Identify and leverage key capabilities of other firm
Mergers and acquisitions: In June, the Strategic Capability Network hosted a special event with Hubert Saint-Onge, founder of SaintOnge Alliance and author of Beyond the Deal. He talked about the important role HR has to play in mergers and acquisitions. For more information about SCNetwork, visit www.scnetwork.ca.
HR perspective makes acquisitions a success
M&As fail far too often and it’s avoidable
SCNetwork’s panel of thought leaders brings decades of experience from the senior ranks of Canada’s business community. Their commentary puts HR management issues into context and looks at the practical implications of proposals and policies. HR perspective makes acquisitions a success
Too often HR concerns take a backseat to finance and legal concerns in mergers and acquisitions, according to Hubert Saint-Onge, author of Beyond the Deal, a guide for successful mergers and acquisitions.
But HR professionals have a key role to play in helping business leaders see organizations as a set of capabilities, not just figures on a balance sheet, said Saint-Onge at a Strategic Capability Network event in Toronto in June.
“If you have that perspective, then you can start seeing intangible assets,” he said.
These intangible assets are the skills, abilities and knowledge that make an organization successful in a given area. Saint-Onge also referred to them as “organizational capabilities.”
“A good acquisition takes capabilities that you have, joins them with the capabilities that they have, and brings them together,” he said.
A successful acquisition has at its root the desire to re-energize an organization’s capability pool by leveraging the capabilities of the company being acquired. This will help the organizational capability grow at the same rate as market demands, or slightly faster, so the organization actually shapes the market to its strengths, said Saint-Onge.
That is the “sweet spot” and makes all the pain of an acquisition worthwhile, he said.
Unfortunately, about 80 per cent of integrations fail to fully leverage the capabilities that made the acquired company so attractive in the first place, he said.
Part of the reason for this high failure rate is organizations don’t learn from previous failed integrations and end up making the same mistakes all over again, said Saint-Onge. There’s no knowledge management — no one is keeping track of what worked and what didn’t. This could easily be solved with an “integration playbook,” he said.
Companies should also consider having an integration team, such as the one at Dow Chemical. Whenever there’s an acquisition, the same team of employees is deployed to manage the integration and ensure it goes smoothly.
A successful integration requires the transfer of organizational capabilities. However, that can be tricky. The capabilities, which can be processes or products but are often people, need to be identified rapidly.
“Your most important capabilities will come from a group of people who are the most mobile, most ready to leave. If you don’t have that recognized before you start the integration, they’ll be out of there,” said Saint-Onge.
During the integration, it’s important to communicate with all employees in a respectful way and develop high levels of trust across both companies, he said. This includes keeping employees informed of what’s going on, giving them a deadline for when they’ll know if they’ll still be employed and what happens if they lose their job.
“Respect doesn’t mean that you don’t do what you need to do from a business point of view — it’s how you approach it from a leadership standpoint and how you treat people. You recognize their contribution and you don’t put them out on the market hurt and broken,” he said. “We’re not talking about rocket science here. We’re talking about doing things that are things we need to do inside our own companies all the time.”
Despite the best of intentions, the leadership at the acquiring company often assumes a “conquistador” attitude that makes it less likely leaders will listen to the acquired organization, which increases the odds the organization will miss out on those all-important intangible assets, said Saint-Onge.
“There is some kind of attitude of superiority assumed by the acquiring company,” he said. “They could be totally out of their depth and still think that whatever the acquired company is saying is hogwash.”
When Toronto-based finance and insurance firm Sun Life Canada acquired Clarica in 2002, Clarica had one of the strongest brands in the insurance market, valued at $848 million by an independent branding firm, and people who knew of Clarica had a 66-per-cent propensity to buy its products, said Saint-Onge.
Saint-Onge, who worked for Clarica for six years and was with the company during the acquisition, recommended the two brands remain separate.
“In a period of two years of being purchased, the brand was ploughed under. It has now completely disappeared,” he said.
While it might seem counter-intuitive for two distinct brands to co-exist in one organization, Saint-Onge pointed to the success of the 2001 Best Buy acquisition of Burnaby, B.C.-based Future Shop.
The Richfield, Minn.-based, electronics retailer had 13 per cent of the consumer electronics market in the United States and Future Shop had 16 per cent of the Canadian market. After acquiring Future Shop, and maintaining the two brand identities in Canada, the retailer now has a combined Canadian market share of 35 per cent.
At any point in time, an organization is either considering acquiring another company or is being considered as an acquisition, said Saint-Onge. The capabilities needed to make an integration successful can’t be built overnight so organizations need to identify them and ensure they’re in place for when the inevitable acquisition or merger takes place.
“Every organization should be integration-ready,” he said.
The key capabilities for a successful integration, according to Saint-Onge, are:
• strategy-making
• market agility
• organization building
• people management
• project and process management
• learning, innovating and leveraging knowledge.
SCNetwork’s panel of thought leaders brings decades of experience from the senior ranks of Canada’s business community. Their commentary puts HR management issues into context and looks at the practical implications of proposals and policies.
Human nature reigns supreme
By Dave Crisp
If a few easy steps could save millions of dollars and earn millions more in positive results in mergers and acquisitions, as well as in the normal course of business, why would senior executives not take those steps just as a matter of course?
That’s the question that repeatedly arises when we note the dismal 80-per-cent rate at which organizations fail to realize anticipated gains. It is starkly obvious in M&A work but can be nearly as bad in daily operations and has been repeatedly recorded at the same awful rate for years — by consultants, M&A consulting houses and analysts. What’s more, we know, from repeated analysis, the easy steps for success.
It isn’t as if Hubert Saint-Onge’s points haven’t been made before, but he puts them in clear words with direct and personal examples — and these are certainly lessons that bear repeating until we actually learn them. All too often, senior executives strategize without completely examining possible outcomes.
In Saint-Onge’s words, “a conquistador syndrome takes over.” Executives argue the acquisition will bring new customers, skills, technology and valued brands, then they promptly proceed to stifle all that was good in the acquired company because “They’re idiots,” meaning “They don’t do things our way.” Differences in culture or style are widely discounted.
All of this is human nature. We’re raised in win-lose cultures. We idolize a sports team that wins this year and next year we despise their management for losing.
I recall learning the lesson the hard way. In my first acquisition, we didn’t anticipate our managers would walk into the stores of the other company the instant the announcement was made, act like conquering heroes surveying the vanquished and proudly advise acquired staff, “We won. We beat you. You failed. You’re losers.”
Of course, we should have anticipated this when we’d spent years encouraging our managers to “kill the competition” — sound familiar? We lost 48 of 50 extremely valuable, scarce store managers within six months, all from the acquired company. In the next acquisition, our first advice to our CEO was to issue an e-mail advising our managers to treat the acquired people with respect and praise them as worthy competitors who’d made us work harder all these years but had now fallen to capricious market forces beyond their individual control. We lost virtually no one we wanted to keep. The total cost of that initiative was the time it took to write a two-paragraph e-mail. The total savings were immeasurable in sales and profit, but started with saving 50 managers, each with a $100,000 replacement cost.
The problem is every one of the easy steps this requires is HR-related and, as such, widely ignored. When HR asks senior management teams to meet once a month for a day to evaluate and guide merger policies (such as respect), the answer often comes back that everyone is too busy, it’s unnecessary and people know what they have to do — let them get on with it.
If we don’t spend time considering how to help moods stay positive and mental frames stay active, creative and away from thinking about resumés and better organizations to work for, we’re sunk. Easy? Yes. Commonly considered? Not yet.
Dave Crisp is SCNetwork’s lead commentator on leadership in action. He shows clients how to improve results with better HR management and leadership. He has a wealth of experience, including 14 years leading HR at Hudson Bay Co., where he took the 70,000-employee retailer to “best company to work for” status. For more information, visit www.CrispStrategies.com.
Bon deal, bad deal
By Karen Gorsline
“Beyond the deal” doesn’t mean “after the deal.” Leaders must understand why a specific merger or acquisition would create value. They must put in place processes and support behaviours to enhance value creation. This sounds simple. However, unless it starts pre-deal and continues through post-deal phases, the victory, in retrospect, may not be so sweet as value does not meet expectations and questions arise as to whether it really was a “good” deal.
Good deals seem to go bad because there is no understanding of how the merger or acquisition is going to add value beyond immediate financial terms. In particular, where there is a significant amount of financial goodwill or extra payment for the purchase recorded on the books — beyond the tangible items in the acquired organization — companies need to understand why they are buying and how they are going to maintain the value. This means thinking beyond factors considered in due diligence. Too often companies simply assimilate the merging or acquired company. The result is a disappointing long-term outcome.
In the movie Bon Cop, Bad Cop, a corpse found straddling the Quebec-Ontario border forces two cops to come together. The two are very different. One is French-speaking, a smoker and sees the law as a “guideline.” The other cop is Anglophone, tidy and strictly by the book. Only as they learn to respect the other’s culture can they focus on what is important and work together to solve the case.
This movie plot is similar to the experience in many mergers or acquisitions. There may be a lack of enthusiasm or shared focus on the part of those critical to making the venture a success. There may be communication with little understanding of culture. Respect for the value each brings and insight into the potential of the combined value is a critical ingredient for success. Being the “conquistador” can create resentment and, likely, havoc. However, using a more subtle assimilation approach can also create fear, distrust and outright hostility, resulting in the loss of desired assets and negative impacts on desired value creation.
Saint-Onge’s most compelling comments were those related to building a culture and strategic capability to do mergers and acquisitions well. This leads to a few intriguing questions.
Some companies operate by managing a portfolio. They manage different lines of business differently, while still extracting value for the overall entity. Are these companies more likely to be successful in mergers and acquisitions? Do they have a higher level of readiness? Could companies that operate as single culture companies learn something from how these companies manage to prepare for a merger or acquisition?
Canada prides itself on its multiculturalism, rather than an assimilation approach. Does this mean Canadian companies and leaders are more likely to adopt the same attitude and perspectives when it comes to leading mergers or acquisitions? Could such a leadership style be leveraged?
Karen Gorsline is SCNetwork’s lead commentator on strategic capability and leads HR Initiatives, focused on facilitation and tailored HR initiatives. She has taught HR planning, held senior roles in strategy and policy, managed a large decentralized HR function and directed a small business. She can be reached at [email protected].
What is the deal?
By Tom Tavares
We talk a lot about intangibles in management, particularly when major changes occur. However, it’s difficult to pin down exactly what “intangible” means. Does it refer to something specific such as culture, trust, communication and leveraging knowledge? Or does it refer to a more systematic gap in the current approach to management, such as the general neglect of people-oriented issues? If consultants and HR leaders want management to pay more attention to intangibles, more clarity is needed.
One thing is clear: The problems associated with intangibles are not confined to acquisitions. The same sorts of issues arise in most major changes. For example, an oil company restructures, downsizes and consolidates its offices. Internal communication is neglected, morale plummets and large numbers of talented people leave the firm. Similar stories abound with strategic renewals, attempts to implement a new business model or a quality-management program.
Given the failure rates of major changes, why would any firm take the leap? The answer is necessity. Companies continually fail to adapt to developments. Issues accumulate and the backlog of problems grows. As business performance deteriorates, the pressure builds to clear the slate with a major change. At this point, the issue is no longer risk management — it’s a matter of risk recognition. If a firm has been unable to keep pace with incremental changes, why expect it to successfully execute a complex, large-scale initiative?
This blind spot in the current approach to management is nothing new. Business leaders have long neglected intangible matters such as internal communication, innovation, teamwork and coaching. They treat these “soft” areas as secondary priorities. Traditional solutions such as strategic planning, employee surveys, training programs, team-building retreats and performance management programs have failed to have any lasting impact on day-to-day behaviour.
When change accelerates, priorities shift more rapidly, problems grow more complex, conflicts intensify over resources and pressure to perform builds. Companies are bogged down with confusion about the direction of the business, internal problems, inconsistency in executing changes and unsustainable levels of activity. Although not every organization is in crisis, we are seeing an alarming increase in the frequency of institutional breakdowns and management failures.
There is hopeful news. In unusual cases, a new leader arrives or a team gels and organizational performance dramatically improves. Unfortunately, experts disagree about what is behind these success stories. Some attribute it to leadership, others to values and still others to dialogue and trust. Until we develop a more detailed understanding and more focused methods for leveraging the intangible aspect of management, business leaders will likely continue to neglect it.
Tom Tavares is SCNetwork’s lead commentator on organizational effectiveness and a senior organizational psychologist. In addition to managing in large corporations, consulting in varied industries and coaching executives, he has written extensively about the relationship between business performance, behaviour and change. He can be reached at [email protected].
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