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Chronicles from a Caribbean Cubicle

2/20/2006

CAP: A Sense of Regret

One of the anomalies we found during the research was a sense of regret in each of the companies studied that the desired synergies did not transpire, in spite of their best attempts.

Synergies were seen as critically important. One of the ways in which this synergy would be measured would be through cost savings, and while there was an average of 83% agreement that cost savings were important, there was only 63% agreement that cost savings were actually accomplished. Most of those came from downsizing after the merger was complete, rather than any other method.

Meanwhile, the companies clearly saw the importance of the cultural fit, as shown by the following:
  • Cultural issues will affect synergies: 85% or 93% (the question was repeated)
Yet, the execution was done quite differently.

In response to the survey questions regarding the pre-deal phase, the following responses were received (with 0 indicating Disagree, and 100 representing Definitely Agree):

How much value did your company place on the following items in the pre-deal phase?
  • Identifying issues and preparing a rigorous plan for conducting the due diligence stage: 86%
  • Assessing the people. Organizational and cultural fit, and the related risks entailed in various combinations: 63%
They were unable to focus on the cultural aspects of due diligence. For different reasons, each of them found themselves working against the clock and focused solely on the short-term objective of being successful at the right price while raising the capital needed.

In some cases, the leadership of the new entity did not create an environment in which synergy was a priority. In some cases the new leadership of the company was more interested in establishing control over the new entity. In others, the leadership tried to protect what had been a winning formula when the difference in national and corporate culture turned out to significant. And in another, the new entity showed only a change in ownership, but no significant change in cost structure, company name, brand or leadership.

At the time of the study, there was no evidence of the kind of cooperation that results in real synergy either through shared talent, intellectual property, technical know-how or consolidation of important functions. There was a feeling expressed that not enough was understood or put in place with respect to the new national culture, corporate culture and kind of leadership required to accomplish this critical goal.

With respect to the issue of how the HR function could have been used, respondents were asked the following: To what degree was HR used to educate the “deal team” about potential people, organizational and cultural risks? The answer was a mere 40%. It seems that in retrospect, they either wish they had done so, or wished that they could have done so, by virtue of having the right expertise at their disposal.

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