Managing Change Blog
"Culture eats strategy for breakfast" is a quote usually attributed to Peter Drucker. You could say something similar about merger integrations. If you do not invest time and resources in change management, people and cultural issues will eat all your anticipated synergies for breakfast—and your entire company for lunch.
Most executives realize that people issues can be land mines. But often, they don’t send in the bomb squad to defuse them immediately, even though they may consider change management their No. 1 priority. The two most common reasons for lack of action are painfully simple. First, many executives aren’t sure how exactly to tackle the challenges. What do I actually do to get started? What specific approaches and tools do I apply, and when? What matters most? Second, operational reality often overwhelms good intentions. After all, management must deliver on the base business, align the strategies, put a new organization in place and realize synergies—right away and all at once.
Change management has been around for decades, but more than 70% of change efforts fail. Bain’s Results Delivery® insights help companies to predict, measure and manage risk, starting on day one.
Of course, every integration is different. But having looked across hundreds of them, we see three general principles for effective change management. If applied diligently, they will help to assure, amplify and accelerate business results and contribute to building a better company.
First, start early, and start at the top. "Early" means during the diligence process or well ahead of closing. During diligence, you can already pinpoint the two or three most critical change challenges—for example, major attrition risks or potentially negative effects for key customers. Integrations also do not affect all employees to the same degree. So think about creating a "heat map" of the employee base to show at a more granular level where people issues will most likely arise. Most important, do not create a separate, disconnected "change management work stream" or delegate the task to HR. Instead, start at the top. It is mission-critical that the executive team and line management take responsibility for change management, supported by HR. There are no excuses: Although competition laws still apply, there is a lot that you can do to get a head start.
Second, cocreate the foundation of the new company with the executive team. In one recent merger of two industrial companies, the CEO brought together his new executive team for a series of four three-day workshops. Three of the workshops took place prior to closing, allowing the team to get to know each other and the other company. More important, the team had a chance to build the foundation for the merged company: its strategic pillars, operating model, merger integration approach and the change plan for engaging the broad organization.
Third, overinvest in cascading the change through the organization. Think about it: What do people hate most in a merger integration (or in any change effort, for that matter)? Loss of control. People feel as if things are being done to them, that they don’t have a voice, they have no influence, they can’t shape their own future. Forget "communication" and instead think about truly involving people. Similar to the executive workshops, you can systematically engage the broader leadership team and cocreate the future. One approach that works well is to hold an off-site meeting for the broader management team of the new company very soon after closing. Bring the team together to start an ongoing dialogue, engaging them in the details of the change and soliciting feedback on such issues as where they see implementation challenges. You then continue this process all the way down to line management. Line leaders foster two-way dialogues in site visits, town hall meetings and workshops designed to communicate and cascade the change. Yes, there are digital tools and communications methods, but they can never replace this personal cascade and engagement.
In our experience, this big up-front investment in change management delivers significant returns. At the industrial company mentioned earlier, it enabled the CEO to align his top team and achieve in a few months what normally takes years. Employees were measurably more supportive, with the company achieving top-quartile engagement scores—something rarely seen in the aftermath of large mergers. Synergies were realized ahead of plan. Growth accelerated during the merger process. The stock price increased. In essence, time to results was much shorter than usual. And most important, the industrial company used the process to build a new and even better organization.
Tobias Umbeck is a Bain & Company partner based in Munich.