Avoiding merger pitfalls: Seven tips
Mergers are attempts to pool strengths and eventually drive costs down to improve competitive positioning. Normally envisioned as a way to ensure survival, mergers often lead to demise. Failure rates for mergers and acquisitions run from 50 percent to 80 percent, depending on the author and the criteria used to define "success." Given the huge financial risks involved in M&As, it is important to find ways to improve the odds. One root cause of failed mergers is top leaders focusing too much energy on the mechanical and financial aspects of the consolidation and not enough on the cultural integration.
Top managers who study the impact of a merger visualize the tangible rewards, and the benefits look seductively attractive. They "fall in love" with the concept, overstate the benefits of the proposed merger, and are blind to any downside; just as teenagers who are in love cannot see the limitations of their chosen partner.
The costs, timing, and impact on employees or customers are grossly underestimated and seem to be manageable, so less energy is spent on an organized campaign to mitigate potential negative aspects. Often, the upfront cultural work is neglected, and managers just announce the merger, telling everyone to "work together and get along as new processes are invented." This typically gets the venture off on the wrong foot, and it gets a lot worse before emotional bankruptcy, if not physical bankruptcy, is reached.
Consultants hired to smooth the process focus on the benefits and the quick shot of cash from doing the merger. Their remuneration is tied to an efficient and speedy process, so they spend minimal energy on blending the two cultures until disaster strikes. This pattern is so stubbornly consistent that one wonders why more caution is not exercised by top managers.
Some groups have found ways to do mergers right. Benchmarking organizations with successful merger efforts is a good way to gain insights. Another way is to identify the mistakes made by some of the flops.
A Classic Example
Mergers gone bad are not hard to find. For example, the Daimler-Chrysler merger in 1998 was a classic debacle that cost Daimler nearly $36 Billion over a decade. Just as a reality check, that is a $10-million loss per day for 10 years! The post mortem on this financial disaster points to a failure to merge the cultural aspects of the joined organizations.
Large scale disasters like this are plastered on the front pages of business periodicals. Unfortunately, the more pervasive problem is the thousands of unsung smaller-scale disasters that go on continually within organizations of all sizes and types. These programs involve internal restructuring that rarely get reported in the popular press, but are just as problematical for the people impacted. To avoid disaster, start with a more balanced look at the costs and benefits.
- How much corn can the ethanol industry use?
- Economist: Taxing P could reduce risk of algal blooms
- Commentary: Government wants farmers to quit farming
- What is the relationship between maturity group, yield?
- Commentary: Ambulance-chaser lawyers take on Syngenta
- Berman: Camouflaged activists threaten agriculture