Archive: May, 2019

4. Beating the odds

The failure rate of mergers and acquisitions is well known. Study after study puts the failure rate of somewhere between 70% and 90%. Responsibility rests largely with poor change management, that is, a failure of leadership, communication or planning.

In the fourth in the series of blogs about change management in procurement, I consider the role during a merger. I have led the procurement activities in a merger for a number of clients and follow the planning, transition, optimisation (PTO) methodology. In my experience, procurement is uniquely placed to deliver the lion’s share of the benefits including cost reduction. Procurement savings are greater and can be delivered more quickly than those from, say, financial re-engineering or organisational design.

A merger is an agreement that unites two existing companies into one new company. Mergers and acquisitions are commonly done to expand a company’s reach, expand into new segments, or gain market share.

There are two types of mergers: horizontal mergers involve companies with similar area of work e.g., Chevron and Texaco; and vertical mergers involve companies with diverse area of work e.g. AOL and Time Warner. From a change perspective, vertical mergers are more challenging.

If a merger is seen purely as a financial transaction, then the benefits will not be realised. If it is seen more widely, that is, the union of two different cultures then success is much more likely. Trompenaars and Hampden-Turner’s model of national culture differences is a framework for cross-cultural communication applied to general business and management. The model has seven dimensions that can be equally applied to companies in a merger or the buyer and supplier in supplier relationship management (SRM). It can help the leaders of both companies involved in the merger face the challenges such as cultural management, stress management, redundancies, organisational change, resistance to change, job insecurity, talent drainage and low motivation.

There are several models of the change process include Kurt Lewin‘s which suggests 3 stages: The first stage is unfreezing the organisation’s existing culture by discontinuing current practises, attitudes and behaviours. The second stage is transition which basically involves teaching the work force new concept like category management or the use of new technology. And the final stage is refreezing the culture by reinforcing new practises, attitudes and behaviours once the change was implemented.

Effective change management is critical to any merger. Procurement and supply chain is uniquely placed to deliver the synergy savings. Combining the two means that companies have a much better chance of beating the odds and delivering a successful merger.