March 19, 2013
FRBuyer: Five Tips On Making Mergers Work
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine. A long-time Harris Teeter executive, Mr. Harris is a former chairman of the National Frozen & Refrigerated Foods Association and a member of the Refrigerated Foods Hall of Fame.
Based on what I’ve seen over the years in the supermarket industry, consolidation can be good and bad.
On the plus side, you get more buying power. Years ago, before Harris Teeter bought Food World, we were buying half trucks. Afterward, we were buying full truckloads, so we got better cost and more leverage with the manufacturer.
On the minus side, lots can go wrong. This doesn’t have to happen, but it usually does. I wish both sides would go in with a better handle on what to expect and how to resolve issues. Here’s my checklist of issues.
1. Make decisions, and move on. Being careful is one thing; being paralyzed is another. All too often, people are trying to score points at meetings or are afraid of change, so nothing gets done. This is an important time, and your competitors are watching you. Keep moving.
2. Have a plan for marrying up the IT systems of the two companies. That’s a struggle that pretty much every company goes through during a merger, and fumbles here are common. My advice to anybody going through this is simple: Don’t rush things to meet an arbitrary timeline. Communicate, and get input from everybody who’s involved. For example, if you miscommunicate any of the code numbers of the products you order, you’re going to have out-of-stocks and that’s trouble.
3. Don’t be in a rush to change the name on your storefronts or your private label packaging. If the company being acquired has been doing well, consider just leaving it alone without imposing a lot of changes. Don’t tick off the shoppers by deleting some of their favorite items, or forcing in a bunch of new items from a different region. Survey your shoppers about their concerns. If you do decide to change over your store brand, give your suppliers plenty of notice so they don’t print any more labels.
4. Meetings are better than memos when you are going through a merger. Don’t just keep everything at the top management level. Middle managers should also get input from their direct reports. Memos are open to interpretation and the rumor mill and they can get passed around too easily, especially if they are e-mailed.
5. Do your homework if you want to keep your job. You may be re-interviewed for your job, so be prepared. Know your business and the numbers behind it. Have a specific plan of how you are going to increase the business of the two merged companies. Whatever it is, think it all through and be ready to talk about it.
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Discussion Questions
What critical mistakes do you see being made by companies that go through the merger process? What would be your advice for retailers looking to make a merger work for all the stakeholders involved?
Poll
The points in the article are all good. My addition to the list is to better understand how two merger forces interact: the desire to cut operating costs and the desire to improve long-term growth.
All too often we have seen cost cutting go into effect early without understanding how that can minimize revenue growth. Nips and tucks can look great on accounting documents, but may cause hemorrhaging where you can’t afford it. Someone has to look into overall effects and align goals with actions.
Integration of staffs gets little attention in the real world. A strategy to bring two groups of people together to work as one team should be part of the plan…not for just the near term, but for the long haul. Oftentimes management thinks the answer is to replace those who don’t fit some abstract profile. Performance reviews are not sufficient. Understanding the dynamics of how two different companies functioned in terms of their cultures and guidelines is important in planning how to make the best of two disparate groups of people.
Slice and dice may be appropriate for mixing ingredients for a stew, but not for a newly formed organization made up of two pre-existing entities.
I would add one piece of advice in addition to the excellent suggestions presented, particularly #3. The cultures of the two organizations need to be fully understood and integrated if the merger is to work as planned, specifically, producing greater efficiencies and effectiveness. I am reminded of the sagely advice that “Culture will eat strategy for breakfast any day of the week.” Develop and execute a plan to successfully integrate the respective cultures, especially if they are disparate.
The synergy between two companies needs to be as seamless as possible for the customers to not feel an abrupt change. Mr. Harris makes a great point about decision making and merging systems.
For all parties involved, it’s important to stay in communication. When decisions are made at top level that effect workers, communicate that to the employees having to carry out the tasks. Get their opinions and be realistic about the timeline of goals. Merging can be beneficial for all parties involved, so paying attention to the details is crucial in making new partnerships flow.
Uncertainty hurts morale and paralyzes decision making. As part of the due diligence when buying the company, someone needs to think through the issues managing the merger. When employees do not know what is happening to their work, workplace and job, there is a lot of posturing, defending turf, and delaying of decisions. The longer the uncertainty goes on, the longer the company languishes in indecision and the more good employees leave.
All the points mentioned above are good and important. As an analyst, I would also add that you need to understand what can be done leisurely, for example, integrating IT systems vs. what needs to be done quickly, for example having an integration plan. All too often it seems that companies are bought, sold or merged without a real plan in place on how to integrate.
Acquired companies fill a void in a service gap or are part of a strategic initiative without any real thought as to how the companies will fit together, or if they will at all. For example, can both organizations buy into a common mission statement? This might be more difficult than you think if a niche provider is acquired by a discount provider.
There is a shocking omission here.
The word “merger” is from 1728 and meant “extinguishment by absorption.” And that is exactly why 74% of all mergers fail. What makes an entity attractive and valuable in the first place is quickly ‘extinguished by absorption’.
There is not a word here about dealing with culture and it is the failure to marry cultures that causes most M&A failures. As woo woo as it may sound, a true merger is first and primarily a spiritual event. If there is a meeting of heart, souls, passion, energy…you will have a winner.
Mergers are NOT primarily mechanical operations where the most important thing is IT or “know your business and the numbers behind it.” If it was all about mere mechanics and numbers, 100% of them would be successful.
Mechanics are important, but that’s the easy part. Even in the world of frozen goods, it’s all about the soft stuff.
From a customer’s point of view, I will vote for number three. When Dominick’s in Chicago was acquired it went from being a local chain with many local favorites for items to being homogenized. It lost that local feel and with that, customers.
An attempt to recover was made when people were stationed in the stores asking what items had been deleted that should be brought back, but from personal observations, those we listed never made the cut. It went from being a favorite place to shop to just another option.
I think tip #3 is huge! All too often the acquiring brand has a ton of pride that overshadows the acquired brand…at least in the acquirer’s mind! The existing brand often has real local value and there need not be a reason to EVER change the name on the stores nor the PL products. This may not always be true, however, there must be some unbiased research done prior to the name change.
Mergers are generally happy times for stockholder wallets and senior management resumes, but the Paradox of Scale relentlessly applies:
The bigger you get, the greater the distance between headquarters and the shopper.
Nothing distracts a retail organization from the best interests of the shopper like focus on the maneuvers and mechanics of a merger or acquisition.
Any retail merger plan that fails to rigorously examine its impact upon shopper equity is in my opinion, negligent. Of special concern are the risks of re-branding and re-assorting acquired stores and unexplained changes in service norms.
Full truckloads delivered to empty hearts is not my idea of success.
Lots of good comments here so I will just add my 2 cents. I have been through several mergers as well as consulted through several. The one thing that stuck out the loudest to me was the lack of discussion about ‘why’. Why did this particular merger happen? What were the motivating factors, what were they looking to achieve?
I can’t tell you how many meetings I have been through where we were there to look at the best way to consolidate data. No one said what the overall objectives were. Just consolidate the data!
Executives need to be clear and open about these things all the way to the bottom of the organization, IMHO
I’ve already commented but I just want to affirm Lee’s wise comment on the “WHY?” question. She is spot on. This is the most avoided question in all of management decision making. I’ll push his point further and suggest that the WHY question needs to be asked several times, going deeper each time. Organizations (all of us) tend to stop at least two WHYs short of the bare truth. Thanks for that, Lee.
Each comment above advances the discussion. It is an excellent topic and one that deserves the attention being offered. I think the culture issue, communication, explanation of rationale/strategy, expected benefits, roles people will play in the new organization, etc. are the HARD part.
The IT system(s) often torpedo success, but my suspicion is that it really is a cultural issue underneath it masquerading as a technology issue. What you value is what you track, monitor and measure. What is important is done quickly (and what is less so, is allowed to lag), etc.
Terrific insights provided!
Listen, plan and implement. Too many mergers are “run” into the ground because there are no strategic plans, or implementation strategies to marry each company’s strengths and weaknesses without disturbing the impetus behind the merger (i.e. why it occurred in the first place).
You are so welcome, Ian!
It seems that change is the only constant in business these days. And while organizations work through internal changes, it’s the external changes the ones with the potential to impact best customers—that can turn an advocate into a “madvocate.”
The recent merger announcement of American Airlines and US Airways is a perfect case in point as the two companies will have to combine 100 million frequent-flyers across their two distinct loyalty programs. It’s a bit like trying to change the wings of an airplane in mid flight.
I recently blogged about strategies that companies could use to maintain customer loyalty during a merger or acquisition including these five tips:
1) Make the miles go farther
2) Secure status and assure your membership
3) Stay on your customers’ radar
4) Empower your employees to do the right thing
5) Buckle up in case of rough patches
You can view my full blog post here.
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The points in the article are all good. My addition to the list is to better understand how two merger forces interact: the desire to cut operating costs and the desire to improve long-term growth.
All too often we have seen cost cutting go into effect early without understanding how that can minimize revenue growth. Nips and tucks can look great on accounting documents, but may cause hemorrhaging where you can’t afford it. Someone has to look into overall effects and align goals with actions.
Integration of staffs gets little attention in the real world. A strategy to bring two groups of people together to work as one team should be part of the plan…not for just the near term, but for the long haul. Oftentimes management thinks the answer is to replace those who don’t fit some abstract profile. Performance reviews are not sufficient. Understanding the dynamics of how two different companies functioned in terms of their cultures and guidelines is important in planning how to make the best of two disparate groups of people.
Slice and dice may be appropriate for mixing ingredients for a stew, but not for a newly formed organization made up of two pre-existing entities.
I would add one piece of advice in addition to the excellent suggestions presented, particularly #3. The cultures of the two organizations need to be fully understood and integrated if the merger is to work as planned, specifically, producing greater efficiencies and effectiveness. I am reminded of the sagely advice that “Culture will eat strategy for breakfast any day of the week.” Develop and execute a plan to successfully integrate the respective cultures, especially if they are disparate.
The synergy between two companies needs to be as seamless as possible for the customers to not feel an abrupt change. Mr. Harris makes a great point about decision making and merging systems.
For all parties involved, it’s important to stay in communication. When decisions are made at top level that effect workers, communicate that to the employees having to carry out the tasks. Get their opinions and be realistic about the timeline of goals. Merging can be beneficial for all parties involved, so paying attention to the details is crucial in making new partnerships flow.
Uncertainty hurts morale and paralyzes decision making. As part of the due diligence when buying the company, someone needs to think through the issues managing the merger. When employees do not know what is happening to their work, workplace and job, there is a lot of posturing, defending turf, and delaying of decisions. The longer the uncertainty goes on, the longer the company languishes in indecision and the more good employees leave.
All the points mentioned above are good and important. As an analyst, I would also add that you need to understand what can be done leisurely, for example, integrating IT systems vs. what needs to be done quickly, for example having an integration plan. All too often it seems that companies are bought, sold or merged without a real plan in place on how to integrate.
Acquired companies fill a void in a service gap or are part of a strategic initiative without any real thought as to how the companies will fit together, or if they will at all. For example, can both organizations buy into a common mission statement? This might be more difficult than you think if a niche provider is acquired by a discount provider.
There is a shocking omission here.
The word “merger” is from 1728 and meant “extinguishment by absorption.” And that is exactly why 74% of all mergers fail. What makes an entity attractive and valuable in the first place is quickly ‘extinguished by absorption’.
There is not a word here about dealing with culture and it is the failure to marry cultures that causes most M&A failures. As woo woo as it may sound, a true merger is first and primarily a spiritual event. If there is a meeting of heart, souls, passion, energy…you will have a winner.
Mergers are NOT primarily mechanical operations where the most important thing is IT or “know your business and the numbers behind it.” If it was all about mere mechanics and numbers, 100% of them would be successful.
Mechanics are important, but that’s the easy part. Even in the world of frozen goods, it’s all about the soft stuff.
From a customer’s point of view, I will vote for number three. When Dominick’s in Chicago was acquired it went from being a local chain with many local favorites for items to being homogenized. It lost that local feel and with that, customers.
An attempt to recover was made when people were stationed in the stores asking what items had been deleted that should be brought back, but from personal observations, those we listed never made the cut. It went from being a favorite place to shop to just another option.
I think tip #3 is huge! All too often the acquiring brand has a ton of pride that overshadows the acquired brand…at least in the acquirer’s mind! The existing brand often has real local value and there need not be a reason to EVER change the name on the stores nor the PL products. This may not always be true, however, there must be some unbiased research done prior to the name change.
Mergers are generally happy times for stockholder wallets and senior management resumes, but the Paradox of Scale relentlessly applies:
The bigger you get, the greater the distance between headquarters and the shopper.
Nothing distracts a retail organization from the best interests of the shopper like focus on the maneuvers and mechanics of a merger or acquisition.
Any retail merger plan that fails to rigorously examine its impact upon shopper equity is in my opinion, negligent. Of special concern are the risks of re-branding and re-assorting acquired stores and unexplained changes in service norms.
Full truckloads delivered to empty hearts is not my idea of success.
Lots of good comments here so I will just add my 2 cents. I have been through several mergers as well as consulted through several. The one thing that stuck out the loudest to me was the lack of discussion about ‘why’. Why did this particular merger happen? What were the motivating factors, what were they looking to achieve?
I can’t tell you how many meetings I have been through where we were there to look at the best way to consolidate data. No one said what the overall objectives were. Just consolidate the data!
Executives need to be clear and open about these things all the way to the bottom of the organization, IMHO
I’ve already commented but I just want to affirm Lee’s wise comment on the “WHY?” question. She is spot on. This is the most avoided question in all of management decision making. I’ll push his point further and suggest that the WHY question needs to be asked several times, going deeper each time. Organizations (all of us) tend to stop at least two WHYs short of the bare truth. Thanks for that, Lee.
Each comment above advances the discussion. It is an excellent topic and one that deserves the attention being offered. I think the culture issue, communication, explanation of rationale/strategy, expected benefits, roles people will play in the new organization, etc. are the HARD part.
The IT system(s) often torpedo success, but my suspicion is that it really is a cultural issue underneath it masquerading as a technology issue. What you value is what you track, monitor and measure. What is important is done quickly (and what is less so, is allowed to lag), etc.
Terrific insights provided!
Listen, plan and implement. Too many mergers are “run” into the ground because there are no strategic plans, or implementation strategies to marry each company’s strengths and weaknesses without disturbing the impetus behind the merger (i.e. why it occurred in the first place).
You are so welcome, Ian!
It seems that change is the only constant in business these days. And while organizations work through internal changes, it’s the external changes the ones with the potential to impact best customers—that can turn an advocate into a “madvocate.”
The recent merger announcement of American Airlines and US Airways is a perfect case in point as the two companies will have to combine 100 million frequent-flyers across their two distinct loyalty programs. It’s a bit like trying to change the wings of an airplane in mid flight.
I recently blogged about strategies that companies could use to maintain customer loyalty during a merger or acquisition including these five tips:
1) Make the miles go farther
2) Secure status and assure your membership
3) Stay on your customers’ radar
4) Empower your employees to do the right thing
5) Buckle up in case of rough patches
You can view my full blog post here.