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Having been a part of many integrations of mergers and acquisitions with different clients, we have observed numerous issues that predictably arise. These issues affect the integration project leaders, the integration teams and ultimately a broader group of employees. While there was great effort in the pursuit of an M&A deal, some of the effects of these efforts on everyone else in the organization often go unnoticed.
The Chase Begins
There are predictable dynamics that will happen as the “chase begins”. As an example, rarely do the M&A integrations go as scheduled. Rather, there is a continual speeding up and then slowing down of the process. A visual analogy to this phenomenon is what happens when a train with a heavy load of cars begins to move. There is often lurching back and forth.
This phenomenon of speeding up and slowing down is due to several factors:
- Buyer and seller negotiating the transaction because of changes occurring in either or both of the businesses
- Questions or delays due to outside factors, such as regulatory bodies, unions, local or national governments, etc.
- Changes in terms needed to fit outside financing sources’ requirements
- The time of the year (e.g., people going on vacations, holidays, etc.)
- Internal snags coming from legal, accounting, finance, HR, etc.
The Jolt Factor
Obviously, these sorts of issues are to be expected, and managed through. But generally, what is not addressed is the stress added to the executives involved, and to the people in the organizations involved. This stress often has a jolting impact on everyone. This jolting experience has a growing impact on the people in the business as each delay happens. We can use a freight train as a good analogy.
When the engine of a train begins moving, there is a jolt felt by each of the cars as their couplings become engaged. This is referred to as slack action in the railroad industry.
In railroading, slack action is the amount of free movement of one car before it transmits its motion to an adjoining coupled car. This free movement results from the fact that in railroad practice, cars are loosely coupled, and the coupling is often combined with a shock-absorbing device, a “draft gear,” which, under stress, substantially increases the free movement as the train is started or stopped. Loose coupling is necessary to enable the train to bend around curves and is an aid in starting heavy trains, since the application of the locomotive power to the train operates on each car in the train successively, and the power is thus utilized to start only one car at a time.
When the train starts, the first car behind doesn’t move until the slack is eliminated in the coupling, then it jolts into movement. The second car doesn’t move until the slack is eliminated between cars 1 and 2, and then car 2 jolts into movement. And so on.
As an executive of a company involved in some merger or acquisition, the start and stop nature of these transactions give this jolting experience to all people in both companies, even if they are not directly involved in the process. And just like a train car along the line, if you can’t see what the engine is doing, the start and stop of the process turns out to be a surprise and a jolt. This goes on for either starting or stopping the process, just as it happens on a freight train.
The resulting organizational impact includes,
- Stress from the jolting actions
- Feeling “out of the loop”, so less effective in making things happen
- Frustration because no one understands what is really happening
- Loss of enthusiasm for the transaction, especially if the transaction takes a long time
Transformational Leadership provides an excellent antidote to mitigate these impacts during any M&A activity, for both organizations involved, and particularly for major M&A activities. My partners and I have written extensively about Transformational Leadership, which is available on request.
Half of M&A transactions fail to create value. Ever wonder why? Download our whitepaper ‘The Conundrum of People in M&A’, and understand the critical elements that impact mergers and acquisitions success or failure.
In it, you will learn:
- Eight common flaws in decision-making often made by executives in M&A transactions
- Why the integration process is so critical
- Tactics in organizing, planning, and communicating that lead to successful integrations