An Acquisition Integration Example
“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn” – Alvin Toffler “Wisdom & Ignorance”.
In our last post, we discussed the implications of transformative change in the manufacturing enterprise. Improvement always requires transformation, and transformation always involves fear, effort and loss. As such, it is easy to get stuck in the status quo and shun the transformation in order to avoid the pain. However, this is only a very short term solution, as your competition that is willing to endure the pain will make the improvements you fail to endeavor and enjoy a superior competitive position in the marketplace. At that point, the organization will either find the courage to transform or cease to exist.
One way such competitively disadvantaged companies can cease to exist in their current form is by corporate merger or acquisition, where they either merge into another company via joint venture or are acquired by another company. In such cases, the transformation can be swift and far reaching.
The transaction rationale often dictates the scope of integration, which in turn determines the amount of change that will be imposed upon the acquired company. Sometimes, conglomerate acquirers will not change much, simply adding the company to diversify its portfolio. Likewise, in some cases private equity acquirers will leave much of the company intact: its brand, processes, systems and potentially even management. In these cases, there will almost surely be some degree of change imposed by the need to extract synergies to justify the acquisition premium, often in the form of process changes or staff reductions to cut cost, or growth into new products or geographies to increase revenues.
The more significant change often occurs when a larger company integrates a smaller company by absorbing it into the larger company’s brand, management, processes and systems. In such cases, pain will be experienced by the acquired company’s employees in terms of fear, effort and loss. Often there is fear of being unable to survive the transition, effort to unlearn many habits of the culture existing in the old enterprise and relearn habits useful in the culture of the new, and loss of the comfort of old relationships, familiar processes and systems and a well-known corporate culture. In such cases, true resiliency is required by the employees to succeed in the transformation.
One example from my experience may be helpful. An acquiring company had very strict and detailed audit standards that applied to many facets of their operations. This imposed new burdens on the employees in the acquired company to learn and adapt to those standards. Those managers who failed to take these new standards seriously soon found that the parent company’s expectations were non-negotiable and were asked to leave the company. Those who were willing to learn the new standards and implement them were given the opportunity to stay and grow with the acquiring company.
At the same time, the acquired company had much closer relationships with the governmental authorities and regulators than was typical for businesses within the new parent company. The parent company resisted this for a while, but over time learned that it was in their best interests to learn and adapt when they started facing government opposition in their new location. In time, the acquirer was able to change their processes to keep the local government officials happy and forge a constructive working relationship at the acquired business.
Acquisition integration can be an extreme example of transformation and change. Those companies and people who can unlearn old cultures and behaviors and learn new ones have the chance to survive and prosper. Those who cannot will be relegated to the trash bin of industrial failures.
What about your experience with acquisition integration? I look forward to your contributions of good and bad practices you have observed to this discussion.