In the 20th century, most businesses prospered on the basis of a firm reliance on heavy machinery and other physical assets. As more companies are adopting digital technologies since the turn of the century, the dependence on machinery is gradually shifting to human skills to provide a competitive edge.
Businesses are increasingly becoming digitally savvy as new operating models disrupt conventional industries, the same cannot be said for the world of mergers and acquisitions. This business space continues to be largely driven by financials and physical assets. Yet, we know that this traditional thinking will need to change soon.
We believe people, leadership, and culture will define the competitiveness of companies in the future. And in order to change the people, leadership, and culture of a business through an acquisition, there is a need for robust organizational change management to support integration.
From experience, we know that a large number of integrations either do not have formal change management in place, or even if they do, they tend to be myopic in many cases. So, at Fifth Chrome, we decided to find out how deep the problem actually exists.
At the same time, we also know that many organizations have good and comprehensive practices regarding change management. This is why we conducted a research study on organizational change in M&A, particularly in post-merger integration earlier this year.
In this article, we have summarized a few points on how businesses view and practice M&A change management, according to the participants in our research.
Research Sample Size
We gathered insights from over 50 professionals in varying roles, such as internal practitioners, retired personnel, interim managers, freelance consultants, service providers, and advisors, to determine how deeply ingrained the problem was. We also included people who performed different roles related to M&A. Their functional types included: Corporate Development, Integration Leaders, HR Leaders, Finance Leaders, Supply-Chain Leaders, SME (Small and Medium-Sized Business) Business Owners, and C-Level Executives. The participants came from various industries, including Manufacturing, Healthcare, Services, Technology, FMCG, F&B, Chemicals, Pharmaceuticals, Banks, Financial Services, and Insurance. For reach and diversity, we spoke to participants from all over the world, including Australia, China, Singapore, India, Brazil, USA, Canada, South Africa, UK, France, Germany, Netherlands, Belgium, Austria, Japan, Sweden, Kuwait, and UAE.
How Businesses Define Change Management
There was a variation in the definition of change management. While most practitioners understood that change management in this context referred to people and cultural aspects of integration, there were those whose understanding included structural, process, technology, and other types of material changes. In addition, participants stated that many firms regard change management solely as a communication exercise. Only large integrations, according to participants, were assigned specialized change management staff. Most organizations opted not to provide dedicated change management employees for smaller integrations. Change management is viewed as an intrinsic component of the entire integration process in such cases. Most participants stated that their organizational and executive leadership teams’ understanding of change management is quite limited. One of the reasons for the limited level of awareness is the intangible parts of change management. Organizations find it challenging to manage intangible aspects of people and leadership behavior alongside the tangible demands of integration. Change management is often viewed as soft and fluff, thus not considered as difficult to manage by business leaders across numerous organizations.
How Businesses View the Benefits of Change Management
There were various responses regarding the advantages of implementing change management. Participants agreed that employee engagement and motivation were the most significant benefits of change management, followed by avoidance of unwanted attrition. They also admitted their organizational inability or their deliberate avoidance to quantify these benefits in financial terms. Leadership teams have an insufficient understanding of change management and its benefits in an M&A transaction, according to the participants.
In addition, due to the pressing needs of other tangible requirements of an M&A transaction, such as financial, legal, and operational objectives, leadership teams do not have sufficient bandwidth and resources to explore change management. This is a major reason for not paying sufficient attention to change management.
Most participants articulated benefits related to motivation, engagement, and employee turnover. It was difficult for practitioners to calculate precise benefits, though.
Employee productivity based on revenue numbers was rarely used in M&A integrations to quantify benefits. Most integrations end up calculating benefits related only to cost synergies (headcount reductions) instead.
Do Companies Practice Effective Communication During Post-Merger Integration?
Participants gave mixed responses to being asked about the specific drivers that are required for effective communication. Some of them acknowledged that their teams primarily followed steps that their predecessors had taken. Some relied on their corporate communications team to take the lead on the communication. The remaining participants believed that their teams had a good comprehension of what specific drivers created effective communication.
In most situations, communication was handled by corporate communication or HR personnel. The communication was always made from the top-down and on behalf of a senior staff member. Press releases would be handled by communication teams who were also involved in some integrations, such as creating presentations for upper management. One distinct aspect was that communication was usually one-sided. Only in some circumstances, such as town halls or meeting room presentations, were questions and limited interactions permitted.
Engagement Levels During Post-Merger Integration
Most participants saw this as an area of weakness in their organization’s change management program. Communication-related integration is designed to be informative rather than engaging. Vision and Leadership reinforcement is not prevalent and inconsistent. Change management interventions, particularly communication and announcements, are not developed with inclusiveness in mind. They are primarily intended for sharing of information. Except for senior management, the messages are not tailored to different audience groups for the rest of the organization. Most integration communications are not designed to allow interactions.
Furthermore, in most cases, no formal frameworks are created to capture concerns and questions based on messages sent.
Other types of change interventions encounter similar obstacles. Many of them either do not permit any interaction or, if an interaction is permitted, businesses do not always have frameworks and mechanisms in place to effectively capture those aspects.
How Businesses Plan Change Management
All practitioners agreed that some level of planning for change management takes place during integration. Varied businesses have different techniques when it comes to planning. In some cases, it is explicit, as with large integrations, and in others, it is implicit, as with mid and small-sized integrations. The communication element was one area that all the companies had in common. Every integration took a dedicated approach to communication.
In fact, communication was the only aspect of an M&A integration that was consistently highlighted by participants that all integrations followed. Communication is thorough in terms of delivering company updates, obtaining appropriate levels of approval from senior leadership, and managing by communication professionals.
Apart from communication, no other element of change management was universally acknowledged to be present in all integrations.
Communication is always top-down. It follows a business-update information-sharing structure and does not always incorporate inclusive and empathetic aspects.
The summary presented above is only a small part of our comprehensive research study on businesses and change management. Based on the insights we received from our professional participants, there is much to improve when it comes to the human aspect of change management during a post-merger integration. While it is important to focus on tangible factors such as revenue and other numbers, people and culture must not be forgotten. The core of every business should be its people because with a motivated team comes a successful company.