by Matt Johnson, Marcus Greenspan

It’s no secret that most mergers and acquisitions fail to achieve the results they were expected to deliver. According to research from the Harvard Business Review, 70 to 90 percent of deals fail to realize their anticipated value.1  We see several reasons for the shortfall: poor target identification, erroneous assumptions about the deal’s commercial value, and often, the inability to achieve hoped-for levels of synergy during integration.

Realizing synergies is the ultimate objective of all mergers and acquisitions, whether this is through reducing costs or driving revenues by any number of strategies together than either party could achieve alone. No matter how good a fit the deal may be, or how well the economics are defined, an acquisition will underperform if its integration doesn’t deliver on the goals for synergy in a timely fashion.

Why do companies find it difficult to achieve greater levels of synergy or deal value when they come together? How might we approach integrations in a way that turns those odds for success around?

Agile sets us up for greater success

Companies often struggle with a disconnect between the intent of a deal and the way the integration is planned and executed. This is where Agile offers great opportunities to improve integration efforts. The Agile approach was originally introduced in software development in 2001 as an adaptive way of working to sustainably improve development speed and innovation. A key to the success of Agile is how it continuously focuses teams on doing work that delivers customer value.

Now more than ever, companies in other industries are adopting Agile to address an array of business challenges. Mergers and acquisitions offer another exciting application for Agile and the fundamentals the framework provides. The drivers for realizing value in integration couple especially well with Agile, namely, the capability to pivot as new information arises, aligning work and teams around business value and the ability to engage and empower the people closest to the work, which enables their creativity and taps into their deeply embedded organizational knowledge. As companies strive to keep talented people, Agile has also demonstrated improvements in retention by improving employee engagement, giving people doing the work greater autonomy and a bigger stake in the outcome.

Given its natural fit with the dynamics of mergers and acquisitions, you might wonder why the most common approach to integration isn’t already Agile. Many organizations are still stuck in traditional ways of thinking about integration. The focus is often on signing the deal, structuring the value capture and post-close execution, as well as planning and controlling the integration using traditional “big upfront planning” approaches that don’t allow for much revision.

However, as we know, deals don’t happen in a vacuum. Acquisitions create a dynamic environment, both inside and outside the new company. “Value leakage” often occurs because the original deal assumptions that shape a big, upfront plan are no longer valid during critical phases of execution.

Being agile—not fragile—in the face of uncertainty

Some companies hesitate to embrace Agile due to a common misconception that it’s too “Wild West”—in that the approach is often misconceived to not involve planning. The reality is that Agile incorporates planning through a different, more flow-oriented framework. This adaptive approach is ideally suited to post-close integrations, which, despite the best due diligence, are often filled with a high degree of unpredictability. The traditional approach of making a big plan upfront does not eliminate risk. In fact, it sets the stage for additional risk because it doesn’t equip companies to predict and prepare for the uncertainties that will inevitably arise during integration.

By taking an Agile approach, teams are positioned to assume variability earlier and more often. Leveraging this iterative approach also allows teams to capitalize on what they learn as they go, as opposed to wasting time struggling to execute an already outdated plan as frontline realities unfold. Agile is informed by work in real time, with a flexible approach that admits “we don’t know what we don’t know.” And, by breaking down the work into smaller increments, Agile enables teams to respond to things more easily when unexpected outcomes arise.

What’s more, Agile practices can be used across all parts of the organization, helping teams respond to market forces while holding to quality and budgets. As Alex Shegda, a Solutions Director at Point B notes, “An agile organization isn’t just a decentralized organization; it’s an organization that has the capability to learn and unlearn, demonstrate complex problem-solving and emotional intelligence, and much more.”

Agile is more than a framework, it’s a mindset

Adopting Agile is not an automatic guarantee of successful integration. Teams sometimes fall into the illusion of “acting Agile,” assuming that by simply holding Agile events and meeting in daily stand-ups that they’ll reap the benefits of Agile.

Agile involves more than organizing teams in new operating models with new meeting cadences. A successful Agile transformation calls for teams to adopt an Agile mindset and to put it into action. In addition to working in small self-organizing teams, breaking down work into small slices, putting individual and interactions over processes and tools, and interacting frequently with customers, it truly involves putting the customer at the center of development work. It’s also important to think of it as an empirical framework that prizes early learning, even when—maybe especially when—that learning results in a change of plans.

An intentional approach to adopting Agile  

Many industries and organizations have strict regulatory compliance, and in most contexts, SEC filings and financial controls are critical concerns throughout integrations. We help clients adopt an Agile framework in a phased approach. In our experience, this allows them to maintain and even scale their compliance or risk-management coverage while generating value more quickly. By tailoring our approach to organizations’ strategic priorities and cultures, we are more able to help them realize a logical flow that incorporates regulatory and compliance considerations without impeding greater Business Agility.

When we help clients move to Agile ways of working, we also take an Agile approach. That is, we lead transformations by focusing on the people making the change—our customers. In addition to meeting teams where they are, we break down our work into smaller increments, which enables organizations, and their teams, greater fluency in embarking on their journeys. Based on timing and deal size, there are several approaches we can take in introducing Agile in the context of an integration. These often involve frameworks used to scale Agile.

Whatever the framework, in our experience, we find it’s a best practice for all the teams involved in the integration to be grounded on consistent training and fundamentals for Agile ways of working. Consistency introduces stability and psychological safety in what is often a novel and dynamic work environment. We also find it’s best to work at the team level to introduce Agile ways of working and identify any issues or opportunities we may need to address as we expand to other teams. We build on what we learn. With all the teams utilizing consistent Agile tools and practices, we keep looking for ways to optimize and improve performance. Agile provides the opportunity to create a virtuous cycle that continuously reinforces the value of the integration.

In integrations, we encourage Integration Management Offices (IMOs) to begin by thinking about their operational value streams and their biggest, highest-priority items, and breaking them down into smaller increments to begin work. This classic Agile approach is far more effective than spending weeks trying to button down a big upfront plan that will inevitably need to change many times over the course of integration.

The importance of leading—and then letting up

An Agile transformation must have strong, enthusiastic support at the highest levels of the organization. It often takes Agile champions in the C-suite to ensure success. We find it’s best when leaders help create an environment in which people feel safe to move to Agile ways of working and an Agile mindset—asking questions, acknowledging mistakes, and suggesting new ideas that challenge the status quo.  

As teams begin to adopt Agile, most leaders find that they need to take their hands off the reins a bit to empower those closest to the work. In the process, they may find that Agile not only solves the challenges of integrations; it may also solve other business issues that have been hindering growth and wasting precious time and resources.

The competitive power of democratizing work

When it comes to Agile, what’s good for an integration is good for the long-term strength and sustainability of the organization.

Business Agility thrives in organizations where people feel heard and trusted, and where those closest to the work have the autonomy to make decisions and take action. By putting people first throughout the Agile transformation, we help companies reap the value of building teams in which members empower each other to be successful.

This empowerment can help a company retain valuable talent on both sides of the M&A equation. It can move the needle on organizational design and, ultimately, the way teams stand as the dust settles from the integration. At a time when “The Great Resignation” is on the minds of every C-suite, Agile helps companies engage, empower, and retain talented people.

Is Agile always the answer?

Not necessarily. While there are many advantages to taking a more adaptive approach in this type of work, if the company executing the acquisition has a firm understanding of what work needs to be accomplished and how the synergies will directly result from those efforts, leadership may find greater value in capitalizing on previous lessons learned and established controls than attempting a different approach. The same may be true given the scale of the acquisition. As an example, an acquisition target by its own design may be quite small and be of value more for its intellectual property than for its brand, customer-base or established resources. In those cases, the returns on shifting the teams’ ways of working will likely diminish post-integration. Sometimes the fastest and safest way to get there is going the way one already knows.

 

The Bottom Line

Over the last 20 plus years, Agile has fundamentally changed the way teams develop software.  It has since demonstrated similar benefits of improved productivity, quality, speed to market and employee engagement in other areas like HR, Finance and Marketing. Now companies across other industries are discovering that Agile ways of working can also be used to manage integration efforts to drive higher deal value capture integrations to higher levels of synergy and value capture post-close. Point B brings to our clients empathy and expertise to empower their people at the center of this change. We help tailor different Agile frameworks and build team environments for integrations that meet, even exceed, goals for synergy and value capture post-close.

 

Sources:

1) https://www.forbes.com/sites/forbescoachescouncil/2019/06/24/most-mergers-fail-because-people-arent-boxes/?sh=f69beee52770