Millennium Marketing Research®

Tom Schori DBA Millennium Marketing Research®, 808 Ironwood, Normal IL 61761, 309-532-8466

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Half of all corporate 'marriages' also fail, report says.

By Thomas R. Schori, Ph.D., and Michael L. Garee, Principals,  Millennium Marketing Research, 808 E. Ironwood, Normal, IL 61761-5239. Tel. 309-532-8466 -

We ran across an interesting tidbit on the ‘Net recently that we’d like to share with you this week. It deals with the business phenomenon known as "mergers & acquisitions."

As is the case with more typical marriages, those "marriages" occurring in the corporate world (better known as mergers and acquisitions) also fail at an alarming rate, according to a recent report released by international management consultant firm Towers Perrin. Nearly one-half of both announced and completed mergers and acquisitions ultimately fail, they say.

Why? Towers Perrin said most fail because of one or more of the "seven deadly sins" of mergers and acquisitions:

1. Turmoil. Lack of clear strategy and defined plan of action.
2. Alienation. Forced amalgamation between disparate cultures.
3. Punishment. Short-sighted changes in rewards, strategies and benefits, and destructive changes to positive and productive work environments.
4. Dissolution. Key talent departs for greener pastures.
5. Dissuasion. Lack of attention to morale, mores and behavior in announcing new long-term goals.
6. Disappointment. Failing to deliver on state goals and objectives.
7. Chaos. Declines in production, sales, customer service and net income in first 100 days.

With one-half of all mergers and acquisitions ultimately failing, said Jeffrey A. Schmidt, a managing director with Towers Perrin and leader of the company’s general management consulting group, "it’s incumbent on the management of the two companies to do everything in their power to get it right."

According to Schmidt, the all-important first step in the process is proper planning.

"The difference between success and failure lies in taking a risk management approach to planning and implementing a combination," he stressed.

Risk factors fall into three principal categories:

1. Competitive risks. Dubious strategic foundation, competitor poaching of key customers and distributors, dissolution of strategic supplier alliances.
2. Economic risks. Premium paid to close the deal too high, need to spin-off or liquidate too much, over-optimism regarding potential synergies.
3. Organizational risks. Integrating workforce (including downsizing), culture and organization, reward/benefits, arrogance and over-control by the dominant management, inability to manage combined entity, adverse consequences from reversal of policies and practices.

"Because management styles often clash," Schmidt said, "and rivalries can build among managers at all levels, the integration of separate corporate cultures must begin in earnest within the first 100 days by addressing and setting in motion the key elements of the integration plan."

Actions taken during the first 100 days immediately following announcement of the merger or acquisition strongly influence the ultimate outcome of the transaction, Schmidt added. Unexpected, seemingly random¾ and almost always unwelcome¾ events can and do occur during this crucial period and are often quite destructive.

It is during this first 100 days, he continued, that an evaluation takes place of both companies’ strengths and weaknesses, as well as which "best practices" are worth retaining from either or both companies. The successful companies in this endeavor ensure the maintenance of continuity, coordinate all actions and policies and effectively communicate changes in management systems, operating practices and administrative processes to all relevant "stakeholders."

Among these relevant "stakeholders" are suppliers, customers, and employees.

• Suppliers and customers need to be assured that relationships and commitments will be upheld and honored and must trust that they will be notified when customer policies and practices do change.

• Employees are key to the success of any business. Corporate values must be established and reinforced, and, while leadership changes can be expected, key personnel should be encouraged to stay on through the use of appropriate incentives.

Maintaining productivity and morale, of course, is paramount, Schmidt said. Management must communicate its plan to all employees, as clearly and completely as possible. Also, systems need to be integrated as quickly as possible with the immediate objective of aligning and merging management systems and operating practices.

Mapping and implementing change. Once the blueprint for the new entity’s sales and distribution, production operations, and administrative infrastructure is developed, all associated processes must be efficiently coordinated and rationalized, Schmidt stressed. That means the integration team must have a clear picture of the planned new enterprise’s business model¾ what it will look like, how it will achieve that look, and what the implications of that new look might be for all stakeholders.

Schmidt recommends appointing "stakeholder champions," each representing a key stakeholder group¾ customers, suppliers and distributors, employees, community representatives and investors¾ whose function is to ensure that explicit consideration is given to respective requirements and unique sensitivities.

Measurable integration. With a well-designed, well-thought-out plan, companies improve the odds of realizing genuine synergies that will make the resultant new business entity stronger and more competitive than was the case with the individual entities before the merger/acquisition.

"There is an economic calculus at work in a merger or acquisition where the premium paid to consummate a deal along with transaction and implementation costs must be recovered," Schmidt said.

Adherence to a comprehensive risk management-based integration plan greatly improves a company’s chances of beating the odds and being among the relatively few successful mergers and acquisitions," he added. "Expectations will be fulfilled and full value received."