How to Design your Post-Merger Organization

By Jodie Goulden. You can also listen to the podcast on this topic recorded with Louis de Schorlemer and Corporate Diplomat.

 

Every merger starts with strategic intent

 

If you are involved in supporting a merger or acquisition, how well do you understand the strategic intent of the transaction? Any well-planned press release will mention the strategic benefits of the merger. For example, "we believe that our combined capabilities will result in the launch of new innovative technologies.”

 

Typically, the acquiring and acquired organizations have different strengths, which the merger is expected to combine in a way that results in the “best of both worlds.”

 

To some, this promised future seems exciting & inspiring. Others feel more concerned about the uncertainty and risks that lie ahead. Almost everyone is wondering, “what does this mean for me personally?”

 

It is natural for people to be worried about how the merger will impact their own role and personal future, even for those in senior leadership positions. If not acknowledged and addressed, personal worries about the merger can limit our ability to realize the strategic benefits. If you are leading or supporting a merger project, accept that this will happen and be prepared to invest in supporting people through the change process.

 

At the same time, to be an effective leader during a merger, you must be clearly focused on the strategy and tactics of delivering the organization wide results. Our advice is to look behind the headlines and educate yourself on the strategic intentions of the merger. As a starting point, here are the 3 questions you should be able to answer:

 

1. What are the strengths (capabilities) that each organization brings to the merger?

 

2. What are the strategic benefits that the merger is expected to deliver?

 

3. What combination of capabilities are needed to realize these benefits?

 

Then what?

 

Once the dust settles, it is up to the integration team to realize the strategic benefits of the merger. The resulting post-merger organization is expected to have capabilities, for example, in both customer-orientation and efficiency. It should deliver both product customization and speed to market.

 

However, strategy is about choices and trade-offs.

 

Strategic decisions are trade-off decisions, which require us to weigh one option against the other, and to resolve daunting dilemmas. Albrecht Enders

 

These strategic trade-offs must be acknowledged when designing the post-merger organization and developing the implementation plans, but in our experience, the trade-off decisions will not all be clarified in the early stages of the merger. Consequently, much of the design optimization will take place as the integration happens.

 

The resulting operational ambiguity adds to the personal uncertainty that employees are already feeling. It is hardly surprising that mergers are reported to be stressful for many employees.

 

Conflict and tension ramp up

 

Even when efforts are made to foster camaraderie and teamwork, the stress of uncertainty often amplifies conflicts. Under pressure, people more than ever yearn for a clear path forward. Typically, employees continue to maintain activities that support the previously established strategy. This is likely to happen in the absence of a clearly understood new strategy. However, even in the best case where a new strategy is well communicated, employees sometimes still stick with the actions and behaviours that support past objectives.

 

Take the example of a significant merger that aimed to benefit from the customer orientation capabilities of the acquired company. Employees in the acquiring organization pushed hard to harmonize customer data from newly onboarded customers to comply with a system that was designed to drive efficiency through standardization. This seemed to them a rational and important objective, given past years invested in harmonizing and simplifying the system to improve efficiency and reduce costs. Employees in the acquired company resisted these efforts strongly, pointing out that the new system would inconvenience customers and fail to provide the data needed by the sales team to meet customer needs. As the “harmonization” efforts continued, the acquired company sales team found more and more examples of customer delivery delays, errors and complaints, and adopted “workaround” solutions, while proponents of standardization blamed the sales team for declining efficiency targets because the data was not correctly updated in the system.

 

This example illustrates how competing strategic priorities, in this case customer orientation vs. efficiency, can lead to conflicts that result in devastating consequences for the business. Declining business, or worse still, losing customers entirely, is a serious risk for many integrations.

 

What then is the solution? Neither side of this conflict is 100% right or wrong. In fact, this challenge lies at the heart of many merger situations.

 

Strategic priorities almost certainly must be revised and rebalanced to harvest the gains from combining two entities with different strengths and legacies.

 

A well communicated strategy that acknowledges the trade-offs, is essential for employees in the organization to make effective change. The aim should be to name the trade-offs, acknowledge that previous measures of success will change, explain the challenges.

 

In most situations, with effective communications, employees will understand the challenge and be able to navigate their way to a new way of operating. This will shift the conflict from “us vs them” towards an understanding of the actual challenge to be solved.

 

Communicate the challenges, not the solutions

 

If you have communicated the high-level strategy, including specific details and strategic trade-offs, you are ready to design your new organization. This does not mean you have all the answers. Our key message here is to communicate to employees the strategic trade-offs and acknowledge them as a challenge. For example:

 

“Company A was acquired for their strong customer-orientation. Company B’s strength is system & process efficiency. Our new strategic priority is customer-orientation, even above standardization. Our challenge is do this with minimal loss of efficiency.”

 

Integration leaders, perhaps feeling pressure to produce a new organization chart, sometimes skip the important steps of designing the operating model and creating design principles to guide the development of the new organization. But organization design is not just the organization chart – the latter is simply an outcome. This common error can be the reason for integration failures, as newly formed dynamics quickly run into conflicts, no matter how much relationship and team building takes place. Trust can be created but it breaks down quickly in the face of competing strategic agendas.

 

What is organization design? It starts with the operating model, which defines how the organization will create and deliver value. It answers questions such as:

 

• What capabilities will we need?
• How will different units and functions work together?
• What are the processes that will support how value is created?
• How will decisions be made?

 

Design principles are derived from the operating model, providing crucial direction for developing future ways of working. For example, a design principle could be “make decisions as close to the customer as possible”. From this principle-based approach, elements of the organization are designed.

 

Organization design provides a step by step approach that will navigate trade-offs and create organizational solutions to deliver the strategy.

 

Involve everyone!

 

It is common practice to design the strategy and operating model behind closed doors, but this is a missed opportunity to leverage diverse insights from multiple stakeholders.

 

Let us be honest - at the moment a merger is announced to the whole organization, no-one has the detailed plan for the integration.

 

There is no individual with the knowledge to make all the decisions. As a management team, it is tempting to wait until you have all the answers. But that moment will never arrive.

 

The alternative – involving many employees to help shape the implementation – can seem daunting.

 

However, we are convinced that when the strategic dilemmas are articulated, employees will understand the trade-offs. When presented with the challenges facing the organization, employees with different perspectives can collaborate to generate the best solutions because they have detailed knowledge of the process, situation, customers, and products.

 

How to reduce uncertainty and stress

 

In a merger, many employees experience uncertainty and stress. It is impossible to totally avoid the uncertainty, but there are steps you can and should take, to reduce the negative impact.

 

1. Invest in safety nets

 

When faced with employees asking, “will I lose my job?”, leaders are generally counselled not to give a yes or no answer. After all, nothing is guaranteed, and no-one wants to make a promise they cannot keep. However, this is a sure way to maximize uncertainty and create a situation where no one feels secure. In merger situations, except when the sole purpose is cost synergies, employees will be retained, and in some cases retaining them is critical to the success of the integration. If possible, invest early in offering financial security to employees, through retention bonuses, new contracts, or job guarantees. If job losses are possible, establish and communicate generous termination packages and support structures. Financial compensation is not the only reassurance that people wish for, but it is far better than nothing. If there is something you can offer, then do it.

 

2. Invite meaningful participation in designing the future organization

 

Change management experts frequently remind us that people accept change better when they are involved. We believe that involvement must go much further than this. If messages are communicated with the goal of getting employee “buy-in”, it will not be convincing. The best change happens when people participate and have agency in shaping the change. That means, being transparent about the challenges ahead and inviting employees to co-design the solutions. Furthermore, leveraging the diverse knowledge and skills of the broader employee population in a structured way brings significant value in solving the complex challenges of the merger.

 

3. Implement a listening culture with training and tools

 

In a change situation like a merger, an important step for many people is letting go. That could mean letting go of a job they enjoy, a way of doing things they are proud of, or a team that they feel connected with. Some leaders focus too much on convincing people of the benefits of the change. Instead, spend some time on acknowledging the past. The key is good listening. We recommend that your communication plan includes more listening than telling. This can be achieved through listening workshops, online forums, leader listening labs, facilitated reflection, and rituals to acknowledge past accomplishments.

 

Conclusion

 

Mergers and integrations are complex and there’s no one-size-fits-all solution. If you are leading or part of an integration team, the key recommendations in this article are:

 

• Educate yourself on the strategic intentions of the merger, identify and communicate the strategic trade-offs.
• Leverage diverse perspectives of employees to find the best solutions to strategic challenges.
• Design the organization not the organization chart.

If you are interested to learn more, email us at info@orgdesignworks.com