So what is change management? The traditional project approach to change management – sees it as a set of tasks which if executed successfully get a result. In other words the typical process led approach which has failed so consistently and so spectacularly over the last 20 years!

There are 3 main reasons for the astonishingly high 70% failure rate of ALL business change initiatives:

1. The gap between the strategic vision and a successful programme implementation and the lack of a practical change management model and tools to bridge that gap.

2. The “hidden and built in resistance to change” of organisational cultures, and the lack of processes and change management methodologies to address this.

3. Failure to take full account of the impact of the changes on those people who are most affected by them i.e. the absence of good strategies for managing change.

Prosci is the recognized leader in business process design and change management research, and is the world’s largest provider of change management and re-engineering toolkits and benchmarking information. [This is not a commercial – I’m just establishing their credentials!]

They are the publishers of “Prosci’s Best Practices in Business Process Re-engineering and Process Design” which is based on research with 327 organisations world-wide.

The objective of this study is to provide real-life lessons from the experiences of project teams recently or currently involved in business process re-engineering projects.

Key findings in the latest report show the 4 key lessons learnt:

(1) “More effective change management” – is the main thing that project teams would do differently on the next project.

(2) Top management of teams and the their projects means they were more likely to complete their project at or above expectations.

(3) The planning stage, was universally regarded as the most important phase in the project – because this was where scope and roles were defined.

(4) The primary obstacle to a successful implementation was resistance to change. This was mentioned 6 times more that any other factor.

Clearly the single biggest reason for the astonishingly high 70% failure rate has been the over-emphasis on project process rather than the people aspects – the failure to take full account of the impact of change on those people who are most impacted by it.

Closely allied to that reason is the lack of process to directly address the human aspects of change.

Properly applied, this is exactly what the holistic and wide view perspective of a programme based approach to change management will deliver.

To fully understand merger failures we need to understand the motivation behind M&A activity – which is primarily about the creation of value by exploiting [what is euphemistically referred to as] synergies.

Technically speaking, “synergy” is defined as the increase in the merging firms’ competitive strengths and resulting cash flows beyond which the two companies are expected to accomplish independently. The word “synergy” entered merger vocabulary during the 1960s merger wave, and was used to describe gains from conglomerate mergers that could not be readily identified, but were presumed to be present to explain why the mergers occurred.

If it were not for the catastrophic failure rate of most mergers and the destruction of shareholder value and, most importantly, the human cost, then this could be amusing. But to my mind it isn’t, it is an appalling indictment of the business world and their advisors that [just as in the world of change management] 70% of all M&A activity fail to realise the intended benefits.

There have been endless studies over the past 30 years to explore the reason for merger successes and merger failures. The overwhelming evidence is that over 70% of the time, mergers do not create synergies and shareholders of both companies involved do not see gains in shareholder value.

According to a survey published by KPMG in 2008, the proportion of M&A deals that have reduced value has increased by 50 percent in the two years since their previous survey. Culture remains one of the top post deal challenges with companies continuing to link post deal HR challenges with cultural complexity.

Greatest risks to merger success are all people related.

A survey conducted by A.T. Kearney in 2004 to identify the most critical phase to merger success or merger failures, revealed that whilst the majority of 53% stressed that the actual implementation phase – often referred to as the “post-merger integration” phase – bears the greatest risk – this post-acquisition phase is the most ignored.

In a study of 40 British companies, Cartright and Cooper [1995] reported that all 40 conducted a detailed financial and legal audit of the company they intended to acquire, but that not even one of these same companies made any attempt to carry out an audit of the company’s human resources and culture to assess the challenges concerning integration of the organization they were acquiring.

A brief review of many business and academic studies into the factors impacting merger failures reveals the greatest risk of merger failure existed in the area of people issues, and proposes the value of a “soft” due diligence audit focusing on human resources to identify cultural difference and issues to be faced and impacts on those people who are critical to the success of the merger.

Dominic Fong of Curtin Business School said: “One critical factor that befalls a merger is cultural conflicts….”. T.J Tetenhaum describes culture “as the heart of a merger integration”. Another writer Richard S. Bibler suggests that cultural incompatibility is the single largest cause of merger failures. According to Bibler the difficulty of blending two organisations lies in the fact that each group tends to see the world through its own biased cultural filters, which he refers to as “familiarity blindness” or “cultural trance”, and this cannot be overemphasised as a cause of merger failures.

A very personal perspective…

What really bothers me is the way the system currently works for remunerating all of the professional advisors who provide services to the corporate world. I would welcome the day when professional advisors and senior executives have a significant part of their large remuneration linked to the medium term [i.e.3-5 years] shareholder value they created – cos I somehow feel that might go a long way to redefining the whole concept of “synergy” and reducing the percentage of merger failures.

Excuse the lateral thinking for a moment – but can you imagine civil engineers or construction companies or the people who build nuclear power stations – working on the same basis – where a 70% failure rate was accepted? Can you? So why on earth should the world of business be any different?

Why does this bother me? Quite simply, because of the very considerable, unnecessary, and totally avoidable human cost.

So How to avoid these risks of merger failures…

The best way to avoid these merger failure reasons is to conduct a “soft” due diligence audit, focusing on the human resources aspects of the merger to identify (1) cultural difference and issues to be faced, and (2) the impacts on those people who are going to be most affected, and those people who are critical to the success of the merger.

And as my contribution to all this, I have developed a diagnostic process that allows a company to test the impact of a proposed business initiative or venture on those people most affected by it, to identify why it may fail and to establish precisely what has got to be done to make it a success.

This tool can be applied to a proposed merger as part of the HR due diligence process, to identify and assess the cultural issues that will be encountered. The tool is sufficiently flexible and scalable to be adapted, modified or enhanced to meet a specific requirement.

It is low tech and simple to understand and apply, it involves staff at any or all levels and enables them to articulate difficult issues in a non-confrontational way, and it can be undertaken quickly and before large sums of money are irrevocably committed to the proposed merger.

The output of this process forms the input for the creation of a programme management based approach to managing the change management and HR related aspects of post merger integration aspects.

A review of the history and literature of strategies for managing change shows these 9 reasons for programme failure:

(1) Lack of board level support – The change programme is holed below the waterline if it doesn’t have the support of directors and senior management – and is seen to have their support.(2) “Here’s one we did earlier” – Any attempt at a top-down, imposed “packaged-solution” that doesn’t capture people’s support will sink without trace.(3) “Shuffling the deckchairs” – If the change is seen by people as simply “shuffling the deckchairs on the Titanic”, then like the Titanic, the programme will slip beneath the icy waves of peoples cynicism and indifference. People need to believe in what they are being told and not to just see it as yet another organisation restructure exercise to justify senior management’s existence.

(4) Lack of leadership – The initiative needs a programme director with a transformational leadership style who is leads from the front – and is seen to be doing so and who totally owns the programme. If this role is not fulfilled – then the change management programme will fail.

(5) How people see the change initiative – People need to see what the change programme is all about and why it is necessary. They need to feel some form of connection with the reasons for the change and what is hoped to be achieved by it. They need to feel that it is worthwhile and necessary and something they are broadly in agreement with and that they can support.

(6) Lack of trust – People are sick and tired of reorganisations and restructurings and all of the insecurity that this engenders. Senior management and especially the programme director need to create an atmosphere of trust – otherwise fear and mistrust will have a corrosive effect and jeopardise the change management initiative.

(7) Under-resourced – It essential to the delivery of successful strategies for managing change that they are fully resourced with with the necessary people, training, time and budget. An under-resourced programme sends the message that senior management don’t really care and haven’t really thought it all through. So if “they don’t care – then why should we?”.

(8) Change resistance – If the impact of the change management initiative hasn’t been fully defined and explained to those people who are most affected by it, then it is very likely that they will resist the change. If the company has a history of “deck chair shuffling” then the level of negativity and resistance will increase.

(9) Unrealised benefits – if the processes of defining, managing and realising the benefits of the change are not handled properly, then the new capabilities may not be fully utilised or sustained. It is the role of senior management – via the programme director – to ensure that this is fully managed from the outset of the change programme.

– Stephen Warrilow