The Changing Shape of Board Meetings and their Cost
Change management, transformation, transformational change; this terminology has been around for a while now. Its output includes business transformation teams and departments tasked with identifying how a business can be improved, often using the latest in third party hardware and software, but does this result in true transformation or just incremental change?
Having spent some of my career in the M&A and Post-Merger Integration (“PMI”) space, it continues to surprise me that research consistently shows failure rates for M&A deals between 70-90%. There are arguably many reasons for this, but one of the most prevalent, in my view, is the inability to manage what should be truly transformational change; primarily in the acquired entity, that fails to optimise the synergy drivers for the acquisition or merger. Each acquisition is bespoke, with its own unique challenges, but if you had to point to one area of commonality, the greatest challenges – and opportunities – converge around culture and transformational change.
So why exactly do I believe that true transformational change is really limited to PMI? And how can organisations improve the way they integrate entities post-acquisition?
One of the first steps companies face post-acquisition is product alignment. This typically means ‘adjusting’ the benefits and pricing of the acquired entity’s product to that of the acquiring entity. In my world of banking, that means alignment of asset and liability products, i.e., deposit rates, loan rates, changes of marketing material, term sheets, customer experience, etc. Using this example, the acquired entity’s customer-facing staff now need to understand a completely revamped product suite including the possibility that the new product may not be as ‘customer centric’ as the product they previously offered.
Whilst this phase of the integration is going on, in the background, management and HR are thinking through the rightsizing of the joint entity structure in terms of footprint and number of people. This planning typically happens ‘behind closed doors’ with the vast majority of the change happening to the newly acquired entity and its employees. With a lack of communication, this brings about massive uncertainty in people, that needs to be carefully managed, certainly around retention strategies, but also regulatory and media / publicity / reputational concerns. Failure to manage the people process at this juncture often leads to the destruction of the intrinsic value of the acquisition.
The size and complexity of the newly formed joint entity will impact the amount of training required to embed the new Policies, Processes and Systems. In large organisations or those with a large footprint this can be substantial, often lasting several months, and requiring a massive mobilisation of Learning and Development staff.
Unfortunately, this often is not planned well. Systems training is particularly difficult, and if it is for customer-facing staff, this problem is compounded exponentially. Do it too early, and people forget the basics; do it too late and people don’t have sufficient knowledge of the new systems. As a result, customer experience immediately after go-live is unlikely to be totally smooth, and how the problems are managed and communicated, is critical.
This is one argument for leaving rebranding to the very end. Do you want any potential negative client experience to reflect on your brand, or is it easier to deflect on to the brand of the acquired institution?
Brand recognition and ‘pride’ is also an important facet of staff morale not to be underestimated, and probably the last aspect of ‘change’ that you are going to effect, and like everything else this needs to be carefully managed.
Going through a corporate acquisition or merger is likely to be the most professional and complex changes that management and staff alike go through. It impacts the obvious, such as changes to products, processes, policies and systems, which in itself in aggregate can be overwhelming; but then you start to layer on a lot of the intangibles including uncertainty of tenure and position; lack of confidence; learning abilities; pride in brand; pride in customer service, etc. All this adds complexity and challenges.
Organisations typically put together teams to deal with changes that impact single systems; some tweaks to annual policy changes; or changes to single processes. Yet when faced with true transformational change that impacts almost every aspect of an organisation, such as during an acquisition or merger, instead of recognising the enormous transformational changes ahead of them, and the broad set of skills that will be required, too many companies try to go it alone without the level of professional support required to manage the enormity of the change. Put in this context, the failure rate of 70% – 90% of acquisitions is more understandable.
For organisations of all sizes, mitigating some of these risks comes from having a well-rounded Board of Directors as an Advisory body. Practioner experience and true independent Non-Executive Directors is best practice for any organisation, irrespective of size.
I always go back to something my colleague Edward Stockreisser frequently mentions. A simple quote, that is a pivot point – “that the simple truth that the knowledge of others can help you in ways you never knew you needed is one that unlocks a whole world of valuable business expertise.”