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Change Management: The Human Side of M&A

by Fran Ferrone

Despite significant uncertainty in global markets, merger and acquisition (M&A) activity is booming. In 2018, the total global market value for M&As reached a record-breaking $3.9 trillion, and 2019 was on course to produce similar figures. Businesses are turning to M&As in record numbers because they view them as an effective means of generating growth. Quicker than growing organically, these deals can provide opportunities to access new markets, reach different customers, cross-sell products and services, and lately absorb disruptors before they are able to upend whole industries.

And yet the incredible figures behind this boom disguise an awkward truth: M&As rarely succeed.

Even the most conservative calculations estimate that half of all M&A deals fail. The primary reasons behind such a high rate of failure include “high executive turnover, labored transition periods and lowered productions standards.”[i] These largely operational issues can each be traced back to a fundamental flaw of a more personal nature: an inability to manage the inherent human factor in any merger or acquisition. Newly merged organizations tend to expend a great deal of money, time, and energy on making the deal appear successful from the outside – aligning marketing messages and developing savvy PR campaigns – but very little on crucial internal factors such as the business values, culture, behaviors, ways of working and employee experience.

One recent high-profile acquisition to suffer substantial teething problems is Amazon’s $13.7 billion purchase of Whole Foods. The tech giant bought the organic grocery chain in 2017 (just as the latter was beginning to lose pace with its more traditional rivals), with promises to cut costs, introduce Amazon products, and improve both the in-store and digital shopping experience.[ii] Three years on, however, numerous reports have suggested that the acquisition is faltering. The chain’s growth is sluggish while consumer appetite for the concept remains virtually static.[iii] As this Business Insider article points out, 41-year-old Whole Foods owed much of its early growth to M&As.[iv] But the online behemoth represents a totally different proposition to the previous acquisitions of local supermarket chains. Amazon’s difficulties in getting it right have been described as a clash of “tightness versus looseness.”[v] Amazon’s process-driven culture has struggled to align with Whole Foods’ legacy of unorthodox, non-hierarchical management.

If businesses are paying little attention to the internal challenges that come with M&As, they focus even less on the possible solutions. Overcoming the high cultural hurdles requires:

  1. A thorough and sustained change management program that guides and challenges the entire workforce with communications that are both pandemic and intimate.
  2. A respected team of internal champions that can “read between the lines” of the received culture(s), then influence and lead their people by example.

Firstly, organizations that thrust their employees into a new work-world order without properly communicating what they can expect and what’s expected of them are naïve to anticipate a positive outcome. Not necessarily in this order, employees need to know the “what, how, when and why of the change as well as how it’s going to affect them personally. This requires not only communication but real engagement. The latter is indicative of a wider problem within workplace reorganization, design and management: Too many organizations start the process before they’ve created a baseline of current conditions comprised of both qualitative and quantitative data. This practice circumvents the opportunity to understand how much effort is needed (and where it is best focused) to affect the desired change, and the process then becomes one of validation, or even course-correction, rather than innovation. 

Secondly, facility management and corporate real estate teams can play a much larger role than they currently do. These functions that traditionally have been deployed to manage the property and employee rationalization that often follows an acquisition, barely scratch the surface of what’s possible. At a time when the C-suite is beginning to understand real estate’s impact on talent recruitment and retention, FM and CRE leaders have an opportunity to lead a whole modernization program including:

  •  implementing new technology,
  • boosting employee mobility,
  • unifying cultures,
  • introducing better ways of working, and
  • ultimately, reimagining people’s relationship to work and the workplace. 

Additionally, effective managers – who can read between the lines to interpret the unwritten rules of an organization – are essential to affecting successful change.  Much of the difficulty in merging the operations and cultures of two organizations is down to habit – both individual and collective, and more often than not, undocumented. When employees are asked to adopt a new way of thinking or working after a merger, without enough planning, things can quickly unravel.

Imagine a scenario in which two separate teams are co-located and asked to adopt an agile form of working. Employees who have had their own desk and ownership of their bit of the office for a long period of time might suddenly be told that they must share the space with others, cannot personalize it, and should only use certain areas while doing specific tasks. This is likely to cause a great deal of consternation among people who are accustomed to working a certain way. Here managers have an opportunity (in fact, a responsibility) to lead by example, leveraging their influence with and their understanding of their direct reports to ensure they have the information, the mindset and the tools to succeed in the new organization.  This is not “business as usual.” They must be engaged and entrusted to do so.

Post-merger – and preceding any real estate rationalization – FM and CRE teams can help their organizations understand what it is they want to accomplish. This not only requires a vision but also a business case that educates all stakeholders, including employees, and brings them along on the change journey. Irrespective of where a business is on the workplace spectrum – whether that’s a traditional office, open plan or activity-based working – knowing where the delta lies between the starting line and the destination will help determine how much work is needed to achieve organizational goals. Engaging employees early on and consistently throughout the change process helps clarify and socialize both the benefits to and expectations of colleagues, creates a positive energy around the change, and installs the building blocks for a successful future.

Of course, success does not happen overnight. A merger or acquisition isn’t the destination, it’s the beginning of a whole new journey. This is the crucial point that most organizations misunderstand. Culture cannot be changed through a few memos, town halls and handbooks. Change of this magnitude asks people to be abnormal and that demands authenticity, clarity, empathy, oversight . . . and time.

[i] https://techcrunch.com/2019/05/07/mas-may-deliver-value-but-they-come-with-hidden-costs/

[ii] https://www.theatlantic.com/business/archive/2017/06/why-amazon-bought-whole-foods/530652/

[iii] https://www.washingtonpost.com/business/amazon-whole-foods-is-two-years-old-and/2019/06/13/0e3b83ba-8ddc-11e9-b6f4-033356502dce_story.html

[iv] https://www.businessinsider.com/whole-foods-timeline-from-start-to-amazon-2017-9#by-1980-it-had-merged-with-another-local-natural-food-store-clarksville-natural-grocery-to-open-the-first-whole-foods-market-this-original-store-was-destroyed-in-a-flood-in-1981-but-the-community-rallied-around-it-and-it-ended-up-only-being-out-of-business-for-28-days-2

[v] https://hbr.org/2018/10/one-reason-mergers-fail-the-two-cultures-arent-compatible

Fran Ferrone is a Senior Associate with Advanced Workplace Associates as part of the workplace management team. She is a skilled facilitator and communicator with a background in corporate design and workplace management. Fran has worked with front line and senior management of Fortune 500 companies including Willis Towers Watson, Credit Suisse, Lehman Brothers, Nortel Networks, General Electric and Raytheon, in the US and abroad. See Fran’s blog on Activity-Based Working.