Change management as critical success factor in post-merger integration

In recent years, companies have started to emphasize the need of the shareholder value creation (SVC). Many companies now state SVC as their most important goal. Mergers, if properly managed, help companies to achieve SVC through higher efficiency, productivity, and profits by creating opportunities for growth.

According to a research conducted by KPMG, only 17 percent of the mergers had added value to the combined company, 30 percent produced no discernible difference and as many as 53 percent actually destroyed value. In other words, 83 percent of the mergers were unsuccessful in producing any business benefit as regards shareholder value.

Mergers involve two critical phases that affect its outcome: the pre-merger phase which includes planning and acquisition and the post-merger or integration phase which is the operation part of the merger project. The second phase is considered critical as it is in this phase where the merger becomes a success or failure.

Mergers, being complex change initiatives, require an effective change management program that considers issues such as communicating the new strategic objectives and the new vision of the merged organization, integrating cultures, managing talent, harmonization of management compensation and management incentive systems, knowledge transfer and sharing among all units to be integrated, retaining key people, and merging processes, technologies and divisions. Management should have a clear understanding about the change agenda, and be prepared for the outcomes.

Change management requires a structured approach to effect the desired change. A roadmap is usually developed showing where the merged organization wants to go, what aspects of the current state should be left behind and what structured and organized process will be used to transition from the current to the future state. This is the heart of change management.

Some Basic Principles in Change Management

1. Change must never be imposed upon the people; instead it must involve people. Commitment to change is generated through the process of participation and involvement.  Thus, management should create a plan for involving as early as possible as many people as possible in the learning, planning, decisions and implementation of change. Make sure to involve all stakeholders, process owners and employees who will be impacted by the planned changes.

2. Get a clear picture of the current state. Without meaning to criticize the separate organizations, agree on what aspects of the current state needs to be left behind and what needs to be changed. Explain the change and why it is necessary. Focus on emotional and creative aspects necessary to drive service and efficiency in the merged organization.

3. Understand where you want to be, when, why and what the measures will be used to determine success. Having clarified the current reality and change drivers, management should shape a clear, concise and accessible vision for the merged organization and develop action plans that move them toward that future and address information, processes, structures and relationship issues. The vision must be converted into a plan and the plan needs to exist in a document form. It must include milestones and metrics that describe and bind the change process and it should be reviewed by the management at regular intervals.

4. Communicate early and openly and as fully as possible. Management needs to open the lines of communication and explore new opportunities for bringing employees of both organizations to work together. Communication that is factual, open, honest, timely and preferably face to face does not only serve as an effective antidote to rumors but works to overcome the “us versus them” syndrome, i.e., employees’ suspiciousness of the other organization. Moreover, this gives rise to the opportunity to develop a new type of culture for open and honest communications, vertically and horizontally, across the new company. It is important to have a vertical and horizontal communication strategy as well as a mechanism to elicit feedback from employees. The communication should be such that everyone in the organization understands the need for change. All should agree on the methods on how to best achieve the desired change and understand the consequences. The key variables in the communication process are consultation, education, and participation during the process.

5. Show respect for the old organization, but create a new organizational culture. It is much more difficult to change the culture of the existing organization than to create a culture in a brand new organization. When an organizational culture is already established, people must unlearn the old values, assumptions, and behaviors before they can learn the new ones. The two most important elements for creating organizational cultural change are executive support and training. Executives must support the cultural change, and in ways beyond lip service. Their behavior should show that they support cultural change. They must lead the change by changing their own behaviors. It is extremely important for them to consistently support the change. Training is also important because culture change depends on behavior change. Members of the organization must clearly understand what is expected of them, and must know how to actually do the new behaviors, once they have been defined.

6. Create a trusting environment for employees. Creating an environment in which employees and customers feel safe and satisfied help the merged organization to sustain change and make it part of the corporate structure. During this process, it is necessary to manage expectations, communicate decisions through right channels in a timely manner and give consistent messages about strategies to all stakeholders.

There is no single change management methodology that would fit all merger projects, but the basic principles discussed above can be adapted to a variety of situations. Using these as a systematic, comprehensive framework, companies that are merging or contemplating to merge can ensure the success of their post-merger integration.

(John S. Bala  is a Partner for Business Financial Advisory  Services of  Manabat & Sanagustin & Co., CPAs, a member firm of KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. This article is for general information only and is not intended to be, nor is it a substitute for, informed professional advice. While due care was exercised to ensure the quality of the information contained in this article, readers should carefully evaluate its accuracy, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances. For comments or inquiries, please email [email protected] or [email protected]).