Network Analysis Enhances Merger Integration

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Executive Summary

Organizational Network Analysis (ONA) can be a powerful tool to help leaders improve mergers of legacy organizations. ONA data can reveal ways to speed integration, drive change, create retention and staffing strategies, foster acceptance of change and facilitate cultural integration.

Although some ONA analyses produce clear and easily actionable results, others require careful investigation to generate maximum benefit. One global consumer products company – the result of a complex merger – found that ONA was useful in understanding uneven business performance. By mapping beliefs and priorities within a key business unit, the company was able to overcome lingering problems from merging legacy operations.

The Problem:

Integration Stalls when Hidden Assumptions Differ Across Legacy Organizations

Poor integration across legacy organizations contributes to the high failure rate of mergers and acquisitions (70 percent by some estimates). Difficulties in capturing synergies are often at the heart of merger financial underperformance, with traditional large-scale merger integration efforts focusing on quickly combining organizations and pruning redundant elements while preserving valuable uniqueness. But the holy grail of M&A efforts is the transformational integration, where combinations of capabilities drawn from legacy units generate entirely new forms of value for customers – something that, for many companies, is far easier said than done.

When approaching large-scale mergers or acquisitions, network-savvy leaders often use ONA [see sidebar below] to identify the most important opinion leaders (those who are very central in the informal network), and enlist them in efforts to ensure rapid integration of legacy components. While these central opinion leaders are often crucial for driving change, organizations may find their integration efforts bog down if they overlook local opinion leaders – those employees with smaller spheres of influence, two or three layers deeper in the network. Local opinion leaders often are most trusted by the rank and file, and are most closely connected to the beliefs that might differ across legacy components. Misalignment on these underlying beliefs and assumptions about what is good for the organization often sabotages change initiatives as different pockets in an organization act at cross-purposes, even if their efforts are rooted in good intentions.

The Solution:

Map the Structure of Beliefs

ONA has been used to identify and address integration challenges across a range of M&As, but none larger or more complex than a recent merger of two global consumer products organizations. Senior executives anticipated billions of dollars in cost savings from elimination of redundancies, and also hoped for significant new revenue streams to come from newly combined capabilities. The organization had used many M&A best practices and, over time, executives could point to many signs that the merger had been a success.

Almost a year after the merger was finalized, senior leaders in one part of the newly combined organization saw uneven performance across a range of business units, and suspected that poorly intertwined networks between legacy employees could be part of the problem. An ONA was conducted, and confirmed that the company’s best-performing unit (Unit A in Figure 1) had a much higher proportion of ties connecting employees across legacy organizations. It also revealed that the unit with the slowest revenue growth since the merger had a significantly lower proportion of cross-legacy ties among its members (Unit F).

The network maps on the left hand side of Figure 2 confirm good integration across legacy employees for Unit A, but revealed clusters of individuals who remained more tightly knit with their legacy colleagues in Unit F. To some, this would be the ‘answer’ to poor integration – time to restructure Unit F to mix people up more and make them build more cross-legacy ties. But a quick examination of the formal structure made it clear that employees had already been blended together across legacy organizations, which suggested that something deeper was driving this. Subsequent interviews with a range of key informants pointed to another unusual perception by members of Unit F: in meetings, people on both sides felt that they were talking past each other – that those from the “other” legacy organization just didn’t seem to care. But why only in this Unit F, and not others? Mapping the underlying structure of beliefs suggested that it wasn’t that they didn’t care, but rather that they cared about different things.

Best Practices:

5 Steps for Better Integration

1) Look beyond the most influential opinion leaders.

Understand local opinion leaders who are two or three layers deeper in the network.

2) Capture data on cross-legacy ties and goal prioritization within the networks of struggling functions or units.

This helps identify key belief or assumptions that are preventing full integration.

3) Reconsider stock responses to poor goal alignment.

A top-down or process-based change or a repeat of communication around culture or goals is probably not useful.

4) Tailor and target an intervention that addresses beliefs and assumptions.

Work to engage the hearts and minds of local opinion leader, who have a disproportionate ability to influence those around them.

5) Be Patient.

Work with a longer time horizon; continue to invest in the network, monitoring and adapting as needed.

The Takeaway:

Assess
Use ONA to look at beliefs and priorities, as well as connectivity.

Ask
Who are the local or next-level influencers? Do their beliefs align with each other and with organizational goals and priorities?

Create
Opportunities to bridge differences, find common ground and established new, shared beliefs and priorities.

RESEARCH INSIGHT

Leaders must identify and understand patterns of beliefs that feed resistance to change.

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