3 - Brexit - Business Lessons & the 4 factors

Brexit is a perfect example of what is often going on in the business world: Two or more companies are trying to integrate, and things fell apart. Almost everything that could go wrong in a merger, in the Brexit tale went.

Let us consider a hypothetical merger of a few large companies with different cultures. It's a very challenging project.

For transparency, I should say that I think the Brexit day is a sad day. I have family in the UK, friends, and business interests. Wishing all the best to all Brits, I strongly doubt that the Brexit has been in their interest. But that is my personal subjective view and has no reflection on the following.

The significant components found in the play of the Brexit can be encountered in similar situations in the business world where 80 to 90% or the M&A fail. So, some lessons can be learned by studying Brexit.

80 to 90% or the M&A fail

The EU project is a massive, complicated merger involving millions of people who have been fighting bitterly for centuries (competitors). Different languages and cultures that foster local nationalism (local interests). The project can be traced back to 1960s (if not before to the "Young Europe", an international association formed in 1834 by the Italian Mazzini) after the disaster of the world war 1 and 2 with the idea of "never again". But precisely for that, is kind of difficult for Brits, French and German and the rest to trust each other (lack of trust). 

Almost 80 years later, from the first signed agreement, the EU is still far away from a political unity. You might notice that thing went reasonably with Economic integration, people freedom of movement, regulations, ... but you will not see less local politician! Actually, the number of politicians has increased: now there are two levels of decision-makers: the country one, whose interest is not to be replaced or lose power (the middle management). And the EU Parlament (the group board) who is seeking higher power but is blocked by the middlemen. In business, the board group has higher authority than the local managers, but very often is overruled by those.

So one should not be surprised about the Brexit, but about the fact that the other countries are still managing to stay in! 

A merger is a change management project.

A merger is a change management project. As we will see, it's all about people and their perception. Technicalities, systems and processes come secondary if you manage correctly how and what information people receive. But you generally top managers do the exact opposite.

I am not aware of any merger that went wrong because of a technical impediment that could not be solved. I am not saying that differences in systems and processes are irrelevant. But most of the M&A went wrong, from the New York Central and Pennsylvania Railroad to the Sprint and Nextel, when two or more competitors run into a clash of cultures, where the middle management opposed to the post-integration plans and the employees got scared.

it's all about people and their perception.

Looking at the history of mergers and integrations, we might identify four significant influencing factors:

1. Personal interests, especially those of the mid-high decision-makers
2. Speed of the process vs involvement of the people
3. management of expectations and (mis) information
4. Economic stakes of the competitors.

All of the above are very interrelated.

Personal interest of the decision-makers

People think that entrepreneurs are collaborative people. Wrong. Statistics says that less than 10% are collaborative. 

Entrepreneurs like to stay at the top, and to feel free to decide without consultation or obstruction. They want to be the centre of attention and often are narcissists (they are a bit like politicians, in this aspect). 

Unless they see a clear advantage for themself, personally, entrepreneurs will not join a group. This lack of openness to collaborate in the entrepreneurs is the reason why it is much easier to build, for example, a company association for a buyer lobby than making them working together. Or an acquisition might be more natural than a merger.

Like entrepreneurs, also the middle management is scared to lose power, if not their jobs. Everyone in the companies will think "What's in it for me?".

If you cannot answer to that, clearly and accurately, you are likely to have a lot of inside enemies if not road blockers.

If you cannot answer to "What's in it for me?" You'll have a lot of inside enemies.

Speed of the process and people involved in the process

Every change manager will tell you that speed management is very critical in any merger or other situations in which the people feel affected.

And the participation of people in the change is very challenging, and is needed, wanted, and often counterproductive.

People tell you that they want to be engaged, and it is a good thing to do when it is possible and reasonable. But what people hate most is instability, uncertainty of their future. When masses feel scared and unsafe, they do not look for engagement but move far right searching the strong man.

people hate mostly instability and uncertainty of their future.

So the recipe for success in change management is:

1. Who should, and has the power to decide, should determine what next, 
2. the decision is communicated well and thoroughly,
3. the actions are quickly implemented asap.

Nevertheless, the people inside a company will almost always complain that the board group is taking decisions, without local knowledge and without taking into account local people view, experiences and desires.

That set a colossal resistance in people against the merge.

The balance between the involvement of the people and the speed of the process is very delicate and challenging.

The more you increase the bottom participation, the slower the process will be. On the other hand, less involvement, without the correct management of the information (about what is happening, what it's already better, ...) will generate a higher resistance to the change.

Build all the possible engagement where it has a minimum impact on speed and safety feeling

There is not a fast and hard rule about much involvement. One easy solution is to build all the possible engagement where it has a minimum impact on speed. Low or no involvement, where it would create instability or lack of safety feeling.

Management of expectations and (mis) information

If you cannot control the information (i.e. what's said in the socials for example) or balance with massages that make people feeling safe, you have a complicated merge to complete.

As we have said above, the "What's in it for me?" play a significant role. 

People, for personal interest, or just because they are wired like that, or because they think they would look smart, they like to spread out what could go wrong, and fear and to scare others.

You cannot stop that. But you might limit it, and above all, you should spread out the good, positive info and specifically address the scaring info, unmasking the fake news spreaders.

People like to spread out what could go wrong, and fear.

A good practice is to have a regular official newsletter where everybody is kept up to date about what is happening, how and why, and also about what is NOT happening.

Economic interest of competitors.

If a bunch of medium-sized companies are trying to merge into a large group, it can be threatening to the significant players (i.e. a growing EU vs the established US, Russia, China). It is a disruption in a delicate market equilibrium.

They will do anything in their possibility to stop the coming of a new dominant player. 

The most common tactic to block or slowing down the process is by instilling fears into the various manager and employees.

"your position will worsen", "you will be dismissed for sure.", or "look tomorrow is going to happen that (i.e. Turkey will join the EU)." and so on.

Fear, in change management, is a pivoting factor. If you cannot control it and make the people feeling safe, you have a recipe for disaster.

Conclusions

If you have a complicated merger to manage, across cultural borders, with several people involved, you might want to look deeper into this Brexit story.

It's an example of an extremely prolonged change, with conflicting personal interests, lack of proper information management and strong competitors with a vested interest in blocking the merger.

As a takeaway, for small or large M&A here the 3 main lessons:

1. It is the responsibility of the ones at the top to make their people feeling safe in the process, more than solving issues with systems and processes.  
2. Push the process as fast as possible. Involve the local people as much as possible where it is not affecting their feeling of safety and does not slow down the process.
3. Take care of the people "what's in it for me?", and their expectations. Give regular and accurate updates on what and how it is happening, and what is NOT going to be.

Uncertainty is a killer. Never, for any reason, spread out a:

- "It could happen this, or maybe this".

- "This is what we are going to do. But we do not know how as yet."

- "... we cannot answer yet about how this is going to affect you." 

In these cases, silence is much better.

Take care of the middle management and the employees, they will take care of the systems and process.

In summary, change management is above all about people, their perception and the information they receive.

If you take care of the middle management and the employees, they will take good care of the systems and process.

Instead, it is prevalent to see top manager involved with systems and process and forgetting about people. Otherwise, you would not justify why 80 to 90% or the mergers fail.

So one should not be surprised about the Brexit, but about the fact that the other countries are still managing to stay in! 

May you enjoy a beautiful life.

@ugonuv

#management #humanresources #entrepreneurship #mergersandacquisitions #brexit #EU