Mergers, Acquisitions, Strategic Alliances

Mergers, acquisitions, and strategic alliances have become entrenched in the repertoire of contemporary business executives. Mergers and acquisitions have the potential to accelerate the execution of a business strategy by rapidly helping a firm expand its product or service mix, move into new regional or international markets, capture new customers, or even eliminate a competitor. In this era of intense and turbulent change involving rapid technological advances and ever-increasing globalization, mergers also help organizations gain flexibility, leverage competencies, share resources, and create opportunities that otherwise would be inconceivable.

A merger is the integration of two previously separate entities into one new organization, whereas an acquisition is the takeover and subsequent integration of one firm into another. Of course, there are many shades of gray here—there are very few “mergers of equals,” and a lead firm may adopt key components of the acquired target. Mergers can be opportunities to transform companies—for example, when Canadian paper producers Abitibi-Price and Stone Consolidates combined to form Abitibi-Consolidated, the new company selected best practices from the partners and adopted new ways of doing things where required. By contrast, there is typically a clearly dominant partner in acquisitions in consolidating industries such as oil (e.g., Chevron-Texaco and Exxon-Mobil) and entertainment (e.g., Disney-ABC and General Electric-NBC).

A strategic alliance sidesteps the legal combination of the entities but requires a close working relationship. (Some observers liken strategic alliances to “living together” as opposed to “getting married” in a merger or acquisition.) For example, the large German pharmaceutical firm Schering entered into a strategic alliance with the small biotech firm Titan Pharmaceuticals. Titan had innovative products in development, and Schering brought marketing muscle to the relationship. Through this alliance, Schering and Titan hope to leverage each other’s strengths without making a commitment to change either company’s legal ownership or structure.

Despite their popularity, 75% of all mergers, acquisitions, and alliances fail to achieve their strategic or financial objectives. Many reasons have been suggested for this dismal track record, but research findings reveal that what matters most to eventual success is the human and cultural aspects of the process by which the partner companies are integrated.

The Merger Syndrome

Organizational psychologists Philip H. Mirvis and Mitchell Lee Marks identified the merger syndrome as a primary cause of the disappointing outcomes of otherwise well-conceived mergers, acquisitions, and alliances. The syndrome is triggered by the unavoidably unsettled conditions present in the earliest days and months following the announcement of a deal and encompasses stress reactions and the development of crisis management in the companies involved.

Personal Signs of the Merger Syndrome

The first symptom of the merger syndrome is heightened self-interest—people become preoccupied with what the combination means for themselves, their incomes, and their careers. They develop a story line about the implications, but often it is a mix of fact and fantasy. No one has real answers, and if they do, the answers are apt to change. Not only do people become fixated on the combination, they also tend to focus on the costs and ignore the gains. Soon after a combination announcement, the rumor mill starts and people trade on dire scenarios.

Combination stress takes its toll on people’s psychological and physiological well-being. Reports of tension and conflict increase at the workplace and at home—spouses and children worry about their fates and grow anxious, too. Rates of illness and absenteeism rise in workforces going through combinations. Interviews with executives in the early stages of a combination are colored by reports of headaches, cold and flu symptoms, sleeplessness, and increased alcohol and drug use.

Organizational Signs of the Merger Syndrome

To cope with the many tasks of combining, teams of executives in both the lead and target companies typically lurch into a crisis management mode. The experience is stressful yet exhilarating, and many liken themselves to generals in a war room. Decision making in these top groups can be crisp and decisive. However, top management is generally insulated during this period and often prepares self-defeating gambits. They cut themselves off from relevant information and isolate themselves from dissent. All of this is symptomatic of what psychologist Irving Janis terms groupthink—the result of accepting untested assumptions and striving for consensus without testing the possible consequences.

While the executive teams are in their respective war rooms, people in one or both organizations are adrift. Decision-making powers become centralized and reporting relationships clogged with tension and doubt. Priorities are unsettled, and no one wants to make a false move. Meanwhile, downward communications tend to be formal and unsatisfactory. Official assurances that any changes will be handled smoothly and fairly ring hollow to the worried workforce.

Cultural Signs of the Merger Syndrome

All of these symptoms are exacerbated by the clash of cultures. By their very nature, combinations produce an us-versus-them relationship, and there is a natural tendency for people to exaggerate the differences as opposed to the similarities between the two companies. First, differences are noted in the ways the companies do business—maybe their relative emphasis on manufacturing versus marketing or their predominantly financial versus technical orientation. Then, differences in how the companies are organized—say, centralization versus decentralization or differing styles of management and control—are discerned. Finally, people ascribe these differences to competing values and philosophies, seeing their company as superior and the other as backward, bureaucratic, or just plain bad.

Ironically, a fair amount of diversity in approaching work aids combinations by sparking productive debate and discussion of the desired norms in the combined organization. When left unmanaged, however, the clash of cultures pulls sides apart rather than joining them together.

Making Mergers, Acquisitions, And Alliances Work

Psychologists and other professionals work with executives to minimize the unintended consequences of mergers and acquisitions and to put combinations on the path toward financial success. Some common trends are emerging that distinguish successful deals from the majority of failures:

  • Managing the merger syndrome: Many firms act to raise awareness of the merger syndrome. Consultations guide executives and managers on leading their people during a difficult time. Workshops help all employees understand methods for minimizing the stress, uncertainty, and culture clash present in any combination. In addition to practical tactics, employees get a sense that leadership is acknowledging and managing their issues rather than ignoring or denying them.
  • Managing culture clash: The primary method for minimizing the unintended consequences of culture clash is to establish a basis of respect for the partner cultures. This is true even if the ultimate intention is to absorb a company and assimilate its culture. Managers who display a consideration for the partner’s way of doing things rather than denigrate it are likely to gain a reciprocal sense of respect for their own culture. In mergers in which a new culture is being built—either through transformation or by selecting the best from both organizations—a tone of cross-cultural consideration helps employees open up to different ways of doing things rather than tightly hold on to their ways.
  • Managing the transition: The upside of a merger, acquisition, or alliance is the opportunity to generate breakthrough ways of thinking that can leverage the strengths of both partners to accelerate the achievement of a business strategy. This requires an effective transition management structure that creates a forum in which the parties can study and test whether or how hoped-for synergies can be realized, that contributes to relationship and trust building across partners, and that involves people close to the technical aspects and key business issues implicated in the combination. Psychologists contribute to this process by facilitating transition decision-making meetings, providing credible and rigorous issue identification and decision-making processes, and accelerating the development of teamwork across typically sparring partners.

References:

  1. Haspeslagh, P., & Jamison, D. B. (1991). Managing acquisitions: Creating value through corporate renewal. New York: Free Press.
  2. Marks, M. L. (2003). Charging back up the hill: Workplace recovery after mergers, acquisitions and downsizings. San Francisco: Jossey-Bass.
  3. Marks, M. L., & Mirvis, P. H. (1998). Joiningforces: Making one plus one equal three in mergers, acquisitions, and alliances. San Francisco: Jossey-Bass.
  4. Stahl, G. K., & Mendenhall, M. E. (2005). Mergers and acquisitions: Managing culture and human resources. Stanford, CA: Stanford Business Books.

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