Now that we have looked at the root causes of failure in integration, we can focus on its manifestations. What that means, is that most often, a post-failure evaluation depicts the causes of the M&A’s failures as one of the following:
1. Failure to realize synergies
At the heart of every M&A transaction, the intention is to realize synergies. Viewed this way, any M&A failure must be a failure to realize these synergies which are also known as economies of scale. Why does this failure occur? Because of lack of operational efficiency, failure to capture technological advancements or exploit innovation etc., which we have already pointed out as the root causes. The failure in achieving synergies may be in any of the following key areas:
1. Technology: not capitalizing on advancements, innovation and know-how at the right time can leave the organization in the dust/shadow of its competitors.
2. Procurement efforts: when business process, procurement, strategies and integration efforts fail.
3. Customer sentiment: when the sentiment or feelings of the customers have not been gauged properly to understand how they would react to the change in the organization’s structure and their response has not been predicted properly.
2. Failure to achieve a cohesive culture mix
If people are the heart and/or brains of the organization, then culture is its soul. Organizational culture is the term that defines the general working atmosphere in your company i.e., the collective attitudes, practices and values that guide, drive and form the basis of each team, department, office or sub-unit of your company and which collectively forms the Organization’s culture. Each organization has its own unique culture. After the M&A deal is inked, the coming together of the companies also involves a mix of its organizational culture. It is important to make your people feel comfortable in the new environment and mesh together with the new people and adapt to the new atmosphere like the perfect parts of a fully functioning whole.
3. Failure to implement projects – Timing the timelines
The M&A process doesn’t end with the inking of the deal or the integration of people, technologies and processes. What your company also needs to do for successful integration is to keep a watchful eye on the timelines of the project. After all, the M&A was to further certain goals or projects of your company, so don’t take your eye off the ball.
To ensure that the enterprise continues to function smoothly, you must explain and delineate the new reporting structure within the organization, highlight new roles and responsibilities and ensure that there is clarity in all operations of the newly integrated organization.
Communication Failures
Effective communication is an essential part of any transaction. It is imperative in a contract. Communication barriers can lead to failures in M&A deals to effectuate. Types of barriers to communication to be wary of:
i. Selective perception
This barrier is also known as selective listening. You may have experienced that at times, you are only able to pay attention to some of the conversations and are not later able to recall all of it. It happens when there are multiple conversations taking place at once or when you are mentally preoccupied and do not give your full attention.
The dangers of selective perception are manifold. Firstly, the other person may think you are bored or lazy. As your body language is important, you should not look uninterested. Secondly, when you only listen to half of the discussion, you miss out on key points, ideas and inputs. Lastly, it leads to bad decision-making.
So, how can you remove this barrier? Practice effective listening.
Effective listening is a skill taught in business leadership classes. It advocates certain steps that one can take to become an effective listener.
Step 1: Pay attention
Effective listening isn’t limited to words, it includes body language as well. The tone of voice, gestures, posture and facial expressions all form part of body language. Interpret them correctly to grasp the true meaning and intentions of the other party.
Step 2: Check
During negotiations, if you’re not sure that you’ve properly understood something, check with the person again. Even if you think you have, always check to make sure. If you’ve missed some part of the conversation, you can ask them to repeat it. It is better to be sure than sorry.
Step 3: Ask for Clarifications
If you have any questions in your mind during the negotiation, speak up. Plain-speaking, as previously highlighted, is crucial. Clearing the air, getting clarification, and removing doubts are all important steps in a deal, without which parties cannot and should not reach an agreement.
Step 4: Remove Biases
There are two main types of listening biases: subject-matter bias and personal bias. To be a truly effective listener, you must remove biases about either the subject matter of the conversation or the person who is delivering the message to you.
ii. Biased language and stereotyping
In today’s world, the informational overload from the news, social media and our social environment creates many sub-conscious biases every day – whether subject-matter or personal. These biases can be over gender, religion, race, sex, caste, nationality etc.
The most common barrier, especially in deal-making, is gender. (Mis)perceptions created out of biases and stereotyping vastly reduce the value of the message or conversation. You may discard ideas and valuable inputs related to the deal because of them. These biases need not necessarily be over the other party to the deal, it can be towards your own team.
A careful analysis of the reasons behind your decision-making might uncover your subconscious biases or stereotypes.
iii. Emotional disconnect
If you are emotional or upset over the subject matter of the conversation, whether you are the speaker or listener, the effect of the message is reduced. It is a barrier to communication because the message does not get transmitted properly.
iv. Filtering
This is one communication barrier that you have to be very careful of. Filtering is withholding information. A person may do this to gauge the receiver’s reaction to the partial message. It may also be done with malicious intent. Understand when someone might be “filtering” your messages and don’t be guilty of the same. Remember: transparency is key in any deal.
Case Study: How Apple addressed Cultural Bias in China
Apple’s failure to communicate with its customers effectively in China, created a cultural bias against them and sales of their products dipped. To acknowledge and resolve this issue, Apple learned to understand the Chinese culture and issued a public apology. It showed the people that Apple was ethically minded, humble and abided by certain valued. Apple’s apology went a long way in bridging its communication gap in China.[1]
Personnel Failure
A company is nothing but a veil over a group of people. The attitude and activities of these people can make or break a deal. Before entering into a transaction of irreversible damage, it is important to understand the people behind the veil. These people are not just those who represent the organization you want to merge with or acquire but may also be people in your own organization. They may be employees, senior management, board members, shareholders, suppliers or anyone else who can affect the outcome of your M&A deal. It is not always easy to recognize who they are or in what way they are impeding your transaction. We have divided them into the following categories:
1. The Moaners: Constant complainers
Moaners are those who complain about the M&A constantly. They may be members of higher management in your company or members of the other party to the deal. They either complain about the uselessness or unfeasibility of the deal, the parties involved in the deal or the effort required to put the deal into effect.
Take the moaners out of the transaction. They not only bring negativity to the table but also contribute to misinformation and create internal resistance to the deal.
2. The Egoists: Whose egos come in the way
In any successful business, there are always those whose egos swell. Their own self-importance comes in the way of the deal. They not only want the credit but need their personal greatness to be constantly validated. There are very sensitive to perceived slights, whether real or imaginary and tend to act out against the deal in such cases. Conversations with them, thus have the potential to become inflammatory or disruptive. They will require delicate handling. Make sure to not pander to their ego while also making them feel included in the deal-making process.
3. The Lackadaisies: Lax attitudes
They are lazybones who couldn’t be bothered about the deal. They feel that they are there to do their job and nothing more. It is important to keep such people away or reform their attitude towards the deal because their laziness might lead to incomplete or ineffective due diligence or failures to get regulatory approvals which can break the deal.
4. The Recalcitrant: Stuck in the past
The people with the “Old is Gold even in business” approach, who resist change and refuse to see the long-term benefits of the deal. The Recalcitrant are those who are stuck in the past. They have a stubborn view of the world and how things should be. They are too mulish to accept change. They will drag their heels over the deal and refuse to commit to it. It may be extremely problematic if they are your investors, financiers or shareholders. They might even be members of your top management.
Change is a constant in business. It is the result of many factors affecting your business internally such as your employees, suppliers, etc. or externally due to political, social, environmental or economic factors. If you or your organization do not adapt or change in tune with such internal or external factors, your business will be left behind. Competitors, new and old, will take advantage of changing technologies, opportunities in the market and your weakness to accept change will lead to your financial death.
So how can you reform the recalcitrant and get them to understand the value of the deal? Undertake seminars, meetings or discussions with them. The key will be to achieve acceptance to change. They must be made to feel that change is a normal part of the business. In time, they may even be able to anticipate and eagerly meet new challenges in your business environment.
5. The Obstructionists
They are the people who nitpick each and every problem and prevent the deal from concluding. The deal may go through a huge number of revisions, reprisals, added negotiations etc. due to these nitpickers but they are never satisfied. Early identification is important. Understand whether the revisions, reprisals or supposed faults in the transaction are bona fide or merely the claims of the nitpickers. Identify when these claims are bogus and veto them.
6. The Uninformed and Misinformed
The uninformed are those who have not done their research or have not done it correctly. They appear clueless due to their ignorance and at times, their naivete. They may be members of your team or the other party. The impression that they give is one of incompetence. The larger issue is that your business will have more to lose in the deal due to such incompetence. After all, the point of the M&A is to profit through synergies. Therefore, it is important to continuously forecast the future synergies that your business will gain through the deal.
7. The Unguarded
The “unguarded” are those people who are too trusting and rely on the other party for all critical inputs, decisions and information. As a result, they may get defrauded, duped or at the very least, short-changed. It is important to always keep your business’ interests in mind and evaluate each provision of the deal to see how your business may get affected.
Do not blindly trust or rely on the other party for any information. Always verify all the facts and figures and appoint your own valuers to double-check. The M&A deal must benefit your business as well.
[1] Katie Shonk, Cultural Barriers and Conflict Negotiation Strategies: Apple’s Apology in China, PON – Program on Negotiation at Harvard Law School, Daily Blog, (15 Feb. 2022), https://www.pon.harvard.edu/daily/dispute-resolution/dispute-resolution-in-china-apple-apologizes-for-warranty-policies/.
