Equipping leaders for merger
integration success
Leadership
capability building is crucial during mergers. Tailoring a program for three
cohorts of integration leaders can make a big difference.
Mergers are high-profile, high-risk
events. Success requires executive alignment on the goals for performance and
value capture, the approach to mitigating integration risks, and the desired
“NewCo” culture and ways of working. The stakes are huge, as executives must
make decisions in the pressure-cooker environment of sky-high expectations and
tight timelines, shadowed by the knowledge that mergers often define leaders’
careers and legacies, for better or for worse.
Unfortunately, most
leaders bring limited integration experience, especially with large or complex
mergers. Boosting their integration leadership readiness is a critical success
factor for pre-close integration planning, a flawless day one, and maximum
value capture and integration in the first few years post-close.
Fortunately, mergers
provide a great incubator for developing leaders. Mergers create a platform for
building both technical skills (for example, integration planning, transforming
business support functions, and capturing value) and leadership skills (such as
leading change, steering larger and newly integrated teams, and navigating a
more complex matrix). The integration incubator has the greatest impact when
the capability building is woven into the fabric of the integration leadership
role. This means just-in-time and practical training focused on the most
critical skills and issues and applied immediately to the tasks at hand.
Investing in
integration leadership readiness is imperative. Leadership capability building
has proved to enhance integration results by creating a stronger, more unified
leadership team, equipped to take NewCo to new heights. Indeed, organizations
with the right integration capabilities are 1.6 and 1.7 times more likely to
exceed cost and revenue synergy targets, respectively, than organizations
without the right integration capabilities.1(For more, see sidebar “Foundations for capability
building.”)
Furthermore, executives
recognize the need to enhance those capabilities. Asked which dimension of
their integration approach requires the most improvement, integration
leadership rises into the top three, with 29 percent of executives calling it
their biggest concern.2
Leadership program to drive synergies in a
transformational culture integration
William Kozy, former chief operating
officer and chief integration officer at Becton Dickinson, discusses the power
of leadership development during an integration.
Successful
practitioners reinforce the integration leadership imperative. Steve Kaufman,
former CEO and chairman of Arrow Electronics, insists: “Integrations are really
different. You don’t know what you don’t know. You need capabilities that
you’re unlikely to have in your organization.” And William Kozy, former chief
operating officer and chief integration officer at Becton Dickinson, explains:
“This is about what are the critical, nonfinancial factors associated with
guaranteeing the success of a deal. It’s about the people, and getting the top
several hundred people, in the newly combined company on the exact same page.
It’s about what they’re supposed to do, how they’re supposed to do it, and what
the great leaders should look like in five years.”3
Understanding leadership cohorts
Successful integrators
have programs for three groups of senior leaders who typically require
merger-specific leadership development to execute their integration roles
effectively. As these roles involve different responsibilities, the leadership
cohorts require tailored capability building.
The top team (CEO and direct reports) must
understand and communicate the deal rationale, decide the integration approach
and roles, and push the organization to maximize value capture, while
protecting the base business from risks, selecting NewCo leaders, and defining priority cultural integration
themes—all while learning to
work together effectively as new colleagues join the team. Furthermore, they
need to define NewCo’s strategy (as well as what NewCo will no longer do) and
convert these aspirations into performance metrics, both financial and
operational.
The integration leaders must learn how to manage
integration planning to realize the greatest value from the deal and how to
quickly mobilize teams that combine people from two different companies and
span all functions and business units.
The broader NewCo
leadership team (the top 100 to
250 leaders of the newly combined company) must lead integration execution and
take the combined company, which is often establishing a fundamentally
different culture or operating model, into a new era of higher performance.
The right people for
these three cohorts share a distinct profile.4They bring strong leadership potential and a
collaborative mind-set. They are open to change and recognize the importance of
investing in developing their own and others’ leadership capabilities.
Looking at a tailored, just-in-time NewCo leadership
program
A global
medical-products company launched a major acquisition to increase its revenues
and employee population 50 percent overnight, broaden its product portfolio and
customer base, and transform its operating model. The company had a long
history of transactions, but this deal was more than ten times larger than any
done to date. Given the ambitions and size of the deal, the CEO and chief
integration officer recognized the need for a just-in-time program to build the
leadership capabilities of its three cohorts of senior leaders throughout the
integration.
As a starting point,
the CEO and chief integration officer convened the top team frequently to
enhance their shared capacity to lead NewCo, while aligning on the integration
planning approach. More specifically, these meetings defined NewCo’s vision and
goals for strategy, performance requirements, value capture, and culture;
redefined executive roles in the integration and the future company; and
enabled leaders across the combined company to get to know each other.
The company also
invested in preparing newly appointed integration leaders for their
responsibilities through targeted and fully embedded training on specific
integration tasks (for example, negotiating new procurement terms with major
suppliers and combining payroll systems), supplemented by coaching and skill
building on cultural integration and change management.
After the deal closed,
the company launched the newly combined leadership team by establishing a NewCo
leadership model that set clear expectations for all leaders. The CEO then
invested integration funds in creating and delivering a fully tailored
leadership training program to build understanding of the new model and its
skill requirements. First, the top 250 leaders, divided into cohorts of 50
executives from both companies, participated in a five-day training program
spread over six months. Then, the next 1,200 leaders participated in a
region-based version of the program.
The company credits
this tailored leadership capability-building program with contributing
significantly to its wildly successful integration. By grounding all leaders in
a shared understanding of the company’s history and new leadership
requirements, the program unleashed tremendous energy and commitment to
exceeding ambitious objectives for value capture and cultural integration.
Talent retention was exceptional throughout the integration—92 percent, overall
and even higher for priority roles. Synergy capture exceeded public
announcements by 120 percent. The company outperformed the market by 35 percent
in the first two years after launching its leadership program. And in a clear
sign of program impact, 93 percent of the top 250 leaders scored the training
program “5 out of 5” (the highest in company history).
Tailoring capability building to the three cohorts
Companies that have
achieved such capability-building success have taken different approaches to
the three cohorts of leaders.
Top team
Top-team alignment
workshops strengthen the capabilities of individual leaders and the leadership
team, equipping them to lead the bigger, more complex organization created by
the merger and to exceed the expectations set for the deal. Successful
integrators conduct multiple top-team sessions to help executives define
NewCo’s strategic vision, performance expectations, and goals for capturing
value; set the direction for integration planning, including guiding principles
anchored in the deal rationale; and establish NewCo’s cultural themes and ways
of working, including its operating model and governance.
Importance of aligning on culture
Aileen Stockburger, former VP of
worldwide mergers and acquisitions at Johnson & Johnson, explains why
aligning on culture is crucial.
Successful
practitioners note the importance of using these sessions first to build
alignment across the two top teams and then, as quickly as possible, to start
building trust and team norms in the newly formed NewCo top team. Justin Smith,
director of corporate development integration at Google, says: “You need to
have a conversation, not just conduct the typical operations integration
review. People have to really get to know and understand each other and build a
high level of trust.” Aileen Stockburger, the former long-time vice president
of worldwide mergers and acquisitions at Johnson & Johnson, adds: “You have
to understand leadership and decision-making styles. You can’t just assume
that, because you share similar values, all else will follow.”
Case in point.
In a reverse merger, a
nimble chemicals company owned by a private-equity firm acquired a distributor
six times its size. Soon after the announcement of the deal, clearly different
perspectives among the top team emerged, including the right strategy for the
combined company, culture and management practices, ability to achieve
synergies, and importance of speed.
Both companies had
endured several years of organizational change and faced an industry on the
brink of disruption. To mobilize effectively against competitive threats, the
CEO needed to align the top team quickly on the new vision, strategy,
performance requirements, and culture.
To reduce friction and
put the new leadership team on a clear strategic path, the CEO led a series of
facilitated, off-site workshops over the six months before the deal’s close.
These sessions aligned the top team on performance expectations, governance, and
culture, preparing them to execute a seamless close and mobilize their teams to
implement the NewCo strategy. The sessions focused on the following:
·
translating the deal
rationale into a clear strategic vision for the vertically integrated company
·
defining strategic
priorities and performance metrics to monitor progress
·
establishing the
vision, mission, and values of NewCo
·
developing the
governance bodies and decision rights for the matrixed organization
·
setting priorities for
cultural change and tapping executive sponsors to lead the change
·
building trust among
the top team and securing individual commitments to support the new strategy
and culture
The impact of this
capability building stands in stark contrast to integration efforts that take
leadership-team effectiveness for granted. Aileen Stockburger reflects on the
cost of failing to provide such a development program in one of her many
mergers that took place several years ago: “We didn’t take the time to align on
a common way of leading and working together. Decision-making styles and
processes were very different in the two previous organizations. As a result,
TargetCo leadership was frustrated and frozen because we never aligned on
leadership processes and expectations. The leaders from the two organizations
each had different styles and approaches on how to make decisions. As a result,
the company floundered, and we ended up losing a majority of the leaders from
TargetCo. They were frustrated with unclear processes and new styles. We did
not properly educate the new organization with the skills and mind-sets that we
wanted in the leaders and give people a chance to adapt and build them.”
Integration leaders
Successful integrators
actively prepare integration leaders and teams to realize the greatest value
from the deal and enhance their capabilities for future M&A. They build
leaders’ practical understanding of integration planning through a combination
of in-person training on integration management and digitally delivered modules
that provide instant access to seasoned integration leaders. Given the
intensity of integration planning, successful companies incorporate
capability-building modules focused on specific skills (for example, capturing
value and managing the post-close change process) into regular
integration-planning summits, rather than scheduling separate sessions that
leaders are too busy to attend.
Steve Kaufman
emphasizes the power of apprenticeship in building integration leaders’
capabilities: “You need access to veterans who know what they’re doing, have
seen this situation before, and know what to look for. You pair them up with
your high-potential talent. This is a great way for those high potentials to
accelerate their career growth and development; they want these opportunities.
It’s also a great way for you to identify who will be real stars. Then you pay
attention to how they perform. This costs money in the short run, but in the
long run training doesn’t cost—it saves. Learning from experienced integration
leaders is extremely valuable.”
Case in point.
Immediately after
announcing the merger of two leading specialty-chemicals providers, the
companies brought their new integration leaders together in a workshop to align
on the goals, architecture, and approach of the integration-management office
(IMO). As soon as the integration teams were staffed, team members participated
in an IMO-led boot camp. Over the course of several days, the boot camp
explained the deal rationale; set expectations for the path ahead, including
the responsibilities of all integration teams and leaders; and got the teams
started on planning the integration effort.
Throughout integration
planning, the standard integration summits incorporated capability-building
sessions that took advantage of physical colocation to deliver timely and
targeted training on skills essential to the success of every integration team
(for instance, addressing differences in working norms and tracking value
capture). As the integration change-management plans took shape, the program
added a module on leading change.
Embedding capability
building in the integration planning process equipped the integration team
leaders and members with the right tools to lead the change effort and lay the
critical foundation for longer-term value capture and growth.
NewCo leadership (top 100 to 250 leaders)
Post-close, the most
successful integrators turn their attention to mobilizing the newly minted
NewCo leadership team around capturing value and achieving cultural
integration. They invest the integration budget not only in combining and
enhancing technology systems but also in combining and enhancing their
leadership team.
Leveraging an airline merger to rethink new
leadership requirements
Beverly Goulet, chief integration
officer at American Airlines, describes the importance of cascading new skills
and expectations to leaders and frontline managers.
Successful integrators
find that introducing a NewCo leadership model (either a refreshed model from
one of the companies or an entirely new model) helps set expectations for all
leaders, regardless of their legacy company, about the behaviors and
capabilities required to lead the more complex organization through
transformational initiatives. As Beverly Goulet, chief integration officer at
American Airlines, describes a recent NewCo leadership-development effort: “We
redefined leadership expectations and attributes for the new organization and
stated very clearly that, just because you are a leader today, the old set of
rules that made you successful may not make you successful in the future. We
translated these requirements into specific attributes and shared them with our
leaders at an off-site and incorporated the attributes into performance metrics
against which leaders are evaluated. We changed the profile of company leaders
for the better.”
Case in point. A leading US healthcare
insurer realized that its leadership bench was not deep enough to achieve its
strategic aspirations and that a recent acquisition created both the imperative
and the opportunity to enhance its leadership development. The company built a
new leadership model that set expectations for all leaders based on the
acquiring company’s historical strengths (for example, mission-centricity and
entrepreneurship) and new strengths it sought to build through the acquisition
(for instance, agility and leaders as people
developers).
In 2017, the company
established a corporate university to spearhead leadership development. The
university designed and launched a new capability-building program for the top
1,600 leaders to introduce the leadership model and build the new skills it
required. The program uses a field-and-forum learning approach, combining
multiple in-person sessions, applied fieldwork on the job, and follow-up
“nudges” that regularly remind participants via email of specific management
practices they should be employing. Of the 200 leaders trained to date, 97
percent have rated the program “5 out of 5.” The remaining 1,400 leaders will
complete the program in 2018.
Merger-based leadership
capability building equips company leaders to achieve immediate and sustained
high performance. “The cost of ignoring this is huge,” Aileen Stockburger says.
“You can end up addressing the wrong priorities. People disengage because they
don’t feel part of something anymore. People don’t understand expectations or
interpret them correctly. People focus on all the confusion, not on moving the
business ahead. It’s a lot of wasted time, effort, and energy, and that’s all
money.”
Developing leaders
during mergers significantly increases the likelihood of successful integration
planning, value capture, and cultural integration and prepares NewCo to
capitalize on the next horizon of growth and performance, especially by
enhancing M&A capacity for future deals. Leaders feel inspired, not just
competent, to take charge.
By Jocelyn Chao, Oliver Engert, Ian Jefferson,
Emily O’Loughlin, and Sasha Zolley
https://www.mckinsey.com/business-functions/organization/our-insights/equipping-leaders-for-merger-integration-success?cid=other-eml-alt-mip-mck-oth-1807&hlkid=836545e9e62e467f8126a8e04029c4a6&hctky=1627601&hdpid=97c7e2e5-deee-4d5d-8dde-1fa17bf9afc5
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