MAKING MERGERS WORK.

Certain major categories of decisions and actions need to be addressed in every acquisition, but not in the same way or sequence every time.

In 1999, corporate mergers in the United States alone totaled a staggering $3.44 trillion, The Wall Street Journal reported. And despite the well-publicized, much-analyzed fact that many of these mergers -- up to 70%, according to some estimates -- failed to create value, it seems clear that the end is not yet in sight. Globalization, deregulation, the need to achieve economies of scale, the pressure to make substantial investments in technology: all these factors lead to the conclusion that, in order to remain competitive in today's marketplace, many companies will continue acquiring and merging, merging and acquiring.

Yet, unless they learn from the mistakes of the past, they're likely to keep making them. In looking over the failed mergers of the 1990s, what is striking is that they were often so promising. Consider, for example, Union Pacific Corp. and Southern Pacific, or Quaker Oats Co. and Snapple. A study conducted by Mercer Consulting Group, indicated that the problem with recent acquisitions seems to have much less to do with faulty selection -- or with paying too much for an acquired company -- than with what went on after the deal was sealed. While enormous amounts of effort went into hammering out terms and conditions, leaders too often acted as if the integration process would take care of itself; too little thought was given to possible pitfalls, and too few plans were made for dealing with them.

In fact, the most fatal mistake an acquirer can make is to assume that when the contract is signed the hard work is over. In reality, just the opposite is true: it's after the ink has dried and the champagne has flowed that the real work begins.

Warning: Danger Ahead

It is possible to write a history of failed acquisitions based on the statements the acquirers made at the time the deal was announced. If you look back at the accounts of these acquisitions in the press, you'll see that certain types of statements keep recurring -- statements that can serve as warning signs that the integration may be on the road to disaster.

"It's a natural fit." No matter how many complementary strengths two organizations have, it should never be assumed that they can be easily merged into one, or that the hoped-for synergies will emerge, without a lot of diligent, hard work.

"Nothing's going to change." In any acquisition, a lot changes. Pretending otherwise only creates unrealistic expectations in employees, which inevitably leads to disappointment and resentment later on.

"It's a merger of equals." Leaders of DaimlerChrysler and Citigroup proudly made this pronouncement, again creating false expectations, which then resulted in power struggles and radically lowered morale. Chrysler employees weren't prepared to find themselves being managed from Germany. A similar fiasco occurred during the NationsBankBank of America merger, when Bank of America employees discovered that no, they hadn't merged...they'd been acquired.

"The integration plan has been finalized." When this statement is made very early in the integration process -- before there's been much contact between the people in both companies -- it may mean that the plan has been developed based on limited information. The danger here is that synergies may not be allowed to emerge. More often than not, it's the unplanned, unexpected, synergies, that are discovered through ongoing contact between the two companies' employees that really make for the success of an acquisition.

It's the Integration

In acquisitions that do fulfill their promise -- that really make two and two equal five -- leaders paid a great deal of attention to the integration process and, not surprisingly, involved people at all levels of the process. When studying successful acquirers -- the most prominent among them Cisco Systems Inc. -- a number of best practices emerge. The following, distilled from Cisco's success, is a summary of six strategies to make mergers work:

1 Develop a Systematic, Flexible Integration Process. Companies that use acquisitions as a strategic lever rarely do only a single deal; acquisitions are ongoing and often overlapping, with several happening at once and more to come. Therefore, the most successful acquirers have developed a clear, logical, and replicable approach to managing the entire process. Cisco, for example, the global leader in networking for the Internet, whose acquisition program has been the foundation of its huge success, has just such a process.

While the Cisco process is consistent and well-documented, flexibility is the key to its effectiveness. Every acquisition is different, and Cisco's people are experts at adapting their methodology to the unique needs of each one. Cisco's flexibility is based on the recognition that there are certain major categories of decisions and actions that need to be addressed in every acquisition, but not in the same way or sequence every time.

Cisco's director of business development and head of the Business Integration Unit, Peter Ruh, put it this way: "There are parallel tracks. An integration is not one process -- it's really a collection of many different processes. This is very much art versus science. You can't use a cookie-cutter approach; every deal is different because [of] its people, its markets, its emotion. We basically bring together all the right parties and then manage that every week for every acquisition."

2 Avoid the Speed Trap. One of the most frequently heard pieces of merger advice is: "Act quickly -- don't make people wait for decisions." But although acquisitions sometimes fail because decisions are not made in a timely way, it's more important to make the right decisions than to make them quickly. Some decisions really need to be made soon after the deal closes, or even before. Others will require more deliberation, input and involvement.

Deutsche Bank Director of Human Resources Wendy R. Weidenbaum, who was involved in the Deutsche Bank and Bankers Trust integration, said, "There are some things that you really should be fast on, like taking a look at what the platform is, where the market opportunities are and what the strategy is. Then, you have to ask, 'If this is the platform, what are the possibilities? How can we structure this business; how can we structure that business?' They might all need different kinds of integration."

3 Address the "Me" Issues. When employees learn there's going to be an acquisition, the first thing they want to know is, "What will happen to me?" Until that question is answered, they will be unable to concentrate on getting the work done. "Be honest about what you are doing," says Mark King, EVP and CFO of Dallas-based Affiliated Computer Services (ACS), which has a very active acquisition strategy. King added, "Some acquirers have two financial models, one that says they are not going to cut anybody, and a secret one that says they're going to cut 10 percent of the workforce and shut down two factories, but you've got to create trust. The second that people catch you in a lie, your credibility is shot and they start leaving. We once bought a company with 500 employees, and we knew we'd have to let some people go. We bought the company on Friday morning. On Friday afternoon, we laid off 45 people and then we said to everybody else, 'Okay, this is it, There will be no more reductions.'"

4 Build in Two-Way Communication. It's not enough to send people memos or even whole packages of information about the merger. They need a chance to air their concerns. The Dana Corp., a global leader in automotive components that has acquired more than 40 companies in the past eight years, sends some of its top people on a visit to all the plants and facilities of the acquired company within days of announcing a deal. Dana's VP of corporate services, Don Decker, then pays a series of visits, welcoming people to Dana and answering questions.

Robert Grimes, an investment banker and venture capitalist who has been involved in a number of acquisitions, advises starting the communications process "as early as possible, as far down as possible,...Nothing taints the acquired company's view of the acquirer like being left in the dark for long periods."

Of course, there will inevitably be times when employees have to be "left in the dark," because it is not yet clear what needs to be done or by whom. In such cases, the best course is to tell them things are up in the air. When they're told nothing at all, the rumors start flying.

5 Involve People at All Levels. It's only natural for people to feel more committed to ideas and projects that they've had input in. If senior people alone are making the decisions, or if only people from the acquiring company are consulted, the level of commitment is bound to be low. Even more importantly, there's no chance of arriving at the kind of synergies that can only emerge from the experience and brainstorms of the people doing the work.

Consider the highly successful case in of SonicAir, a service parts logistics provider acquired by UPS in 1995. David Abney, head of SonicAir, said, "Basically, what we did was involve people at all levels at the earliest stage possible. We said, 'This is our challenge. How do you think we need to handle this?' Sometimes, we had an idea of which way we wanted to go. At other times, as they always do, people came up with things you hadn't thought of, we never used the UPS people to drive major changes. It was always clone from within the group."

6 Get People Talking. Probably most effective way to avoid the destructive conquered vs. conqueror mindset is to ensure that as many people as possible in the two organizations get to know each other early in the process. That means not just sending in the acquirer's people to tell their counterparts in the acquired company what is expected of them, but encouraging a free exchange of opinions and ideas. In the course of doing real work, strategizing and solving current issues together, terrific breakthroughs can be made.

Having people sit down and talk to each other from the outset is not a cure-all, but it's certainly a start. When people from both sides get to know one another as individuals and talk to one another frequently, they are much less likely to think in terms of "us" and "them." And for a merger to be truly successful, "us" and "them" needs to give way, over time, to something new and different -- a constantly evolving and more competitive entity.

Stephen J. Wall is a senior consultant with Right Manus, a division of Right Management Consultants, and co-author of The Morning After. Making Corporate Mergers Work After the Deal Is Sealed.