Organizational, people
and cultural issues in
cross-border M&A
Brigid Sutcliffe
Siddall & Company
World Services Group
11 April 2008
E-mail: [email protected]
Website: www.siddall.co.uk
Tel: +44 20 8392 5900
About Siddall & Company
Founded in 1979
Specialist management
consultancy
Making crossborder mergers &
acquisitions work
Engagements in Europe,
US, China, India &
Africa
Member of Institute of
Business Consultancy
World Services Group, 11 April 2008
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Structure
 Context: The M&A landscape
 M&A deals: Organizational, people and cultural problems
 How can acquirers avoid the problems and increase the chances of success?
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M&A is still an essential part of corporate strategy
 Huge M&A volumes:
 Value of global M&A in 2006 was $3.5 trillion
 50% is cross-border M&A
 Possible impact of the “credit crunch”?
 M&A is an important tool in corporate strategy to achieve
 Growth
 Geographic expansion / presence in emerging markets
 Expansion into adjacent or upstream/downstream product markets
 Access to new technologies
 Cost reduction/efficiencies
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M&A: “A triumph of hope over experience”
 M&A activity is growing fast but the success rate continues to be low
 Fewer than 25% increase shareholder value
 More than 90% of mergers are not fully successful
 Over 70% of managers believe that cross-border deals are harder than
domestic transactions
Source: Hay Group Report ‘Dangerous Liaisons'
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Focusing on ‘soft’ factors improves chances of success
Focus of effort: % improvement in chances of success relative to average M&A deal
28%
13%
13%
Integration
planning
Communication
& engagement
26%
26%
Selection of
mgt team
Cultural issues
6%
Financing
issues
Legal issues
-15%
-15%
Due diligence
‘Soft’ factors
Source: KPMG report on M&A
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Pre-deal
synergies
evaluation
Structure
 Context: The M&A landscape
 M&A deals: Organizational, people and cultural problems
 How can acquirers avoid the problems and increase the chances of success?
World Services Group, 11 April 2008
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The M&A Process: What can go wrong
Strategy
•Unclear strategy
Typical issues
•Wrong target
Tr
an
sa
cti
on
Int
eg
rat
ion
•Overpaid for
target
•Insufficient focus
on people and
cultural issues
•Excessive focus
on financial and
legal due
diligence
•Inadequate
communication/
engagement
•Incomplete due
diligence esp.
people & cultural
•Integration plan
too “top down”
and insufficiently
flexible
•Planning doesn’t
start early
enough
World Services Group, 11 April 2008
•Lack of
prioritisation &
clear milestones
8
Ev
alu
ati
on
•Victory declared
too early, leaving
underlying
problems
unresolved
•No systematic
evaluation of how
integration is
working on the
ground
Reasons for M&A failure
 Critical omissions in due diligence and post-merger integration strategies
 Firms prioritise financial and systems due diligence and not ‘intangibles’
 Insufficient focus on ‘intangibles’ (business culture, human capital,
organisational structure and corporate governance) makes failure more likely
 Result: Lack of engagement and commitment
 Over 75% of acquired company employees opposed their mergers, and
half of them did so actively
 30%+ of business leaders were dissatisfied with the post-merger climate
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How culture clashes scupper M&A deals: Examples
 Some high profile examples: Wal-Mart in Germany, Daimler/Chrysler
 Acquisitions of founder-managed businesses:
 Existing culture may be deeply embedded, idiosyncratic and personality-
based
 Acquisitions by low-margin, volume businesses of high-margin, customised
businesses:
 Very different people, focus, KPIs etc (Ford/Jaguar, Ford/Volvo)
 Acquisitions of marketing-led businesses by engineering-led businesses
(BP/Burmah Castrol)
 Apparently similar businesses with very different and embedded national or
other cultures
 Insufficient effort put into understanding differences
 Insufficient effort put into integrating the businesses
 Deutsche Bank/Morgan Grenfell
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M&A Integration Diagnostic Tool
Management
capability
Differences in
national cultures
Culture
Differences in
business cultures
HR processes
Leadership &
People
Language
problems
Importance of
people
Extent of
integration
Governance and
decision making
Structure and
processes
Organisational
structure &
processes
Good management of soft factors builds value
Cisco:
 Pro-active employee retention, including top management and buddy system
 Communicate a vision of the merged entity and role for the target’s employees
 Communicate the advantages: resources, autonomy, part of a ‘winning team’
 Result: Most acquisitions have added value to Cisco
Renault-Nissan:
 Obstacles to success: language, decision-making processes, communications
patterns, accountability systems and labour/management relations
 Integration plan aimed at mitigating the cultural backlash and planning recovery
 Result: Nissan business was returned to profit
World Services Group, 11 April 2008
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Structure
 Context: The M&A landscape
 M&A deals: Organizational, people and cultural problems
 How can acquirers avoid the problems and increase the chances of success?
World Services Group, 11 April 2008
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Framework for success
Leadership &
People
Culture
Integration Plan
Strategy &
Context
Communication
& engagement
Organisational
structure &
processes
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Framework for success
• Management capability
• HR processes
(remuneration,
performance bonuses,
induction/recruitment,
career development)
• Key characters/
stakeholders
(influencers, unions)
• Power map of key
stakeholders
Leadership &
People
Culture
Organisational
structure &
processes
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Power map
A
B
High
C
Power level
E
D
Low
G
F
Decreasing
Increasing
Trend
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Framework for success
Leadership &
People
Culture
Organisational
structure &
processes
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• Values and how they are
lived
• Corporate ethics
• Interpersonal relationships
(individuals/meetings)
• Languages
• Decision making process
• Conflict resolution
• Taboo subjects/
no go areas
• Resistance to change
Culture gaps
Cultural dimensions rating
Consensus
Face to face communications
Fast communications
8
Fast decisions
7
6
Focus on results
5
4
3
Open and honest communications
Entrepreneurial
2
Acquirer
1
Target
0
High levels of trust
Long time horizon
Horizontal cooperation
Team orientation
High levels of accountability
Willingness to accept conflict
Open to change
World Services Group, 11 April 2008
High risk appetite
18
Framework for success
Leadership &
People
Culture
Organisational
structure &
processes
World Services Group, 11 April 2008
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•
•
•
•
•
Organisational structure
Processes
Governance
Customer relationships
Communications
Alternative organisational structures
Independent finance
reporting line
Reporting to local CEO
Board
Audit
committee
Group
Executive
CFO
Divisions
CEO
CFO
CEO
CFO
CEO
CFO
CEO
CFO
CFO
 Local CFOs report directly to Group CFO
 Finance function reports through the
business line
 Solid reporting lines
 Network of finance and control relationships
 Business units unable to exert undue influence
to Group CFO
World Services Group, 11 April 2008
Audit
committee
Board
CEO
CEO
Board
on BU level CFOs
20
We help to manage the ‘soft’ factors
Tr
an
sa
cti
on
Strategy
Pre-deal
Int
eg
rat
ion
Integration
planning &
implementation
Organisational
and cultural due
diligence
Ev
alu
ati
on
Evaluation
‘Soft’ factors:
•Leadership & people
Post-deal
•Culture
•Organisational structure & processes
World Services Group, 11 April 2008
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Post merger
health check
Organisational and cultural due diligence
Process (depending on access to target’s management and employees)
Data room / desk research
Focus groups
Face to face interviews
Surveys
Telephone interviews
Output (based on available information)
Written report providing objective review of
• Important people issues
• Cultural fit of acquirer and target
• Gap analysis
• Issues that may create conflict in the new organisation
• Key areas to focus on during integration process
• Proposed outline organisational structure for the new organisation
• Communication priorities
Benefits
Identification of key ‘soft factors’ in the deal
Planning of immediate post-acquisition actions (communication, retention etc)
Plan communications programme to manage expectations and contain anxiety
World Services Group, 11 April 2008
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Success factors for
integration planning and implementation
General
 Cross-party integration teams (from acquirer and target)
 Communicate, communicate, communicate
Leadership & people
 Selection of top management team (new teams are more successful)
 Leadership team communicates the strategy and demonstrates the
behaviours for the new entity
 Reduce uncertainty, explain the logic for the acquisition
 Listen, listen, listen
Culture
 Celebrate the past
 Recognise cultural differences, don’t over-integrate
Organisation structure & processes
 Clarify roles and responsibilities
 Adapt or adopt governance
World Services Group, 11 April 2008
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We help to manage the ‘soft’ factors
Tr
an
sa
cti
on
Strategy
Pre-deal
Int
eg
rat
ion
Integration
planning &
implementation
Organisational
and cultural due
diligence
Ev
alu
ati
on
Evaluation
‘Soft’ factors:
•Leadership & people
Post-deal
•Culture
•Organisational structure & processes
World Services Group, 11 April 2008
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Post merger
health check
Post-merger health check
Process
Desk research
Face to face interviews
Telephone interviews
Focus groups
Surveys
Output
Written report providing objective review of:
• Current state of cultural fit between acquirer and target
• Unresolved issues, misunderstandings and cultural differences that are
preventing successful integration
• Key areas of conflict and their underlying sources
• Lessons learned (successes and failures)
Priorities for future actions
Recommendations for implementation
Benefits
Identification of persistent underlying people and cultural issues and differences
Planning of remedial actions (communication, management actions etc)
World Services Group, 11 April 2008
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Case study: Post-merger health check
The client
International chemical specialities manufacturer with a turnover of €500m
operating in over 30 countries
The problem
They had recently acquired a US-based global company, which would enable them
to strengthen their presence in a different market segment. The integration of
the two companies was well planned and seemed to have been well executed.
However, after some months, it became clear that there were serious tensions
over the ‘soft’ factors
•
•
•
•
•
Persistence of “them” and “us” culture
Poor communication across the two companies
Confusion over roles and responsibilities
Each organisation felt that its way was superior, both were unwilling to change
Poor morale which could have resulted in some key senior people leaving
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Case study: Post-merger health check
continued
The health check process
We conducted confidential interviews with the senior management team from both
companies. This process allowed us to gain valuable insights into their concerns
about the unresolved issues, misunderstandings and cultural differences which were
getting in the way of a successful integration. These issues were analysed and an
objective report was presented, highlighting people’s experiences of the integration
process between the two companies, clearly identifying the specific difficulties and
problem areas behind the tensions.
The outcome
•
•
•
•
•
Underlying problems identified and objectively articulated early
Platform created to enable both parties to address the problems
Clear process developed to resolve them
With one exception, the original management team stayed on
The acquisition is now a successful autonomous division within the Chemical
specialities group
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Conclusions
 M&A is an essential tool of corporate strategy
 Focus on soft factors gives a better chance of success
 Every deal is different – the best acquirers have a flexible approach
Strategy &
Context
Leadership
& People
Culture
Communication &
engagement
Organisational
structure &
processes
World Services Group, 11 April 2008
Integration Plan
28
Siddall & Company - Making cross-border M&A work
Any questions?
World Services Group, 11 April 2008
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