We all know that merger and acquisition (M&A) activity has a dismal success rate. The recent spate of this activity doesn’t promise to improve on that, much.
The question remains, though, why? If the logic behind these proposals is persuasive enough to carry the decision-makers behind them along to execution, why do so many of them fail?
One reason offered is that many of these deals appear during periods of cheap money or excess cash reserves. That is, they are, at bottom, simple manipulations of cash-flow; a sort of arbitrage exploiting anticipated disparities in present and future interest rates. Another, hinting perhaps more closely at the truth, suggests that the quasi-sophisticated number-crunching that generates a lot of this activity misses the key data and fundamental factors that affect the potential for success.
We have discussed here how some of those that are truly aimed at creating “synergy” can be effective in realizing that. We’ve also touched on how our experience with M&A activity highlights the need for us to pay attention to the “art” side of the art and science of management.
But today’s WSJ contains a piece that directly touches on a vital element, generally emphasized here on these pages, that is usually missing in the analysis and follow-through on these deals. The authors, consultants for a major firm, call the missing requirement “human due diligence.” Consider this statement, from the piece:
When the human factor takes a back seat, post-merger problems quickly pile up: Managers are forced to postpone decisions or are blocked from making them. Differing management styles frequently lead to infighting. Talent exits. Integration stalls. Investors grow impatient.
In some of the most successful deals, there’s a flip side. Rigorous human due diligence helps acquirers get off to a running start. Having done their homework, the new bosses can uncover capability gaps, as well as defuse points of friction and differences in decision making. Most important, when critical people decisions are made right away — who stays, who goes, who runs the combined business — an acquired business is much more likely to succeed.”
This is a genuinely valuable piece of work, suggesting a level of insight carried through to practice that is, unfortunately, seen with insufficient frequency from the larger consultancies. It reflects the value they can provide through research, generally, but particularly when it is inspired by thoughtful and probing questions about what really is at play. The reach they enjoy make it all the more to be appreciated. Please be sure to stop by and view the article.
And, as you evaluate your “human resources,” together with the others that factor in to your decision making, remember that their main importance doesn’t consist in their numbers or educational and skill set characteristics, but in the culture, networks, and communities they have formed and in which they interact to do the business of your organization. If you show due respect for that – in particular when you are trying to execute change as radical as a merger or acquisition – your proposals will likely enjoy success in execution, and you will certainly be a successful manager.
Today’s tip: Speaking of successful change and management, please stop over to see Steve Roesler’s superb series about the keys to understanding and effecting organizational change, beginning with this discussion.
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