When your organization undergoes an acquisition or a merger, it has a profound impact. Of course, it is supposed to have a profound impact… that’s why money, stock and personnel were committed to this project. The merger of two firms is supposed to cause a magical transformation, making the new firm more than the sum of its former parts. If the two firms were unchanged, the merger was a failure. However, change alone does not equal success. A successful merger must set and attain very specific goals. In order to achieve these goals sweeping changes in operations and staffing may be needed. Which is why executives spend considerable time to develop press releases to inform clients and investors about these changes. WIthout this effort external stakeholders may be surprised (or angered) by changes. But these executives usually spend far less time on internal communications.
How will you communicate the management plan to your staff, and how will they react? A period of change is frightening and confusing for both managers and staff. There will be miscommunication, confusion over roles, and resistance by individuals who disagree with roles for their group and themselves. Too often, status reports on a merger reflect hopeful thinking more than useful data on merger objectives.
If you’re on the hot seat for driving changes after a merger, how do you ensure that the management goals are achieved? You need to start out with a formal merger plan. The plan needs to have clearly defined goals and numeric targets. You can build your merger plan a number of different ways, but the easiest is to break down the overall goals into department goals. For example:
- If you are building a plan to merge two IT departments, the goal should
not be, “successfully combine both groups.”
- Instead, you need to have specific measurable goals, and whenever possible numeric goals. The goal should be:
- By no later than March 12, all the following conditions of the plan are to be completed…
- The new structure is to have a combined cost of no more than 90% of the two previous groups.
- Compensation for each position needs to be analyzed, proposed new compensation structure (individual compensation, and group bonus) must be presented and agreed to by management.
- A written job description, in a standard format, must be created for each post-merger position and approved by HR.
- A new organization chart is to be produced for the department, providing the new management structure and positions; changed positions are to be indicated on the org chart.
- All individuals in the department are to be moved into the new organization structure, and any remaining questions about
position, title, compensation, etc. resolve with HR and signed off by management.
- Ideally, each goal should have detailed sub-plans. Since some steps are dependent on completing other steps (moving staff into the new org structure requires first agreeing to the new positions with HR) , a schedule will help to keep things on track.
- These individual plans should roll up into the main plan, and the main plan should reflect the goals of the merger, especially the total financial benefit of the merger.
- If department benefits fall short of the total expected merger benefits, where will the rest of the benefits come from? Reconsider what you have asked each department head to do. Either raise the contributions for each department or adjust your expectations from the merger.
When you set your goals for the merger, did you include efficiency and cost reduction goals? What level of increased efficiency did you assume? A growing firm should require less staff to do the same amount of work. We almost instinctively know this. We hear, “we will gain efficiency with scale,” but we rarely agree on exactly how much efficiency. Amazingly, there is a simple answer to this question!
I won’t go through the details here, that would require its own Blog (coming soon). But here’s the answer… when a corporation doubles in size (100%) growth, costs rise by just 75%. Therefore, if two firms that cost $10 million each to operate merge, the new cost should be $17.5 million ($10 million for the base, and 75% of the “growth” from the merger). Of course, if the merger plan is just part of a larger growth plan, some of these savings may be re-invested rather than realized as profit.
If you don’t develop clear goals, and have immediate follow-up to drive the efficiencies that justified the merger, you may not get the benefits you expect. Furthermore, if you delay in making the changes the merger requires, perhaps waiting a year for everything to settle down, you will put your firm through a double trauma and undermine internal good will, and company loyalty… when everyone thinks “it’s all over and we can relax”, your staff doesn’t want to see a second set of changes. So, the lesson for today is to be clear in your plan, follow-up on the elements of your plan, and make each of your plan goals as clear and accountable as possible. We will continue this theme in our next blog when we talk about the internal communication of your merger plan. But for today, that’s my Niccolls worth!