Organizations view the mergers and acquisitions (M&A) process as one of the most critical phases in their existence. It serves as a mechanism to capture new markets, enhance skills, and generate more revenue. But let’s face it – sealing the deal is merely the tip of the iceberg. What comes after is the real work – post-merger integration (PMI).
This is where two distinct companies come together to function as a single one. It creates the foundation for achieving the strategic, operational, and financial objectives of the merger. Think of it like this – buying your ideal house is a great start but if you don’t give it the required renovations to make it your home – what’s the point? Just like M&A’s, no matter how seamless the merger appears to be, the absence of effective integration makes it a failure in disguise.
Should your organization be gearing up for a merger, or are you curious to know how to better prepare for post-merger integration? If yes, then this guide is for you. We will help you understand the major steps, frequent obstacles, and how to define success in one of the most delicate processes in business.
The Importance of Post-Merger Integration
Merging is more than simply merging assets. It is a combination of cultures, systems, and processes. If the PMI is not properly done, the result could be employee dissatisfaction, increased churn, and loss of productivity, which can be devastating on any organization. As highlighted in Harvard Business Review, studies show that approximately 70 to 90 percent of mergers and acquisitions are unsuccessful. The reasoning for this is poor post merger integration.
Effective PMI can:
Increase overall collaboration and productivity within the organization.
Set organizational objectives that support business expansion.
Enhance overall brand experience through integrated offerings.
Aid in long-term organizational objectives through proper planning and execution.
The Steps Involved In Post Merger Integration
1. Define Objectives
It is necessary to define what the organization is trying to achieve before mergers happen. What does success feel like?
In case the objective of the PMI is to cut costs, then the plan should target redundacies. If the defined objective is to widen the market reach, then the focus should be the marketing and sales effort integration.
As stated by M&A professional Mark Herndon, “Every integration strategy should have a shared vision that connects the reason behind the merger with the process of integration.”
2. Prioritize Communication
Merger communicatons always create panic among employees because there is always one common question – What does the merger mean for my role? Consistent and transparent communication always works in relieving the people’s stress while making them understand what is expected of them.
Expert tip:
“Start communicating early,” says Julie Hamilton, a change management expert. “Involve all employees, not just the management. Give them a stake in the change rather than being forced upon it later.”
3. Align Company Cultures
Corporate cultures are one of the most difficult as well as the most ignored components of Post-Merger Integration (PMI). However, finances and operations tend to take the lead. Disparities in culture can be due to clashing values, leadership styles, and even ways of working.
This is how you can align cultures:
Evaluate culture in both organizations individually.
Identify the most powerful values that all relevant people have in common and communicate efficient decision making based on them.
Organize collaborative team-building activities.
4. Integrate Systems and Processes
Identifying systems, tools and processes for integrating the IT systems is one of the most crucial steps. Start with identifying platforms that are key to each organization, such as CRMs, financial tools, or enterprise software. Next, determine whether the systems need to be consolidated, restructured, or replaced entirely.
Tip:
Start by employing “quick wins” when integrating IT systems, which are those tasks which are likely to deliver value with minimal effort. This initiates positive progress towards achieving larger, more challenging integrations.
5. Talent Preservation
The loss of essential people following the merger greatly diminishes the competitive advantage of the merged company. In one of the surveys conducted by PwC, 47% of leaders admitted that retaining talent during M&As have previously posed the greatest issue for them.
To prevent this:
Create strong retention packages for top performing employees.
Facilitate clear pathways for career progression for employees.
Develop a culture of clarity in admission of concerns about roles and tasks.
6. Customer Centric Approach
While internal alignment is important, parallel attention should be paid to customer impact during the transition phase. Customers should be adequately briefed regarding all changes and their expectations should remain at the forefront of the business strategy. From the merging of product lines to the unifying of customer departments, there must be an emphasis on streamlining.
Addressing Typical Hurdles in Post-Merger Integration
Although a company has invested resources in planning, there are issues that arise. Here are a few of those challenges along with potential preventive measures:
1. Hesitancy Towards New Practices
Resistance to change can stem from employees or even leaders unwilling to modify aspects of their workflow. To remedy this, ensure that there is a clear continuity of message provided by leadership as well as employee involvement in the integration process.
2. Integration Fatigue
When integration periods are lengthy, teams and morale may suffer due to what is known as “merger fatigue.” Avoid this by splitting the integration process into smaller, more manageable phases with milestones to celebrate along the journey.
3. Unexpected Costs
Spending for integrations can increase massively if proper planning isn’t put in place. To avoid this, ensure strict financial control from the beginning with a detailed budget allocation meant exclusively for integration expenses.
“As with everything, doing a successful merger involves planning,” states Bethany Charles, an M&A project manager. “There will be challenges, but don’t forget to celebrate minor achievements as they help build morale and keep everything on track.”
Evaluating the Post-Merger Integration Efforts
How do you track what needs to be measured to check if your integration strategy is on course? Always ensure you set parameters before the process starts. Some essential KPIs may comprise of the following:
Financial Goals:
Find out whether the expected savings in operational costs, increase in revenue or profit margins are being realized.
Employee Engagement:
Get feedback from the employees about their trust level, their morale, and overall satisfaction during the merger process using surveys.
Operational Efficiency:
Assess the increased productivity levels, lesser idle time, and optimized processes after the integration.
Customer Metrics:
Analyze customer satisfaction after the merger using metrics such as NPS, retention, and sales growth.
Example in practice:
A major company lost 20 points in its Net Promoter Score (NPS) due to a poorly executed integration. The company took action by changing the approach to communication and culture and within 18 months it had recovered 30 points.
As stated by Herndon, “Let data guide. But don’t lose sight of instincts when assessing outcome.”
Design the Future You Want Reality to Fit Into Imagine after a merger – the integration of operations and strategies which often serves as a make or break factor – the M&A deal. However, there are virtually boundless possibilities to combine two bodies into something more. Of course, there are challenges. But, having a plan, merging cultures, and putting the focus on the people and processes involved can truly make a merger something that it was intended to be.
If you feel daunted by the process, don’t go through the integration by yourself. Getting outside help allows you to focus on your objectives while the rest of the issues are worked out. Position your organization in such a way to use best strategies whilst building a masterpiece.
Are you experiencing a merger or are you just interested in different forms of organizational change? Jump in the comments and tell us your experience or questions – we would love to hear them.
