Andre Nadeau argues that the M&A will only succeed if integration management is put to use.
In recent years, mergers and acquisitions (M&As) have become an increasingly important component of business strategy. Not only have there been a number of high-profile cases in the IT industry, but such consolidations are also on the rise in the insurance sector.
The insurance industry, like the rest of the financial services industry, has been undergoing a structural change, which is likely to continue as regulatory, socio-economic and technological forces alter the way business is done. In the current poor economic climate, natural growth can often be too slow for many insurance companies. M&As present an effective way to increase market share and profitability within a short timeframe, but only if integrated successfully.
As the number of M&As across the insurance sector continue to escalate, one might be forgiven for thinking that corporate buyouts major can only take place over a lengthy period of time; and that any ensuing costs, bad press and low staff morale are unfortunate, but unavoidable, side-effects.
However, this does not have to be the case. M&As can play an essential role in business planning and strategy. Many problems can be avoided at the outset by ensuring that any acquisition is part of a clear vision for the company and that a post-acquisition strategy is established in advance of closing. In addition, speed is critical. Complete integration should take no longer than one year so that employees are not inhibited when amalgamating with other companies. Another key issue for consideration is the financial aspect. All acquisitions should contribute to increased profitability and return on capital from the first day that the agreement takes effect, creating immediate value for shareholders. More high-risk moves can create less credibility and more instability. Having the financial room to manoeuvre and reward provides the lubricant for successful transitions.
Integration management is vital to any M&A, whatever type of insurance organisation is involved. Integration involves all aspects of the company, including people, culture, processes and technology infrastructure. A rigorous and highly effective integration process must be adopted at the very early stages, even before the acquisition has been completed, and this is seen as a key part of due diligence.
Traditionally, many insurance companies undertaking an M&A have concentrated on either business or technological convergence, but not both. Both are, however, vital for success and require equal importance. A frequent complaint during M&As is the inability to deal with the challenge of IT integration and this is often due to the lack of involvement of key personnel in the process, such as a Chief Information Officer. As a result, significant decisions are frequently made without seeing the whole picture and one ill-informed decision can create a host of future problems. It is important that companies do not offer IT improvements if they do not have the people in place that understand what it takes to make such improvements. A successful MIS (Management Information Solutions) integration allows effective networking, a sense of sharing, ease of email, etc., which bonds everyone more quickly to the new entity.
To avoid problems, bring together a multidisciplinary team led by a board level sponsor and containing specialists from all areas of the business including human resources, communications, technology and finance. Such teams can compare and contrast all of the existing practices and then choose the potential best practices to implement across all of the offices, through various means of training. Involving this team at all stages of the acquisition will not only ensure due diligence to integration continuity, but will also enable each aspect of the M&A to be covered from every angle, thereby reducing risk.
For companies in the insurance industry, the skills and knowledge held by its people are vital to its continued success and, following an M&A, it is absolutely essential that the companies' professional teams and expertise are retained. Constant communication is needed throughout the whole process if people are to be successfully integrated.
The new company must be presented to each employee as early as possible. Where possible, this should initially take place on a team basis as well as an individual basis as it gives senior members of staff the chance to meet everyone and provide both verbal and written information. This type of two-way discussion helps to alleviate fears, explain the new business 'vision' and begin the process of building a positive atmosphere across the new organisation.
And the atmosphere should be positive, because there are significant benefits to be enjoyed from an M&A. It introduces previously undreamed-of business and client opportunities that can breathe a whole new lease of life into a company. And on a more personal level, it can also open up new and improved career paths for employees. Making sure that these opportunities are positively communicated from the outset enables senior staff to concentrate on other issues involved in merging the business and technology, rather than dealing with disgruntled staff and, in a worst-case scenario, a possible mass exodus.
Success via seminars
But the communication process should not end here. One proven method of ensuring successful integration is through a course or series of educational seminars and workshops on the new organisational model and the day-to-day practicalities. This type of introductory course is invaluable to enable managers and employees to learn in some detail what it means for them on a personal level and exactly how the new organisation will operate. It will also provide them with the chance to meet the senior executives, to ask questions and voice any areas of concern.
Another tool which encourages a smooth integration process involves the strategic positioning of a spokesperson within the new business unit to guarantee that someone is 'on hand' to answer questions and create a bond between the company they have come from and the one they are going to.
Huge numbers of organisations become so embroiled in the technicalities and associated paperwork of an M&A that they fail to fully think through their communication processes. By understanding and embracing the human angle, a company is going a long way to guaranteeing an acquisition's success.
Managing change is a continuous process in an M&A. A well-structured project management framework, teaching employees the new corporate values, encouraging an open culture of respect while ensuring that everyone is on the same wavelength no matter what part of the organisation they work in, will help to remove much of the pain that is apparent in so many of today's M&As.