4 reasons mergers and acquisitions are doomed to fail
- 16 April, 2016 01:18
I got pinged by Quora this week with the question, “Why do acquisitions kill startups and apps?” I responded, but I find this question so annoying that I want to address it again here. Why I find this annoying is that while acquisitions generally destroy the acquired company they don’t have to. A lot of jobs and value are lost because executives don’t seem to get this.
The most annoying acquisition this century was the Palm acquisition by HP. It seemed they actually had a plan to preserve the asset, but then threw that plan out seemingly to make the new CEO look bad. As a result they ended up destroying billions in stockholder value and eliminating what could have been a stronger competitor to Apple in the process. I get that the politics inside a complex company like HP can be ugly, but this could have been caught and prevented relatively easily. Doing an acquisition right isn’t really rocket science, but, like a lot of things you need to have some experience and your priorities straight and often neither is the case.
Why acquisitions fail
I used to run an acquisition clean-up team for IBM. We had a lot of these things to clean up largely because we kept seeing the same mistakes over and over again. We looked at the acquisition process and found a number of stupid practices that appear to be consistent with the problems other firms are having with this process.
First, was the practice of assuring the acquired company conformed to the acquiring company’s policies and rules. Now you might ask, what is the problem with that? If the rules are good enough for us they should be good enough for a company we acquired, right? Not really, acquired companies tend to be smaller, younger and unique in some way and that way is connected tightly to why they were attractive as an acquisition.
If you start mucking around with span of control, salaries, titles, responsibilities and process you are likely to destroy much of what you bought the company for in the first place. Or, in other words, if your processes were so great why did you have to buy a company rather than build whatever the firm built in-house? It amazes me how often I see executives wonder what happened to the innovation they thought they acquired when they bought a small firm. The answer should be “you did,” but it is seldom vocalized.
Second, there is no effort to categorize and protect the parts of the company that drove the acquisition. If you bought a new supercar you likely made the decision because the car was fast and good looking so you are unlikely to mess with its looks or swap the engine out for a lower horsepower unit. In fact, you are likely to not drive it for fear of destroying its value or having even a small accident.
Much like you’d take care of that car, an acquired company needs to be defined according to where its value is and that value needs to be protected. If you value the innovation you don’t muck with the folks that are innovative, if you value its agility, you don’t muck with the executive team, and if you value its customer loyalty you don’t bet in between the acquired firm and its customers.
Now if there are problems, like a good doctor, you first investigate what the cause of the problems are and then come up with a plan to surgically (or medicinally) address them. You don’t pull out an axe and start chopping things off, yet that is the more common result.
Third, too few critical decisions based on what has been done not on actually researching what needs to be done. There is a mantra in carpentry that says measure twice cut once. The implication is that if you plan properly the number and cost of mistakes will be far more manageable. Much of the standard acquisition process is seemingly designed to conform the acquired company to the acquiring firm, which should, seemingly, make management easier. The thing is it doesn’t, it just replaces one set of problems (inconsistencies) with another set that includes increased turnover, lower productivity, lost direction, and both employee and customer dissatisfaction.
So in order to avoid complaints about title creep, salary disparities and inconsistencies in process firms will literally destroy the acquired firm. This doesn’t seem like a good judgment call, yet it is the one most commonly made.
Finally, there is an excessive focus on blame and virtually no focus on figuring out why prior acquisitions failed. This is true of a lot of decisions not just acquisitions. But generally what happens when an acquisition fails is some executive, or executives, get fired, however, these executives usually weren’t the ones who caused the problem and, in some cases, they may have been the most aggressive in trying to fix it.
In some cases they got caught covering it up. But in all cases, simply doing a detailed post-mortem on why the failure occurred and then using that as a way to assure it doesn’t happen again would have been far more effective. I mean, think about it, the folks who get fired were likely the only ones truly motivated to assure it doesn’t happen again. This helps explain why these mistakes are made over and over again.
Stop blaming and start learning from mistakes
I think, overall, the big problem with decisions like this is an excess focus on blame and not enough focus on learning from mistakes so they don’t recur. Some companies just seem to be rolling train wrecks of repeated mistakes largely because the folks closest to the problems are the ones who are let go. As a result the firm gains no real knowledge on how to avoid future similar problems. In addition, the higher you go in a company the more confirmation bias seems to rule decisions and the “way it has always been done” drives process.
If you want to fix something, focus on finding the cause of the problem, not on shooting the folks in charge, you’ll likely make far more progress and both be far more successful and less afraid of being shot yourself. Something to noodle on this weekend.