How to Increase Merger and Acquisition Success
Increase Banking M&A Success – Integration Planning, Decision Making and Communications

Introduction
According to the Harvard Business Review, 70%-90% of attempted mergers and acquisitions fail to achieve their envisioned benefits. While this daunting statistic spans all industries and relates to many factors, a key factor for banks is the effectiveness of the integration planning and execution process. In particular, banks that bulk-up need to plan for greater business and operations complexity. In short, a $10B assets bank’s operating model may not be appropriate for a $20B or $50B assets bank and may be a hindrance to achieving economies of scale. Our goal is to highlight key success factors that contribute to integration success, starting with addressing three common pitfalls associated with decision making during the integration:

  1. Lack of concrete decision making approach
  2. Failure to document decisions as they are being made
  3. Inability to effectively communicate decisions to the rest of the organization

1. Lack of concrete decision making approach
Developing and articulating a thoughtful decision making approach is important for two reasons: 1) it requires a lot of careful planning and executive consensus and 2) it impacts everyone. The more leadership dances around the responsibility and accountability of decision making, the more indecision and project delay occurs.

From our experience, organizations that are most successful in developing a strong decision making approach are those that follow the below process:

M&A Graphic

As we have seen, failure to develop an effective approach and communicating it downward can result in a significant degradation of progress, direction, and employee motivation.  While some employees and stakeholders may struggle with the new decision-making approach, it is critical to guide the effected teams early and throughout the integration.

To ensure clarity of direction and keep the integration on track, we recommend creating a target operating model review to determine whether to leverage your existing strategy and operating model, (as is the case for many acquisitions) or pursue more drastic changes (as can be common in mergers).

For decisions that are delegated, department owners must be held accountable for the outcomes and respect the existing decisions to develop consistency and trust in your teams. We have seen near mutiny in some cases where executives overturned earlier decisions the departments thought they had the authority to own. Organizations that successfully empower their teams with decision making authority have developed a strategy and process based on thresholds such as cost, size of customer/member impact, or decisions that impact multiple departments.

Lastly, when faced with competing priorities, you need to determine and communicate which type of lever should influence the decision most: customer/member experience (quality), cost, or time. Failure to provide this direction to your employees could significantly slow the decision-making process and could lead to decisions you may not find favorable.

2. Failure to document decisions as they are being made
This pitfall can be avoided by diligently and centrally logging the decisions as they are made. Help your teams by first building an inventory of upcoming decisions so they understand what lies ahead. This may seem simplistic, yet many organizations fail to establish a process that is effective and easy to execute. Moreover, when teams get busy - which they will - keeping up with the rigor of doing simple things like documenting decisions is the first to go.

Irrespective of whether your organization is large or small, there is significant benefit to be gained from documenting your decisions. Large organizations have more decisions to make and constituents to communicate those decisions to; documenting them as you go will prepare your teams for the communication and dissemination of that information down the road. In smaller organizations, decision makers often fail to consult impacted individuals prior to making the decisions, causing decisions to be revisited later in the integration. Without documentation, there isn’t the history and rationale to describe why a decision was made, leading some to question or feel the need to change decisions unnecessarily.

Regardless of size, there are literally thousands of decisions made during the integration process. Additionally, there are often only a handful of decisions with the potential to severely positively or negatively impact your customer/member and/or employee base. Without an easily accessible decision log that clearly articulates the customer/member and employee impact, you may not possess sufficient information to understand the true status of the integration. If possible, put one or more customer/member advocates near the center of the decision-making process to help guide teams to put their customers’ experience at the center of their decision making process. It’s too easy to only think from the outside in, and we all need a constant reminder from the customer point of view of what the experience will be if we make decisions solely based on what’s easiest for the employees. Without maintaining or improving customer/member satisfaction post integration, you will not be able to retain customers/members, a key success factor for any integration.

3. Inability to effectively communicate decisions to the rest of the organization
Communication and timing plays a big role in change management and an organization’s readiness to integrate. For example, while you may make product and pricing decisions in the early stages of your integration, communicating those decisions too early to employees could lead to uncontrolled information leaks to customers/members. If however you communicate this information too late in the integration, your employees will not have enough time to implement system changes that  are impacted by product and pricing decisions, also resulting in the frontline staff not having enough time for training to support customer/member questions.

Organizational structure decision making is another classic example where carefully timing and delivering the communications to the rest of the organization is critical. You only get one chance to roll this communication out, and from an organizational change management perspective it is crucial to get this right for all the downstream work that lies ahead. Without proper documentation and a plan regarding how the decisions will get disseminated, seemingly straightforward decisions such as overdraft limits or chargeoff processes end up spreading by word of mouth. These hallway discussions may cause downstream challenges for those running the integration.

Develop a thoughtful communication plan that includes when certain decisions will be made—to whom and by whom—and stick to the plan.

Conclusion
Like anything, you will stand a better chance for success if you begin with the end in mind. In this case, it requires performing the hard work early to build a thoughtful decision making approach, documenting decisions as you execute your strategy, and communicating those decisions in a thoughtful and timely manner.

If you have experienced other success or failures with decision making in a recent merger or acquisition, we’re interested in hearing your perspective.  Please do not hesitate to contact us directly, or for more lessons learned and general M&A best practices, we encourage you to read our M&A Playbook.

 

References

Harvard Business Review, March 2011

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