Chances are that, at some point in your career, the company you work for will face a merger or acquisition (M&A) and need a change management strategy. According to KPMG, 2021 was a defining year for M&As and 2022 has been even bigger.
Almost 40% of all mergers in healthcare in 2021 were in the senior care sector and mainly led by private equity investors. A trend which is likely to continue as 40% of skilled nursing owners and administrators expect to sell some or all of their nursing home holdings in 2023, namely increasing the number of regional operators.
Interestingly, despite the rise in M&As, the Harvard Business Review reports the failure rate of mergers and acquisitions consistently falls between 70 and 90%. Meaning deals are closing but failing to deliver the expected results. Researchers have found that frequent and open communication is central to post-deal integration and value creation which is where many companies fail.
What is change management?
Mergers create vast organizational anxiety about the future: in most cases, the operating model and culture will change dramatically for one or both merging companies.
These changes go far beyond a new name and senior leadership; they challenge the core of an organization’s identity, purpose and day-to-day work. Even small changes like new expense policies can rattle employees.
Anticipating and addressing these organizational changes can set the foundation for seamless, effective integration. Failing to anticipate and address these issues can lead to poor business performance, a loss of critical talent and the leakage of synergies.
According to Mckinsey & Company the two types of changes that affect employees during mergers are culture and ways of working. In other words, aligning what the company stands for and how the work gets done. This encompasses management practices, values, leadership models and working norms, as well as an operating model that adapts to new ways of organizing the company and running the business, organizational structure, roles and responsibilities, decision rights and processes.
That’s a lot of change to prepare for and implement while still staying flexible enough to recognize and take immediate action when some things just aren’t working. This is why a change management strategy is so important.
The four phases of cultural change
Cultural change involves four distinct phases says Mckinsey:
- Set the direction, incorporate strategic priorities, define desired future culture to support strategic priorities and deal rationale. Align top team around compelling inspiration: vision, strategic priorities, culture, operating model and performance requirements.
- Energize the organization, and begin to cascade. Tailor integration approach to support strategic direction and cultural priorities. Develop a compelling change story.
- Hardwire the changes. Design detailed processes, policies and governance and develop culture and a change-management plan and phase in line with the company’s capacity for change.
- Drive execution: buy-in from senior executives who model and support cultural and operating model changes. Track your progress against your master plan.
The critical role of internal communications in change management
Mergers and acquisitions can be great ways to accelerate growth, but when they fail to produce the desired result, a common factor is poor communication.
When a change is announced, employees often speculate and the rumor mill can start. The first thought for many employees is, “Will I still have a job when all this is over?” This can cause panic if they aren’t getting the answers they need.
Poor communication will not only lead to uncertainty and rumors, but it will also impair employee engagement, reduce motivation and work quality, and ultimately impact the bottom line.
Whether you’re buying or selling, it’s important to keep your employees in the loop by communicating openly and effectively.
“One of the great ironies of M&A activity is that trust, a key ingredient for business success, often quickly dissolves, as M&A activity is usually cloaked in secrecy,” says M&A consultant Jennifer J. Fondrevay in Harvard Business Review.
“Since employees often feel blindsided when a deal is announced, company leaders and other internal communicators can minimize the negative impact of M&A by creating a proactive communications strategy,” she says. “The communications team should prepare messages for target audiences, develop a timeline for announcements and appoint or apprise company spokespeople. There should also be a contingency plan in place for unexpected events. Employee trust is too costly to lose.”
Protect against brain drain
Since people at both companies are concerned with job security and responsibilities, employees want to know what changes are coming and when. Legal regulations can make it difficult for executives to be transparent, but when management haphazardly says that “nothing will change” in an effort to keep employees motivated, trust will be damaged when things do, in fact, change.
If employees are kept in the dark or lied to, even unintentionally, many will choose to leave. Mass talent departure is one of the reasons M&A deals fail post-acquisition. In an effort to prevent your best people from leaving, especially during a historic staffing shortage, share information early and often and be as transparent as possible.
Avoid culture clash
During a merger and acquisition, company culture will be affected whether you want it to or not. When two companies’ philosophies and values do not match, M&A deals often fail. According to Deloitte, “culture is inextricably linked to performance, especially in an M&A context. The question is not if – but how – companies should manage culture to safeguard the value of an M&A deal.”
The key to unifying a new company? Consistency. To minimize clashes, work to develop a cohesive culture. Communications teams should create a plan which conveys the values and vision of the newly joined organizations, while company leaders, spokespeople, and marketing teams should all use the same messaging.
M&A’s can be long, complex processes which have a significant impact on employees and increase stress, anxiety and uncertainty. After the deal closes, internal communicators need to maintain momentum, minimize culture confusion and work to improve employee morale.
When learning of a merger or acquisition, the first reaction from employees is often anxiety and fear and whether their job is at stake. The first step in overcoming panic is to let them know the full scope of the situation.
Some mergers have little or no practical impact on employees—for example, when one company buys another primarily as a financial investment and keeps the target’s operations fairly independent. More often, however, change is inevitable, and employees need to know how they will fit into a new environment.
To help reassure them of their path forward – whether that means upgrading skills, or exploring opportunities elsewhere in the new organization – help them embrace the change rather than fight it.
Two areas to focus on are:
- Highlight the strengths they bring to the table within a blended organization: technical expertise, interpersonal skills or unique knowledge about a particular business line.
- Emphasize expertise (either within the company or industry, with suppliers or customers) will be beneficial after the merger.
- Paths for advancement.
- An improvement in the organization’s reputation and financial standing.
- A stronger company with new opportunities for growth.
- Learning and training opportunities to refresh and upgrade skills
The last word
If a company fails to communicate change effectively during a merger or acquisition, it risks its employees’ loyalty and trust, employee retention, company culture and long-term success. Effective communication is critical during M&As:
- Frequent communication reduces uncertainty and maintains a trusting relationship with employees.
- Proactive communication eases job security concerns and can retain valuable employees.
- Intentional and consistent messaging can cultivate a unified culture.
- Open communication can facilitate post-deal success and long-term profitability.
Whenever a merger or acquisition deal is on the table, keep your employees in the loop as much as possible to help ensure your M&A becomes one of the 10 to 30% that do succeed.