In Part 1, we focused on some of the pitfalls to Mergers and Acquisitions during the due diligence phase including operational integration or assessing deal breaker issues. In Part 2, we will focus on the pitfalls management encounter when communicating or minimizing the challenges that the merger faces from an employee communication and cultural integration standpoint:
Pitfall #5: Statements about “Business as Usual” or that “Change will be Minimal”
Mergers and acquisitions require a transformation that is incredibly disruptive as it involves organizational restructuring, management team changes, combination and rationalization of product and service line portfolios, reconfiguration of supply chain and distribution arrangements, and workforce attrition. During an acquisition or merger the dynamic can have a psychological affect on employees’ perception and satisfaction, career path, as well as corporate politics. As senior management’s effort to keep employees focused and productive by using the phrasing “Business as Usual” or “Change will be Minimal,” they tend to forget to sooth and reassure them. Management should acknowledge the reality and use this opportunity and period of upheaval to make relevant and impactful changes, while ensuring employees’ questions, concerns and needs are heard.
Pitfall #6: Our Cultures are very Similar/Compatible
Whether this is true or not, the nature of M&A transactions is often adversarial, with an “us and them” mindset. With a focus on change management and effective employee engagement programs, often sustained over a two year period post-deal close, the hostility will subside over time and with great effort. During times of upheaval, people often search for cultural flash points and management inconsistency, resenting false promises about cultural compatibility or minimal change.
Senior management should predict some degree of cultural friction and emphasize the need to work together effectively. In a 2015 KPMG survey of M&A industry professionals, culture and human resources issues was the third most challenging. Due Diligence assessment area, and was the number one challenge for post-merger integration success.Company culture plays a major factor when considering a merger that might have a research or academic pedigree, a for-profit motive, a faith-based not-for-profit mission, and other distinctions (e.g. independent hospitals versus systems, rural versus urban, specialty versus general, etc.).
Pitfall #7: This will be Good for our Employees
When employees hear about a merger or acquisition, it is human nature to assume the worst. One reason is the sense of secrecy that often surround these deals. Executives don’t want to make a premature announcement that could derail things, or create a distraction. Another problem is the urgency and speed to close a deal. The only way to stop the rumour mill and get people on board with a deal is to replace gossip with a compelling vision and hard facts. Otherwise, instead of working, they spend their time spreading rumours and wondering whether the company is going to lay them off or double their workload – and productivity plummets.
A 2013 study by Hewitt AON, identified Individual reactions to organizational changes fluctuate at various stages of the acquisition process. Immediately after any merger or acquisition, more employees are engaged by the prospect of a new direction. However, the reality of the changes that come with integration and restructuring often causes employees to begin to disengage. In the study, the percentage of highly engaged employees drops well below the 10% global baseline after a merger or acquisition, (in fact, the percentage of highly engaged employees dips to 5% a few months after a merger or acquisition), and does not recover to the baseline for another two to three years. It’s essential to ensure critical talent understand what the deal means for them. In healthcare, the diversity of employee stakeholder groups from nurses, to technicians, to support staff, to employed physicians and affiliated physician groups makes this communication plan even more essential.
Mergers and acquisitions should never be taken lightly. Without a clear strategy, effective project management and constant and open communication between stakeholder groups, the merger or acquisition will struggle to deliver the desired results. Success comes down to building a strong integration team, developing and executing an integration plan that is aligned with realistic deal synergies targets; that address HR issues and cultural integration issues; and provide transparent and timely communications to all stakeholder groups.
How has your healthcare organization handled mergers and acquisitions in the past? Which lessons are you incorporating into your plans for next time? Let us know in the comments below and subscribe to receive the latest Shikatani Lacroix insights in your inbox.