Greg Shea and I taught his “Leading Organizational Change” course at Wharton again this past week. Executives bring in change initiatives they are working on to focus on during the week they take the course. Invariably, some of these cases involve finding the synergies between two companies that are engaged in a merger or acquisition. How do we realize the cost savings that combining two companies promises? Often this involves blending together two functions – HR, for example, or accounts receivable, or even research and development.
Creating shareholder value in a merger or acquisition can be incredibly difficult. U.S. Banker reports that 60% of recent bank acquisitions failed to build shareholder value. Three years after an acquisition, 70% of the CEO’s of the acquiring institutions were dissatisfied with the deal. A McKinsey evaluation of 58 major bank acquisitions between 1972 and 1983 found 53 to be financial failures (according to whether earnings two–five years after the deal were justified given the buyer’s cost of capital).
Greg reminds us that there are three mind-sets for thinking about the integration: market, financial, and human. Of these, I believe it is the “human” equation that gets the least attention in a corporate integration – and it is probably the most important. In integration work, there is plenty of uncertainty and ambiguity about roles and there are opportunities to streamline operations
This is where RACI can be a powerful tool for doing this work. When I start teaching this tool in my Wharton class, the executives who are involved in integration projects usually come alive. They may already be knee deep in analyzing the process changes that they need to make and RACI gives them a language to talk about role changes. Too often, role changes are invisible or poorly understood -- but these are the changes (how will my job change? Will I still have the same decision making authority? Who do I go to get approval now?) that will sink an integration project.
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