M&A-Driven Reorgs
One very specific flavor of reorg is that conducted through an M&A. As noted in the introduction, merger-driven reorgs seem to experience particular problems. Only 8 percent of merger reorgs fully deliver their objectives in the planned time, and 41 percent—way more than other types of reorgs—take longer than expected. And in 10 percent of cases, the reorg brought about by the merger actually harms the organization. Unpacking the reasons why and providing definitive guidance probably requires an additional book. Below we provide some pointers to more successful outcomes based on the five-step process.
While the five steps still apply, the way they play out can be quite different. On the upside of an M&A event, everyone knows that this is the biggest thing affecting the company, so you will be able to get the resources you need. On the downside, part of the equation (the challenges within the other company) remains opaque to you until quite late in the process. In addition, you have to be extremely careful about the information that is shared, given competition law. We find it very helpful to make explicit a small number—say, around seven—of memorable information-sharing rules to help navigate these sorts of issues. For example, a leader who will be the future head of a new business unit will obviously want to see the P&Ls of the units from the two companies that will come together under his or her leadership. Yet—depending on the competition law in the jurisdiction in question—this might not be allowed. For this reason, in merger situations, we start every presentation (our first PowerPoint slide) with a review of the competition rules to be compliant.
In this appendix, we lay out step by step the main differences to keep in mind when you are delivering an M&A-focused reorg.
Step 1: Construct the Reorg’s Profit and Loss
- In many ways, the focus on P&L is front and center in an M&A: everyone is focused on the combined P&L of the new entity and has an interest in synergies and their rationale. In many cases, the synergies will be cost savings, and the advice in the previous appendix will again be relevant. The challenge is to understand the organizational implications of these synergy ideas.
Step 2: Understand the Current Weaknesses and Strengths
- For your own company, this step is clearly the same as for a traditional reorg. For the other company (acquired or merged), it may be more difficult to get a sense of the strengths and weaknesses before the deal is closed. However, you can get some insights from due-diligence enquiries, former members of the company (including those in your own organization), or the internet—whether through the company’s own publications or sites such as LinkedIn, which enable you to profile individual managers. How you go about this step is also dependent on whether this is a takeover (where the default position is that the acquired organization will largely be absorbed into your company) or a true merger, where you may be looking for a best-of-breed approach from across the two companies, in terms of both the organization and its personnel.
Step 3: Choose from Multiple Options
- Before the deal closes, it is possible to develop a strong hypothesis for what the new organization will look like. In M&A situations, there is typically a lot of focus on the organizational structure (by definition, you will have to choose one structure that integrates the two companies and comes from one company or the other or is some combination of both). There is also usually a focus on people: both the numbers needed (as some of the synergies will clearly come from staff efficiencies) and a shared culture that needs to be created in the new company. However, it is important not to forget processes: companies normally go about their processes (whether they are deciding on strategy, launching a product or process, or running day-to-day operations) in very different ways, and confusion between these processes postmerger is a frequent problem. In addition, if this is the first of a series of M&As, you might also want to reconsider your current organizational setup to facilitate bolting on or integrating new organizational units.
Step 4: Get the Plumbing and Wiring Right
- Some planning and even quite detailed designs are possible before the deal closes. However, when the deal does close, partway through this step, you must quickly circle back on the hypotheses from previous steps—the assumptions on synergies (step 1), the understanding of the acquired company’s strengths and weaknesses (step 2), and the concept design (step 3)—to confirm that they are sound and, where necessary, refine them. Then planning for the actual implementation can proceed apace. With M&As, there is a typically a team dedicated to each area of the business, run by business professionals rather than HR—meaning that necessary resources are in place to deliver the reorg. In this step, communications to the wider workforce and to leaders worried about their positions is even more important than usual.
Step 5: Launch, Learn, and Course-Correct
- All the advice on step 5 in chapter 7 applies to an M&A, only more so. You need to measure business outputs against the original synergy plan. With many more assumptions about how the combined company will work, a formal 5,000-mile check is essential. With two cultures to bring together and different approaches to processes, there is an increased need to change the way of working. And if you plan to do more M&As, capturing the results of your experience for next time is critical.