Last week we published an article featuring Danny A. Davis’ tips for planning a successful merger. Davis explained that by planning early and comprehensively you can better manage the post-integration landscape.
Still, even the most comprehensive plan cannot account for every challenge and every unknown. Skeletons emerge from the closet that inevitably add some speed bumps to any integration. Efficiently tackling these challenges can be as important as building a detailed plan. Thankfully, Davis is as well-versed in handling these post-integration challenges as he is at planning mergers. As we continued the conversation, he spoke more about the typical challenges and some possible techniques to mitigate their effects.
According to Davis, proactivity is one of the best ways to prevent some of the most typical challenges. By identifying the most trouble-prone transitions and carefully managing their integration, you can prevent the problem from ever emerging. The trouble-prone situations often include division integration, finances, and politics in the office.
Integrate Divisions & Communicate:
Although a merger typically entails an entire company, individual divisions are often just as important as the entire company. Davis explained, “It is important to consider program management off the bat. It is important that you go through every function and every division – HR, Finance, IT, Sales, Marketing, Distribution, etc. In very large corporates, this can mean 25-30 different functions. It is vital to think about how to integrate each of those functions because each one pervades the whole organization. IT, for example, helps to manage the data and systems used by all the functions, in all the parts of business. To successfully integrate an entire company, you need to consider each of its pieces”
Davis, however, warns integrationists to not get too carried away with integrating divisions piecemeal. He explained, “Although it is important to consider each function individually, this can often yield a self-created problem. Since you have split out each function to integrate each of them, they stop communicating with each other. The IT department starts focusing only on IT, and stops talking to the finance department. It is important to ensure that the functions and divisions remain linked.”
If a firm becomes fractured, it will be unlikely to handle some of the inevitable integration challenges. It is for this reason that Davis encourages communication between teams and functions. “I always look at communications very early. These days, with e-mail systems, it is very simple to promote company-wide communication. Many companies do not do that.”
Take Control of Finances:
In addition to integrating divisions and promoting communication, finance is another area that needs to be carefully managed as soon as possible. Davis told us, “Finance needs to be consolidated relatively quickly. Many companies forget to quickly take control of the money. There are examples of employees at the purchased company, with access to the bank accounts, stealing money. Surprisingly, that still happens today. It is extremely important to get control of the bank accounts, get control of signatures on the bank accounts, and control the drip-feeding money. Essentially anything relating to funds.”
He continued, “When you purchase a company, there is usually little money in their bank accounts. As a result, you often inject some money early on. Ensuring that that money does not go missing is very important. Since the whole point of the deal is to increase profit, it would be a horrible waste to see money just disappear.”
The third major issue to quickly grapple with is politics. As Davis explained, “There is always a lot of politics in a merger. For example, if you’ve got two finance directors, you generally only need one. The consolidation will probably cause some politics, unrest, and issues.”
In some cases, office politics can be the root of more serious problems. Davis continued, “If you have two sales and marketing directors, you will need to consider the product range each director represents. If you keep only one product range after the merger, will you keep that director? If so, people may be incentivized to lie about future sales of products. This falsification could lead you into a difficult situation for the next year. If everyone has lied about sales, you will probably predict an unreasonably large profit. Inappropriate estimates can mean mismanaged capital, inappropriate strategies, and even a profit warning (if you are a public company). As a result, some of the politics and ‘lies’ may cause a double set of problems — issues with integration, products, and people, but also with financial predictions.