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The Seven Deadly Sins of Post-Merger Integration

by Mark L. Feldman

August 11, 2009

Acquisitions and mergers are painful to the IT organizations that have to integrate the two systems. Avoiding these seven mistakes will make their lives much easier.

Insiders have wryly noted that with the exception of idleness, the seven deadly sins - gluttony, lechery, pride, envy, wrath, idleness, and greed - read like a list of Wall Street virtues. For merging companies, another list of sins is worth noting, if you plan to be more than a footnote in history.

Sin #1: Obsessive List Making

Within days of announcing a deal, the lords of the IT infrastructure begin compiling encyclopedic lists of things to do. As each day passes, more detail is added, making the master list a mind-numbing, morale-destroying, ego-deflating, knee-buckling, litany of things to do. There are few clear priorities, more data to gather than people to gather it, and too many prerequisites. Backed by 10 linear feet of Gantt charts, it looks simultaneously impressive and impossible to complete before hell freezes over.

List-driven integrations are prolonged integrations. Administrative detail and marginal cost-cutting somehow get the same priority as higher value-creating actions. Resources are diluted, important initiatives are undercapitalized, and results are suboptimized - all in the name of getting everything done. Slow progress, frustrated staff, and misallocated resources are the result.

Redemption: In most mergers, 20 percent of the post-deal business initiatives are likely to drive 80 percent of the economic value with the highest probability of success. Savvy CIOs will align their post-deal priorities with these initiatives. All available resources - time, management, and capital - should be allocated first to these value-creating priorities.

Sin #2: Creating a Planning Circus

There is an old yachtsman's creed: "If you can't tie good knots, tie a lot of them." Many companies seem to apply this to transition teams. Out of some misguided sense of representational democracy, they form dozens of teams from both organizations to coordinate post-deal decisions and activities. It always seems sensible, given the complexity of post-deal integration and the penchant for IT folks to debate every detail.

Inevitably, the size and number of teams dictate that they be organized into a Byzantine structure that superimposes its own mass, complexity, and inertia on the integration challenge. This, of course, slows progress and dilutes accountability. The opportunity cost, productivity losses, delays, and sheer expense of coordination escalates operating costs, stalls consolidation, and fuels confusion that spills over to the rest of the organization.

Redemption: There is a difference between an agile fleet of teams and a bloated armada. Build your transition teams around the 20 percent of actions likely to drive 80 percent of the post-deal value with the highest probability of success. Avoid creating teams around actions best left to competent individuals. Keep the teams small in size, as a team of more than five people has difficulty simply coordinating calendars to schedule the next meeting.

Sin #3: Content-Free Communications

Initial post-deal communication tends to be 99 percent content free - consisting primarily of hype and promotion. There are always more questions than answers.

Imagine you have acquired 500 employees who are only a little insecure about what the merger means to them, and that they spend only 30 minutes a day wondering, speculating, and trading gossip about the future. That comes to 250 hours of lost productivity per day, 1,250 hours in a five-day week, and 5,000 hours for every month you leave them uncertain. Plug in your own numbers. Similar economic models apply to customers postponing buying decisions, suppliers holding shipments, and investors moving their money elsewhere.

Communication stabilizes. It keeps people focused and energized rather than confused and perplexed. When stakeholders - employees, customers, suppliers, and investors - spend time worrying and wondering, they are not producing, buying, supplying, or investing.

Redemption: Quickly craft position statements addressing the likely concerns of all significant stakeholders. Communicate as much as you know as soon as you know it. Tell the truth and tell it first. Communicate consistent messages continuously, repetitively, and through multiple channels - no secrets, no surprises, no hype, no empty promises.

Sin #4: Flirting with Jail Time

The Sarbanes-Oxley Act requires the CEO and CFO to attest to the accuracy of reported financial data and the effectiveness of internal controls on a quarterly basis.

Disclosure of controls weaknesses can result in precipitous drops in share price, market embarrassment, and investor retribution. The Act carries jail-time penalties and heavy fines for failure to disclose fraud or material controls weaknesses on a timely basis. That includes the internal controls of acquired companies.

The post-merger transition period is a fertile environment for fraudulent activity. Everyone is distracted, internal processes are changing, undocumented controls allow cross-checks and approvals to fall through the cracks, and data is frequently lost - both accidentally and otherwise. It's a setup for failing the Sarbanes-Oxley audit of internal controls.

Redemption: Unless you're feeling very lucky or have a driving desire to taunt the SEC or increase your board's stress levels, early post-merger integration should involve more than just sorting out user access. It means early consolidation and redefinition of user roles, remediation of new segregation of duties issues, and verification controls across heterogeneous systems. Accomplishing these cross-system tasks on a timely basis in a rapidly shifting environment requires the cross-system access capabilities of SAP NetWeaver and a controls solution that can execute real-time cross-system analysis.

Sin #5: Emulating a Barnyard

Barnyard chickens have a well-defined pecking order. Mix in another flock and you disrupt the pecking order. The rules governing which bird can peck another become uncertain. Fights erupt. Feathers fly. Some are wounded. Some die.

CIOs seldom experience more pressure to clarify authority, control, and reporting relationships than during the integration process. Succumbing to "org chart" pressure, their decisions often favor form over function, titles over accountability, and hierarchy over role clarity. The result is barnyard behavior.

Charts that focus on reporting relationships generally disrupt productivity, as people struggle to interpret the hidden operational and career effects. This impedes IT support for the transition, reinforcing the perennial perception that IT is the proverbial tale wagging the dog.

Redemption: Trying to create an efficient IT organization by drawing static reporting lines is like trying to make it rain by washing your car. The post-merger organization should be about rapid execution. Set the expectation that it will dynamically shift with post-deal priorities and timing. Align IT priorities accordingly, determine who owns what decisions, assign individual/group accountability, and organize around that.

Sin #6: Putting Turtles on Fence Posts

IT managers will begin jockeying for position early. Senior executives either attempt to take care of their own people or bend over backwards to show impartiality, deploying as many of the other managers as possible. Rarely is there enough information to make informed decisions. The most common mistake is using selection decisions to balance horse-trading that began when the deal was struck.

These misguided attempts at recruiting democracy end up resembling a quota system that violates every proclamation management ever made about the importance of performance. The result is too many people in jobs that can neither be defended nor comprehended. An old Chinese proverb says: "If you see a turtle on a fence post, you know someone put it there." Its relevance to modern-day mergers and executive selection is apparent.

To make matters worse, executive turtles increase the moron ratio. To cite an old Silicon Valley saying, "First-rate people hire first-rate people, second-rate people hire third-rate people, and third-rate people hire morons." Mistakes made at the top cascade down.

Redemption: Selection decisions based on a manager's apparent political capital and paper qualifications short-change both company performance and culture. By basing selection decisions, instead, on proven performance against achieved stretch objectives - past or present, you can avoid putting turtles on fence posts and fuel growth.

Sin #7: Believing that Culture Is About Values

Many executives believe it is possible to merge cultures gradually through contact and interaction. Ironically, social scientists once referred to this discredited strategy as the "contagion approach" - analogous to the spread of infection.

You cannot merge two cultures by waving a banner proclaiming common vision and values. Cultural change doesn't come from newsletters, logos, screen savers, or success posters. It's not about hype, promotion, mantras, or prayers. Integrating two cultures requires integrating two idiosyncratic behavior sets.

Redemption: To integrate the cultures, you must induce people to try new behaviors by clearly communicating and reinforcing those behaviors you want to be most characteristic of you company. This can be done by deploying role models in highly visible management positions and recognizing and rewarding the behaviors whenever they are observed. This is the fastest and most certain way of forging a new culture.

In the End

A few years ago, a PricewaterhouseCoopers survey of acquirers asked what they would do differently if they could start over. Eighty-nine percent said they would have executed the post-deal transition more quickly. Perhaps the greatest sin is moving too slowly.

This article is based on Mark Feldman's business book, Five Frogs on a Log: A CEO's Field Guide to Accelerating the Transition in Mergers, Acquisitions, and Gut-Wrenching Change, which has sold more than 56,000 copies and has been published in six languages. Formerly a partner and global practice leader of PricewaterhouseCoopers' mergers and acquisitions consulting business, Mark is currently senior vice president of strategy and business development at Virsa Systems (

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