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Home arrow Management arrow Strategic Management in the 21st Century. Corporate Strategy

DISCUSSION

Aspects of successful M&A have been explored to show how early decisions impact integration success. Evidence from successful acquirers

Table 3.2. M&A Phases and Integration Decisions

Target Selection

Integration Planning

Integration Implementation

Related target

Focus on stakeholders

Integration manager

Consider environment

Announce executives

Continue restructuring

Friendly fit

Enlist middle managers

Partial stock payment

Prudent planning

across M&A phases suggest that early decisions are likely to have consequences during integration implementation. Bringing together established concepts may not necessarily have yielded new individual insights. However, the application of experiential learning to M&A phases offers an improved framework for understanding M&A integration decisions. A summary of decisions related to M&A integration is presented in Table 3.2 and illustrates that more decisions that impact integration are made before implementation begins than during it. The ideas presented also suggest implications for both management theory and practice.

IMPLICATIONS FOR MANAGEMENT THEORY AND PRACTICE

An insight with a theoretical implication provides a possible explanation for why M&A continues to be used as a strategic tool when evidence suggests acquisitions fall short of expectations. Cultural differences are a common explanation for M&A failure, but this explanation may serve simply as a scapegoat for poor decisions that amplify differences between acquirer and target firms, or for failing to account for stakeholder reactions to an acquisition announcement.100 Further, the consequences of decisions made in target selection before an acquisition is announced have implications for integration and performance. It is possible that decisions made when negotiating a deal, such as offer price, could preclude improved results regardless of the effectiveness of integration.

Other insights also have implications for both managers and researchers. First, a single acquisition will likely be part of a larger strategic goal or initiative. This means that additional restructuring that may include further acquisitions or divestment of assets may be required to achieve firm goals. For researchers, this means that the treatment of M&A as an isolated event is likely to be inappropriate. This also raises the importance of managers recognizing how the strategic rationale for an acquisition may guide later decision making. Second, explicit recognition and handling of stakeholder issues during integration planning will be of interest to researchers and managers. For researchers, insights gained about stakeholder interests and power may help to explain observed decisions in M&A. For managers, consideration of stakeholders will enable an acquirer to move quickly from careful deliberation to fast execution. Specifically, reflecting on relationships and then actively experimenting to improve them during implementation, can enable an acquirer to start from a better position and more quickly move to capture value. Third, a case has been made for a greater role of middle managers as facilitators of integration and meeting M&A goals. Extending research beyond the impact of firm characteristics or top management teams (e.g., CEO) to consider middle managers may help to explain the variance in M&A performance. For managers, improved employee assimilation may also result from a strategy that includes publicly recognizing middle manager role models.

Another implication for management practice that is drawn from the research presented here involves the need for managers to consider integration issues across the phases of M&A beginning with target selection. The reasons for considering integration early in the M&A process include bringing up issues when they can be best addressed, and improving prospects for experiential learning or well-informed decision making. By considering a target firm's environment and pursuing related acquisitions with a friendly fit, an acquirer may be able to negotiate a price below the value of its anticipated combination with the target by benchmarking the value of potential competitors. To the extent that complementary resource combinations exist and contribute to information asymmetry, an acquirer has the opportunity to access resources at prices below their value, while offering the potential to unlock value through effective integration planning and implementation. Once a deal is announced, the engagement of management in negotiations needs to be extended in time and scope to include additional people. To the extent that regulatory review hinders coordination, third-party consultants can provide information for making decisions. Decisions made between the announcement of the acquisition and its completion will define responses from customers, employees, and other stakeholder groups whose support is needed to meet established goals. Following completion, steps need to be taken to avoid management attention shifting back to day-to-day issues, and to keep integration and strategic goals in clear focus. Strategic goals motivating acquisitions need to be pursued by multiple means to find the ones that work.

Three cautions related to the application of the advice contained in this chapter are worth mentioning. First, the suggestions offered here are not considered to be definitive. In other words, the relationships described represent possible ways to improve M&A integration and performance, and are not considered to be either inevitable or the only paths to improved M&A performance. For example, the role of middle managers in determining M&A performance, and how to effectively enlist this group to translate strategy into results, will likely vary. A second related limitation is that the suggestions focus on the acquisition of smaller, related targets or conditions viewed as conducive to good M&A performance. Conditions conducive to the success of M&A with different starting characteristics (e.g., diversifying acquisitions, mergers of equals) will likely diverge from the relationships developed here. Further, there are likely specific circumstances where an acquirer may elect to not integrate a target firm. Third, the need for a strategic rationale for M&A is mentioned consistently throughout, but examples of rationale that can lead to high performance are limited. Although the motivation to act fast and pursue complementary resources is mentioned, clarifying the actual motivations for M&A and likely performance outcomes represents an ongoing challenge.

In conclusion, the primary contribution of the chapter is a pragmatic recognition of the fact that the failure of most M&A to meet expectations raises the importance of early consideration of the prospects for effective and successful integration. Addressing integration issues during each phase of the M&A process will improve integration planning and implementation. To the extent that implementation clarity is achieved and there is a clear strategy for selecting a target, a foundation for active experimentation can provide a less elusive path to improved M&A performance by leveraging experiential learning.

 
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