Communication has a key role in making M&A successful, says A. P. Dash in ‘Mergers and Acquisitions’ (www.ikbooks.com). “As a popular saying goes, the certainty of misery is better than the misery of uncertainty. Lack of communication increases uncertainty and weakens the confidence of employees in the management,” he adds.
Adopt a good communication strategy to ensure that rumours are not allowed to fill the information gap, advises Dash. “Employees must be informed about the acquiring company, the proposed changes and the impact of these changes on the employees. All efforts should be made to reassure the employees of the acquired firm and make them understand the intentions and philosophy of the acquiring company.”
Decisive leadership is best provided by a single individual, not by a two-man team or a committee, the author opines. He is of the view that if two co-CEOs are named after the merger, there will ensue a period of uncertainty during which people wait to see who finally gains the upper hand.
Two reasons for deal failure
In a section on ‘merger management,’ Dash identifies two main reasons for the failure of an acquisition, viz. the tendency to lay too much stress on the strategic, unquantifiable benefits of the deal; and the use of wrong integration strategies.
He rues that many companies begin with a lot of confidence about generating cost savings, without taking into account the practical difficulties. “For example, a job may be eliminated, but the person currently on that job may simply be shifted to another department. As a result, the headcount remains intact and there is no cost reduction.”
A common flaw, again, is to enter a merger hoping that efficiency can be improved ‘by combining the best practices and core competencies of the acquiring and acquired companies.’ Alas, cultural factors may prevent such knowledge-sharing!
Cultural factors
To explain the importance of cultural differences between pre-merger entities, the author narrates a snatch from Elashmawi, et al. (1993), which begins by observing that from the outside, a tree grown in California would probably look just like a tree grown in Japan.
“However, the growth of each tree is largely dependent upon the soil that the roots of the tree have to ‘interact’ with in order to grow. The strength of the roots is also dependent on the environment the tree is exposed to, from sunshine to thunderstorm.”
So too, say the researchers, the values of a particular culture are like the roots of the tree, and these roots are the source of strength needed by the tree in order to survive in the surrounding environment, that is, the society. Moral: ‘You cannot transplant a tree unless you prepare the roots for a new soil.’
Useful addition to the business managers’ shelf.
