While most mergers and acquisitions fail because of the lack of planning and successful integration of the two cultures, failure to successfully integrate strategy and processes for the newly formed organization can be just as damaging. 

What Makes for Successful Post-Acquisition Integration of Systems and Processes?

Mergers are justified in terms of the potential value they are anticipated to create.  Post-merger performance can be evaluated in terms of the comparison between potential value and the real value actually created.  Although the strategic fit of a merger is the basis of the potential for value creation, it is managing the merger process well that underlies actual value creation.

As with any business, the greater the alignment between the organizations’ process and overall strategy and vision, the greater the chance for success.  Without the measurement of the transformation from a separate unit into a new corporate structure, progress cannot be managed.  Frequently, business unit managers accountable for acquisition results are swamped with running their current businesses and are not keyed into handling all new issues concerning serving customers, production, logistics, quality, reporting, budgeting, staffing, resource allocation and channeling information.  In such a scenario, corporate leaders may not receive true progress information until it is too late to do anything but crisis management.

The key to success lies in the ability to cement the links between strategy and operations by tying performance metrics into management actions.  In order to develop and maintain a competitive advantage and realize the value expected from the acquisition the gap must be closed between current and desired performance by aligning processes with people and strategy.  This involves careful consideration of the following as soon as possible/practical in the merger/acquisition process.

•  Foundation Building—includes integration of vision, values and strategic objectives; analysis of trends, competition, internal and external strengths and weaknesses; and identification of target markets and competitive strategy.
• Identification of Key Functions—includes clear consensus on all operations, management and administrative functions necessary to support the business’ foundation.
• Defining Measurements—includes identification of critical success factors for the newly formed organization and key measures that management needs to determine whether they are on target.
• Dashboard Control Design—specific processes/systems to measure and report daily, weekly, monthly progress toward objectives.

Not until the merging entities start working together toward the new vision can the new enterprise generate value as anticipated in the pre-acquisition justification.  The integration, or “working together,” results from complex interactions among people.  Strategy and culture embedded in processes, organizations and infrastructure affects these interactions.  Integrating entities and leveraging their capabilities requires changing how people work and interact, using value drivers for each of four areas:  Strategic, Operational, Investment and Financial.  Strategic value measures include measures of return, growth and risk while operational value measures might consider revenue, margin and cash tax rate.  (Investment and Financial value measures will be discussed in a later issue.)

Value measures provide a framework for understanding and implementing what underlies integration performance to produce effective combinations of even the most complex acquisitions.  Value measures can cascade from the highest level down to each task, become the common denominator for all integration activities, and focus the actions of frontline employees on value creation.  While any one of these value measures may be the focus of a merger or acquisition, any large scale, transformational, post-integration project requires attention that the majority of these be implemented successfully for performance to meet pre-acquisition expectations.

Strategic value measures—Acquisitions are frequently undertaken to gain entry into new market segments, to respond to changing requirements and needs of existing customers, or to reduce costs of products and services.  Acquisitions have a unique potential to gain all the benefits from combining assets and sharing capabilities.  They can bring core capabilities into an enterprise that is hard to develop internally or replicate, and yield the opportunity to leverage existing capabilities into much stronger market positions.  It is essential that management make value-based decisions in integrating the enterprise and to close the gap between strategy and implementation.

Having completed an acquisition, decisions must be made about where to allocate resources to support the transfer and application of core capabilities in forming a new enterprise, but also in triggering value-creating divestments to deliver higher returns overall.  After assessing, which assets and business units are to be kept and nurtured, corporate level value measures (which vary with industry and trade functions) are converted into operating level performance targets.

Operational value measures—A key component of value-driven integration is that enterprise value is created or destroyed at the point where management decisions are made.  It is essential then that the connections between strategy and operations are identified and linked to performance metrics that serve to galvanize management action.  Without a set of relevant value-focused measures, the enterprise could find it impossible to correlate progress in attaining results with its merger strategies.  With proper links through a balanced set of performance metrics, executives will be in control of the integration process.

When an acquisition is made for all of the right strategic reasons, tremendous synergies can be achieved.  For this achievement to be realized, strategic, operational and cultural issues need to be identified as early as possible and addressed in a coherent manner while creatively involving people, at all levels, in the development of strategy and implementation plans.