Learning from industry: Best practices for mergers
Learning from industry: Best practices for mergers
Don’t flounder through merger mania
Anxiety. Potential job loss. Rumors. Political strife. Restructuring. Financial pressure. No matter how you paint it, mergers and acquisitions, which are occurring in unprecedented numbers in the health care industry, aren’t a pretty picture.
That doesn’t have to be your reality, however, says Suzanne C. Francis, senior partner, Robert H. Schaffer & Associates, a Stamford, CT, consulting firm specializing in results-focused change.
"Most managers view the merger or acquisition as a one-time event to survive, rather than drawing upon tried-and-true experiences of others who have been through the process," says Francis, who helped GE Capital develop a best-practice acquisition model.
By learning from a company that has made hundreds of acquisitions in the last five years, health care professionals can manage integration more smoothly, she says. "The setting may be different, but the principles are the same."
Process divided into four stages
The model, which GE calls the Pathfinder, divides the integration process into four action stages, each with several subcomponents and accompanying best practices:
1. Pre-acquisition. "Many executives do a good job with the financial portion of due diligence but overlook other information that may be just as valuable in predicting financial success," she explains. Francis offers these examples of vital questions:
— How is the other organization structured?
— How closely does its work culture match ours?
— What are its strengths and weaknesses? (Examine clinical areas as well as administration, physicians, staff, services, and equipment.)
— If we close this deal, what challenges will we face?
— What can we capitalize on?
By knowing the answers to these questions, executives can get a head start on the actual integration process. "If you wait until the ink dries on the paper, you’ll loose valuable time because no one captured the data," she says, adding that such information could even affect how the closing is negotiated.
In this first stage, a communication strategy must be developed, Francis stresses. The important work in this stage is the communication with all key interest groups.
"It’s essential to think through what you’re going to say when deal is announced," she says. "Remember, the announcement may happen long before actual closing." In preparing the strategy, consider your constituents — patients, physicians, clinicians, staff, payers, etc. — and what messages you need to get across.
"Internal liaisons can work with these groups to let them know how the purchase will look and, more importantly, how it will affect them," she says.
One word of caution: In trying to pave the way for smooth integration, don’t make promises you can’t keep. "It’s important to acknowledge even in the early stages that a merger or acquisition means business as usual’ will change. Things won’t get back to normal,’" Francis says.
2. Foundation-building. For optimum results, assemble an integration team of representatives from both entities. It should be lead by one person. "The leader should take charge not of the business performance but of the work that must be done to bring the organizations together," she explains.
The leader guides the team as they develop a "very focused, results-oriented" plan of action. Goals may include meeting re-certification deadlines with accreditation agencies or consolidating physical facilities or combining departments.
"The secret to the plan’s success is to ask, What are most critical items without which we can’t do business effectively?’ and then address those items," she says.
3. Rapid integration. At the heart of this stage is executing the integration plan through work redesign or reengineering. "Each department examines, then flowcharts, the process by which work gets done and the opportunities for performance improvement," she says.
"By designing the new work flow, the entire organization can become more efficient by adopting best practices or carving out a set of new ones."
4. Assimilation. "No one knows how long it takes to get to assimilation, but at this point the organizations should begin to function smoothly, with common practices and policies," she explains.
The challenge is to continue the improvement effort, "Make sure you continue to examine whether the integrated organization is achieving its full potential. You may not be as effectively integrated as you think you are!"
She likes to site the example of two large medical equipment companies. "Four years after the acquisition, there were still some staff answering the phone with the name of the acquired business," she says.
Although this example is an extreme one, she acknowledges, the lesson is that integration should not be considered "imposing on a short-term basis the business practice of one company on another. The idea is to get beyond the we’ and they,’ to ours,’" she says.
Remember that mergers are a process
Francis passes on other important lessons GE has learned about mergers and acquisitions over the years:
• It’s a process, not an event. "There are basic principles and tools that can be adapted for almost any situation," she says
• Integration is a specific job. "It requires resources, time, and leadership."
• Make decisions about employees quickly. "No one likes to talk about the employee fallout that occurs during a merger." Francis advises you to make explicit the requirements and expectations of the new entity. "Some people may not be interested in working under such a system and may want to move on. Others, you may ask them to move on," she says.
The key is to move rapidly. "Decision making about staff needs to be made quickly; otherwise, it builds up resentment and decreases morale," she says. "It’s like taking a Band-Aid off slowly; it hurts less if you just give it a good tug get it off and over with."
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