR Leads and Integration Programme Directors.
1. EFFECTIVE LEADERSHIP STRUCTURES
Building leadership teams is a delicate process – poor decision-making can have significant negative consequences. In a post-merger environment, you will immediately have two sets of leaders, adding significant complexity and demanding swift action to create an executive structure tailored for the new organization.
The temptation to work with an interim system of ‘co-heads’ or ‘interim’ managers can be attractive, as immediate political issues can be mitigated. However, this is often a short-term fix and results in critical strategic decisions being deferred until a new leadership structure is announced.
Moving quickly to a structure comprising single department heads brings you much closer to an operationally effective leadership team, with roles and responsibilities clearly delineated, enabling a focus on the future rather than navigating agendas developed in the past.
The need to ensure each position is filled by the best candidate available should be balanced with a secondary objective of having a mixed leadership team. Bringing together executives from both organizations might cause friction – but it also communicates a strong message (and expectation) of collaboration, and as such is key to a successful integration.
2. DIFFICULT BUT NECESSARY
Involuntary exits are an inevitable consequence of any merger or acquisition, particularly in respect of senior and/or leadership positions. Such exits are challenging enough at the best of times, but in a post-merger environment the morale of remaining staff can be impacted significantly. This unease is well founded, given that some 30% of roles at a company are generally made redundant post-merger1. Staff will jump to conclusions about what will happen next unless the narrative is controlled, and this is best done through actions not words.
For example, efforts should be made to treat exiting staff well, with generous severance where appropriate. Following a merger, all remaining employees will need to recontract legally and emotionally with the new organization, and vice versa. Considerate treatment of exiting staff reinforces a sense that the organization is acting in good faith.
While many individuals will see a place for themselves in the future state organization, it does present an opportunity for those who may be considering leaving and/or retiring to depart on good terms. This enhances feelings of good will among those colleagues who remain.
3. RETAINING TALENT
Regardless of the nature of the acquired business, an organization’s people are integral. The talent pool within a target company can be a key initial driver of M&A activity, as this route offers a far more efficient way of capturing skilled staff at scale compared to direct recruitment.
The value of the joint organization can be diminished if key talent is not retained. Success in this endeavor relies on keeping motivation levels high. In the case of startup acquisition, attrition within a year of the deal can be as high as 33%, twice that of regular joiners post deal2.
It is critical to quickly define what specific skills are required for the future organization and to reskill staff accordingly, with a view to retaining strong performers in those legacy areas which are no longer considered strategic.
Different departments will react to an integration in different ways. For example, levels of brand identification or loyalty may be significant among front office and technology teams, resulting in heightened suspicion about mergers and acquisitions. In contrast, central functions may be more positive about mergers, given the potential emergence of greater opportunities arising from being part of a larger organization. As a result, it is inevitable that certain business areas will require more attention to retain staff.
That said, while the above suggests a ‘one size fits all’ approach would not be appropriate, consistency should still be applied when it comes to making guarantees to staff. If guarantees cannot be offered universally, or have to be adjusted later, the value of such guarantees will be reduced or even eliminated. In addition, a balance should be sought between quick alignment of compensation/reward to ensure certain employee groups are not disadvantaged.
4. CULTURE TRANSFORMATION
A firm’s culture is developed over time through the embedding of behaviors, traditions and working practices. A merger presents a unique opportunity to set a new direction. If left to grow organically, the culture of a combined organization can develop in undesired directions or generate significant friction. However, through proactive intervention, culture, values, behaviors and outcomes can all be aligned across the merged organization and act in tandem as a strategic enabler.
Culture is best propagated throughout the business via ‘culture carriers’ who will champion and reinforce any changes. These individuals or teams must be carefully selected to unwanted elements of legacy culture do not persist. Action should be taken quickly. Rebranding, for example, is most effective when executed rapidly, with clear and direct messaging about what the new brand is aiming to achieve.
While looking at culture holistically is important, small details can sometimes be the most crucial elements to focus on. For example, two organizations may have vastly differing etiquette when it comes to meetings. Failure to identify and address this quickly can result in an immediate point of friction that will be felt across the business in an area vital for the smooth running of day-to-day operations.
5. EFFECTIVE COMMUNICATION
How an integration is delivered is of utmost importance. However, if not communicated well, those delivery efforts can be in vain. Any integration must have a detailed and thought-through execution plan that works in tandem with a comprehensive communications plan. This is an area of the integration that can be carefully controlled.
There are different needs across the business and therefore a communications plan should incorporate the following facets:
6. INTEGRATION TEAM
So far we have considered the impact on people of an integration and ways to successfully manage that impact. However, successful execution of an integration also requires a well-constructed integration team to drive it. An integration should be the top priority for an organization, and therefore the programme should be headed by a permanent employee who is wholly dedicated to integration delivery.
Ideally, each function should also have a lead who is accountable for execution in their business area. The rest of the integration team is best structured using a combination of permanent staff from both organizations alongside external third parties with specialist integration experience (see Figure 1).
Integrations are intense, and place unique pressures on the team(s) tasked with delivering them. The likelihood of burnout and stress is increased for staff who are at once acclimatizing to a new organization and changing it from within. An integration programme must therefore be structured so that:
Without question, a merger will struggle to be successful in the absence of a holistic and carefully managed approach to people management. As we have explored, by striking a balance between delivering an overarching vision and staying focused on the small details, any turbulence is minimized. Our approach can be summarised by these six clear objectives:
Finally, success in executing a people strategy should be closely and deliberately measured wherever possible. As it is a largely qualitative undertaking, the use of surveys or benchmarking against recognized industry standards can be the most effective means of identifying achievements and determining areas where there is more work to do. These metrics can be particularly powerful when combined with quantitative measurements, such as attrition levels.
1. M. L. Marks, P. Mirvis and R. Ashkenas, “Surviving M&A", Harvard Business Review, March-April 2017.
2. J. D. Kim, “Startup Acquisitions as a Hiring Strategy: Worker Choice and Turnover", Wharton School, University of Pennsylvania, 2020.