The Shortlist: The special sauce that makes a merger tasty

Our best ideas, quick and curated | April 12, 2019

This week we look at merger best practices and how middle managers should be given the chance to embrace agile thinking. Plus, design expert Michael McDaniel, an alum of the US government’s Digital Service, on what he’s reading.

Global M&A activity was strong in 2018, and it’s expected to remain healthy this year. As companies go forth and integrate, what do they need to know about successful mergers?

The biggie is culture. Leaders across industries know that the most challenging—and rewarding—aspect of an integration is merging two distinct cultures. Even so, leaders often don’t give it the attention it warrants. Some 95 percent of executives describe cultural fit as critical to the success of integration. Yet 25 percent cite lack of cohesion and alignment as the primary reason integration efforts fail.

Mark Heimbouch, the president of Worldpay Group, which successfully integrated with Vantiv in 2018, told McKinsey recently: “Frankly, I’ve never seen two companies that have the same culture. Companies work differently, people engage differently. Don’t underestimate the size of that challenge.”

Culture can be defined as the vision that drives a company; the values that guide its workforce; and the management practices, norms, and mind-sets that characterize how work gets done. To put it simply, culture is the soul of any business. When two cultures come together in a merger, a new one must be clearly defined by the C-suite and leadership team, and reinforced by middle managers, communications teams, IT departments, and so forth. And the faster the better.

So how do executives successfully avoid a culture clash?

First, ask yourself how each company makes decisions (centralized or decentralized)? How do they motivate their people (through financial or emotional incentives)? And how do they hold people accountable—individually or collectively? A holistic view uses a combination of diagnostic approaches, from management interviews to employee focus groups to surveys. Much like well-oiled business partnerships, the goals here are to generate a fact base about the existing cultures and to build a single common language around this understanding. Find the similarities, opportunities, and differences that could cause friction.

Once leaders understand the existing cultures they can begin to set priorities, including maximizing the value of the deal (such as moving to a higher-performance culture to achieve ambitious sales targets). After these coherent themes and initiatives have been identified, they can be plugged into the new company’s operating model and daily practices. The redesign of policies, processes, and governance models must reflect these important cultural aspects if change is to stick.

Companies often fall short when they try to realize their cultural aspirations during this third step. But if they track the implementation of themes and initiatives with the same rigor they use for financial targets, all will be well. And, as a bonus incentive, they should remember that treating M&A as a strategic capability can give their companies an edge that their peers will struggle to replicate.

OFF THE CHARTS

MNCs, look out: Local players are flexing their muscles

Global companies have long sought new growth in emerging markets. What they’re finding lately, however, are local players that are better managed and sharper on strategy competing fiercely for the same markets. Check out this trio of pieces on the state of play.

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WHAT WE’RE READING

Michael McDaniel

Michael McDaniel is an associate partner for McKinsey Design based in Austin, Texas. Before joining McKinsey, he worked in the White House for President Obama as part of the US Digital Service. In his spare time, he can be found in his garage working on a 3-D printed electric-motorcycle project.

It might come as no surprise that someone interested in the art of what’s possible (or what’s improbable but cool anyway) might be drawn to science fiction. I loved Ready Player One by Ernest Cline, which does a great job of showing how virtual reality (VR) could replace the internet as we know it today. The book has a wealth of ideas about various user-experience metaphors that push VR from a purely gaming environment (as it’s mostly used today) to a powerful platform for creation, education, and freedom of expression. From an experience design perspective, reading Ready Player One led me to sketch out an entire operating system for a mixed-reality system, including new hardware input types based on real world needs.

Down & Out in the Magic Kingdom by Cory Doctorow explores so many major themes, from a post-money society to the consequences of bioengineering to defining what it means to truly be alive. Over the years I’ve found myself referencing concepts from this novel to guide thinking about emerging technology.

Also by Doctorow, Makers is set in the near future, looking at a business world in which technology moves so fast that entire product life cycles—from invention to mass marketing to antique—are six to nine months long. This novel explores the disruption that maker culture (that arose in force around a decade ago) may have on big business in the very near future. It’s a great look at how creativity and agility can disrupt every industry.

One of my favorites on what the future might hold is The Expanse series by James S.A. Corey (a joint pen name for Daniel Abraham & Ty Franck), set a few centuries from now, when humans have colonized most of the solar system.

At its core, the series is a geopolitical drama, like a Game of Thrones in space. It offers the most realistic view I’ve found of what it might be like for humans to live across the solar system. The technologies—and the human behavior around them—are a realistic take on rocket travel, space-based warfare, and communications using real science similar to The Martian by Andy Weir. We are watching the real-world foundations of this future being built now with the commercial space industry and the emerging new space economy.

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