If we talk about the merger as a process, then integration is the final step after the initiation, search, and negotiation phases. The actual activities to implement the integration goals take place in the integration phase. This phase is of the most significant importance in terms of effort and relevance to success. At the same time, however, it also harbors the most critical risk.
The Integration Concept
As a rule, integration in a merger is defined as merging companies or company components. Distinctions are made according to the depth of integration. Many design options and frameworks range from purely financial participation to cooperation with extensive independence to a total merger.
During the integration phase, both corporate cultures have to be brought together. The employees of both companies have to reorient themselves, and a new civilization emerges from a mix, or the acquired company assumes the culture of its buyer. If this works, both companies’ employees can identify with the newly created company. After a while, renewed motivation for work, without wasting energy on rumors and stressful fears and uncertainties, becomes possible. The integration process must be controlled: under no circumstances should you leave it to chance. Otherwise, you run the risk of the process developing in an entirely different manner than intended. Even when integration moves in the right direction, it takes a lot longer without support and control. This delay results in significant financial disadvantages for the newly created company.
Related: Post Merger Integration.
Emotional Consequences of Mergers
Mergers present all those affected with profound changes, so it’s crucial to manage, support, and accompany the integration of both companies. People comfort the security and predictability of the known and perceive the far-reaching processes of change as new and uncertain, manifesting as feelings of insecurity, confusion, or fear. A corporate merger forces employees to leave their comfort zone and face changes that are often uncomfortable for them.
The extent of the changes a merger imposes upon employees depends mainly on the depth of integration. If far-reaching integration is planned, the changes will go deep into the company. The organization is highly vulnerable in this situation, and employees may act based on a general mood that is difficult to predict and control. Rational arguments receive limited attention, and emotions surface on a scale that may have never been seen before, which strongly affects how employees interpret the actions taken by executives. A merger must create overall meaning for the parties involved. Those actions may serve to reassure employees or stoke their uncertainty.
For those affected, M&A represents events that not only affect the existing company culture and their places in it for a short time but are also perceived as significant states of tension. The M&A places increased demands on employees’ adaptability. Those demands interrupt existing routines and present those affected with changes that can affect the individual directly (e.g., through downsizing) or indirectly (e.g., changing norms or working methods). One also speaks of “merger syndrome” when mergers lead to a loss of identity and autonomy.
As soon as employees learn of the merger, uncertainty spreads. The following questions express that uncertainty:
- Why is our company going to merge?
- Are we now employees of a new company?
- Are we directly being paid by another company?
- Will the money come in on another day?
- Will my job change?
- Will my salary change?
- Will our location be closed?
- Am I going to lose my job?
- What happens to my team, my colleagues?
- Do I have to commute or move to another location?
- I have been with the company for a long time: is my seniority affected?
- How, when, and by whom will we be informed of all upcoming changes?
- Will anything change in our customer and supplier relationships?
The fear of the unknown stresses those affected. Fear becomes the basis for employees’ highly subjective interpretations of the situation and a breeding ground for rumors. Failure to carefully manage the integration process and pay heed to employees’ stress and emotions result in resistance, counterproductive behavior, or mass exodus.
The negative impact of emotion and stress on productivity is evident. When merging companies, executive management must decide whether the two organizations can be merged so that the newly emerging company will solve problems and form a new culture that benefits from the resulting synergies, or whether both companies should go their separate ways.
Although these fears exist for most affected employees, some employees may see opportunities in the merger. Those employees’ hope for positive changes is more significant than their fear of change. These employees should be called “change agents” because their openness to the new situation allows them to span the old company culture and the new.
Pre-merger culture surveys
Ideally, the M&A process checks before the merger to determine whether the two merging companies will fit together. Do not limit this pre-merger examination to common business goals, markets, products, technologies, and financial compatibility. After the merger, at least one of the merged companies has to abandon or change its ways of thinking and to work. It is, therefore, necessary to review the basic, unspoken assumptions made by the merging companies.
Unfortunately, this is often not done with the necessary thoroughness. An intensive examination can be complex because the intended merger often has to remain a secret. Assessments are usually carried out using questionnaires or observation. On the other hand, group interviews have the advantage of determining the collective opinions and exclude irrelevant, individual views.
To avoid significant difficulties in the integration process, check the merging companies for cultural compatibility before deciding for or against a merger. Widely divergent company cultures make completion of the integration difficult or even impossible. Negative attitudes of the employees concerned may derail the formation of a new shared culture because they will not identify with the newly created company.
Motivation for change
Planned change in corporate cultures is a long-term and challenging undertaking. One of the prerequisites for success is to convince employees of the necessity of change and motivate them through broad participation to support the integration process.
You cannot buy or force changes in corporate culture. They can be initiated and promoted at best because the employees have to change voluntarily and out of conviction. Old behaviors and thought patterns that are no longer successful will lead to a crisis. In the case of strongly differing cultures, misunderstandings, demotivation, and mistakes occur due to different and sometimes opposing behaviors and thought patterns.
In a merger, two factions come together. In the worst-case scenario, both companies have previously worked successfully and independently of each other. That means the employees of both companies are firmly convinced of their values and ways of thinking, which “the other” considers unsuitable. It is paradoxical, but the actual negative benefits here: a merger always arouses fears. Fear, of course, paralyzes the employees’ effectiveness, but at the same time, creates the motivation to change. Fear leads to a worry for survival and forces employees out of their comfort zone because they feel uncomfortable with their negative feelings.
Post-merger integration is critical to the success of the merger. Drastic changes accompanying the merger often result in strong emotional responses, such as fear and insecurity, in the employees concerned. Negative emotions, in turn, can lead to low morale, reduced productivity, or even leaving the company. It is therefore important to deal specifically with the emotional consequences of the merger.
The integration–especially the merging of both cultures–must be controlled and supported. This is necessary to prevent the newly created company from developing in the wrong direction and implement the integration as quickly as possible to bring the employees back to a state of comfort in which practical work becomes possible. Use employees who are open to the upcoming changes to help others assimilate to their new corporate culture.