The 6 Elements of Social Integration in Post-Merger Integration Strategy that Lead to Successful Mergers and Acquisitions

Companies are finding it increasingly difficult to achieve successful integration between two entities after merger and acquisition transactions. Why are these combinations such a challenge? For the most part, effective integration is often delayed due to the failure to adequately plan and execute the elements of social integration that are so critical in post-integration strategy and combined company success.

M&A transactions are typically driven by economics. Once the economics baseline is established, the parties execute extensive due diligence. However, sufficient resources are rarely dedicated to conducting due diligence on the social environment of the target company and how integration will work.

“Social environment” is the respective mission/purpose of the two companies, the core values, the strategic characters, the communication environments, the compensation structures, and the leadership cultures.

Here are 6 important elements of social integration to consider in companies’ post-merger integration strategy:

Purpose: Organizations are defined by their fundamental purpose. It is the source of commitment and the foundation for action.

Attempting to combine two organizations, each with an inconsistent purpose can be deadly. Why? At the root of any organization, people need more than just economic reward. They need to feel valued and feel that they are working on something meaningful. This is the starting point for achieving a combined organization. What to do? The integration team must enroll the management and employees of the acquired company in the acquiring company’s purpose, or develop a blended purpose. To simply dictate purpose will not facilitate a fast and effective integration.

Core values: Similar to purpose, core values are essential elements of any company’s culture.

Whether well articulated or not, every organization has core values. They define how people operate internally and externally and provide the social fabric of an organization.

In attempting to combine two organizations, there must be a consistency of core values. How people treat each other, clients, customers, colleagues, investors, and other relevant constituents is fundamental. When pursuing a combination, too often the acquisition team fails to develop blended core values that represent the combined enterprise. Again, the integration team needs to enroll the management and employees of the target company in the core values of the acquiring company or, alternatively, develop a new statement of values that reflects a graceful blend of the core values of the two companies.

Strategic character: A third critical element for effective social integration is strategy formulation and execution, or strategic character.

How do the two organizations develop and implement strategy? Is the process exclusive to senior management or inclusive of deeper levels of the organization? Is there a bias for

action or is strategy formulation a passive activity? Are the approaches consistent? The integration team must develop a coherent approach to strategy formulation with an inclusive approach that results in a strategic character that supports integration. Otherwise, there is a risk of people feeling disenfranchised.

Communication environment: What is the environment for communication in the respective organizations?

Are the companies committed to authentic, open, and valuable communication, or are

they are beset with gossip, lying, and wasteful communication. What communication is championed, what is discouraged, what is tolerated? By better understanding the communication cultures of the two organizations, the integration team can develop a communication environment where waste is eliminated and more value created in the combined enterprise.

Compensation structure: Of critical importance to the employees of both organizations and therefore to a successful integration is the ultimate system of compensation.

Is the same or similar behavior rewarded by the compensation systems currently in place? Are performance goals clear? Are there similar performance metrics? Are performance reviews consistent? What is the relevant percentage of compensation reflected in base salary, cash bonus, and equity participation? How do the benefits compare? Nothing can interrupt a successful integration more than disturbing an effective compensation system that drives productive behavior. Proper analysis of the two systems and processes, and accurate communication to the affected employees can avoid problems in this area.

Leadership culture: The final social issue that can have a dramatic impact on the success of an integration is the culture of leadership in each organization.

Leadership cultures can vary dramatically and are typically shown in the approach of the senior executive officers of a company, and particularly the CEO. They range from

open, transparent, and inclusive to closed, secretive, and exclusive. Again, the integration team must do a thorough job of due diligence. Since leadership culture originates from senior management, this is not an area where a blend or balance can likely be achieved. It either is, or is not. Conflicting leadership cultures can undermine any business combination.

In summary, if the integration team uses a post-merger integration strategy that prioritizes these crucial social issues, the odds of a successful and swift integration are greatly enhanced. Pay close attention. These issues are about people, your most treasured resource, and the effect that the M&A transaction will have on their lives.