“Hindsight is always 20/20.” I’ve used that line more than I care to admit, to mollify an unhappy boss or placate an unhappy customer. (What I was usually saying under my breath was more like Damn! How did I overlook that?) It’s a lot harder to correctly predict future events than it is to second-guess a decision with the benefit of hindsight. Nowhere is this truer than with the merger of two organizations.
Merger announcements make big news, but ultimately merger success is measured by an increase in share value, usually driven by gains in efficiency or growth in market share. In other words, it’s the integration of often very different cultures and operating environments that determines the ultimate success or failure of the effort. Consider some of these key attributes of two banks, recently merged, that could not have been more different from each other:
|Target Market||2nd and 3rd generation high net worth individuals and families, and their businesses||Entrepreneurs and skilled tradesman—the successful ones may be 1st generation wealth in another 20 years|
|Approach to Sales and Marketing||High-touch, high profile personal relationships||“Traditional” community contacts and media channels|
|Organization structure||Highly specialized with significant silos between areas||No silos — “One for all and all for one”|
|Loan portfolio||30% commercial
|Products||Sophisticated and specialized||“Mass market” products and services|
|Pricing||Service-oriented; little direct price competition (Nordstrom model)||Products delivered at or below market prices (Wal-Mart model)|
|Core business hours||Extended hours, including weekends and most holidays||9 – 4, Monday – Friday|
|Staff attributes||“Relationship managers” coupled with specialists who provide very high subject matter expertise in specialized areas||Generalists, able to juggle multiple priorities and service all customers|
|Accountability for results||Clearly established; individual performance recognized and rewarded||Shared – “We will all sink or swim together”|
|Incentive compensation system||Virtually unlimited earnings potential for demonstrated high performance by individuals||Limited use of individual incentive compensation plans; most performance goals shared by entire departments|
|Software systems||Extensive use of “best of breed” systems with many integration points||Tightly integrated “bank-in-a-box” system with very little need for integration|
|Core software system delivery||Service bureau||In-house|
Subsequent to the merger, significant growth in the market value of the combined bank occurred. Why? Successful merger integration is about 20/20 foresight — anticipating what may happen, good and bad, and preparing accordingly.
Here are some Gonzo tips from this and other successful mergers.
Recognize that the single most important activity is selection of the right people to lead the mergerntegration team, and the second most important activity is to organize the team effectively. One good way to accomplish team organization is to make a list of all the functions in the bank that will be affected by the upcoming merger and then correlating those functions to specific individuals. Obviously, team leaders should be high-performers with strong leadership ability and the technical skills needed for their area — but leadership ability is more important than technical expertise.
Allow team leaders broad latitude in selecting their team members. This ensures that team leaders are personally invested in the success of their team. It also removes some of the “politics” from the process — operating level managers may have a very different view of an individual’s performance than others who are higher in the chain of command. It’s harder to fool one’s peers than it is to fool one’s supervisors!
Players with a variety of complementary skills make for effective teams. While team selection must take into account the differing knowledge and skill levels necessary for successful execution of the required tasks, it’s also important to staff teams with people from diverse backgrounds with dissimilar personality types. In the early days of the Walt Disney creative enterprise, Disney himself hand-selected team members so that every team included a blend of optimists and pessimists, task-oriented “subject matter experts” and “big picture” generalists unconstrained by TITWWADI (That Is The Way We’ve Always Done It). Teams which include a diverse group of people will be most successful.
Never underestimate the value of teamwork — never! It’s a truism that “All of us, working together, are smarter than any one of us acting alone.” Nowhere is that more applicable than in merger integration, where success will depend more on the quality of the team than on what any one individual personally contributes. There are two broad varieties of teams: ongoing permanent teams whose function is to accomplish certain activities on a continuing basis, and “tactical” teams whose job is to get a specific objective (such as a merger) done in a precise manner and within a specific timeframe.
Tactical teams are much more difficult to staff and organize than ongoing teams because:
The lack of a pre-existing team structure is one of the more common reasons why mergers don’t go well — the people working together may be called a “team” but they don’t really function as a team. We even know of one situation where management organized merger integration teams in a particular way for specific purposes, and then the team members promptly re-organized themselves into a completely different structure because they just didn’t like the people they were expected to work with! Suffice it to say that the merger suffered as a result of this lack of teamwork (and the weak management that allowed it to occur).
To the maximum extent possible, staff members from both organizations must be meaningfully integrated. Not just retained — integrated, with responsibilities commensurate with their experience and subject matter expertise. There was once a time when there were more seasoned bankers than there were jobs, but no more! The ongoing consolidation of the banking industry coupled with today’s world of baby-boomers approaching retirement has created a shortage of experienced talent. In most mergers, competitors gain a prize or two because the merging organizations fail to retain key employees.
Clarity with respect to which systems will be retained is important. People have a way of becoming incredibly invested in the systems they have used for years. There can be staggering internal resistance to systems changes — losing one’s status as THE expert on a given system can be very threatening. Achieving this clarity is particularly a problem when a larger bank with an inferior system merges with a smaller bank with a superior system! It is necessary for management to choose which systems are to survive — and then the merger integration team must be disciplined and effective in carrying out management’s wishes.
Pay careful attention to product alignment. Customers like what they are used to, but mergers require consolidation and standardization. Choose carefully which products will be dropped, which will be retained, and which will simply be grandfathered. This is the one aspect that will be most visible and that will generate the most calls to the call center — it has to be done well!
Recognize that it is not possible to plan too much nor is it possible to test too much. The operational success of mergers are determined by the people at the tactical level who make them happen, and operational success is determined by the breadth, depth and quality of the planning and testing processes. The pre-merger preparations that occur, both with respect to systems and with respect to the products and business processes that will survive, will greatly affect the outcome. In today’s world of highly-automated, customer-visible systems, project plans can’t be done on the back of a napkin, and the testing approach must be structured and thorough.
Quickly implement a “shared vision” of the quality standards for the combined bank post-merger. Resolve differences in the expectations for the quality of service to be provided near the beginning of the merger process and then communicate them regularly throughout the transition.
Share information — early and often! Having all staff members understand what will change and what will remain the same is key to enabling them to serve their customers well. Cultural integration doesn’t occur when the merger is completed — in fact, it is just beginning when the merger occurs. Full integration and assimilation is a process that requires years. Continuing the communication and training efforts that began with the merger announcement until there are no discernible differences between locations, departments, “their way” and “our way” is vital.
Don’t re-invent the wheel. Establish and faithfully follow good project management processes and procedures, and then perform a thorough post-merger assessment to objectively determine any needed improvement for those items that didn’t work as well as expected.
Merger success is not achieved with the benefit of hindsight. Smooth mergers are all about having a clear vision for the future and then taking steps up front to realize that vision—20/20 foresight.
Cornerstone Advisors has helped numerous merging organizations align the strategies, systems and cultural dimensions of their separate organizations into one focused institution.
If you’re contemplating a merger or acquisition, don’t wait until after the fact to see what you might have done differently. Contact us today to learn how we can help you apply 20/20 foresight to your efforts.