How can you tell if a merger is being mismanaged? You will see several of these five major problems and the post merger costs that accompany them:
1. LOST TALENT
Bailing out by managers and executives is one of the first signals that a merger is being mismanaged.
Typically, some of the best talent is the first to go. And their leaving more than likely means that somebody in the top ranks of the company made a mistake. There was something someone did, or didn’t do, that helped produce the bailouts.
Parent company executives have to move fast and do the right things to keep the people who count. Too often, though, just the opposite happens. The acquiring firm drags its feet and does things clumsily.
Many factors contribute to the turnover statistics in mergers. People leave for myriad reasons—some that make sense, some that don’t. But the point is that many of these people are very valuable employees, and they could have been retained.
So what does the loss of talent cost a company? First, there are some tangible, easily identifiable expenses associated with replacing a key manager or executive such as placement/search fees, relocation costs, training costs, and the time invested in the selection process.
The intangible costs associated with losing a key person are harder to gauge, although they can easily represent an even more expensive proposition.
Usually a company not only loses some of its own talent but also ends up strengthening the competition.
The most obvious place for a talented individual to go is to a competing firm where his or her skills are immediately transferable and actively sought.
There also are times when acquirers end up paying for people who aren’t there. Mismanagement can frustrate and aggravate key players to the point that they decide to bail out and pull the cord on their golden parachutes. This is like the opposite of a signing bonus —top talent people basically pocket a big chunk of money and quit.
2. PRODUCTIVITY DECLINE
Only a handful of senior people are likely to have such a ripcord to pull. Most people feel they have no good alternatives, so they stay and endure their frustrations. But the company can very easily end up paying for people who come to work but don’t work.
When mergers are mismanaged, productivity never escapes unscathed. If a firm can quantify it, there will be disturbing financial evidence of how mismanagement carries a cost in terms of weaker productivity. The work hours that are lost without any meaningful output add up in a hurry
When the merger is marked by weak leadership, poor communication, a lack of decision making, and so on, productivity takes a beating. As job commitment and employee morale weaken, less effort is put into the task at hand.
These people very often will feel, and accurately so, that they are working harder than ever. But so much time, effort, and mental energy are being invested in merger-specific activity that the more basic business itself actually receives less true attention. To make matters worse, poor quality work creates another set of future problems that carry a hefty cost.
The merger impact studies conducted by PRITCHETT indicate a minimum 15% loss in performance effectiveness among middle managers who are involved in the merger integration process. Senior executives have a much higher statistic ...