According to John Kimberly of The Wharton School and Hamid Bouchikhi of ESSEC Business School, we can expect to see more and more mergers over the next few years. Unfortunately, while many companies go into mergers with high hopes for success, more frequently the end result is a mediocre union of companies, or even failure.
A big reason for this, Kimberly and Bouchikhi contend, is that the business leaders driving the merger fail to consider questions of identity. So much of someone’s identity is bound up in “who they work for,” they explain, that when mergers ignore the issue of identity, they are likely to fail – or at least not work as smoothly as leadership would hope.
In an interview with Knowledge@Wharton, Kimberly explained, “It’s the answer to the question, ‘Who are we?’ It’s the areas of agreement around ‘who we are’ that are the basis of the identity of any company.”
Kimberly and Bouchikhi detail several common pitfalls dealing with identity that commonly occur during mergers, as well as four solutions.
In the paper, “Making 1+1 = 1 – The Central Role of Identity in Merger Math,” Kimberly and Bouchikhi ask, “What happens when the two organizations actually confront the challenge of post-merger integration?”
“Because merging two or more organizations seriously disrupts the identities of the involved organizations, generates fears of identity loss on one or both sides, and raises questions about the identity of the new combination which may hinder trust in and identification with it, it cannot succeed before employees of the merged entity feel a sense of belonging to a single enterprise with which they can identify and to which they are motivate to contribute.”
Most of the pitfalls come down to poor planning – from completely ignoring the impact of identity to mistaking a corporate rebranding as identity building. Sometimes leadership just focuses on pleasing customers without remembering to work on the internal stuff. And sometimes, they mistake culture for identity, they write.
Culture is all about values and beliefs, and the way things get done, they say, and while identity encompasses that, it has more to do with individuals’ self-concept. They warn, “ Managers who mistake culture for identity may see their efforts to promote a set of common values thwarted by a persisting “Us vs. Them” feeling among members of the merged organizations.
But what it mainly comes down to is simply poor planning around how they’re going to meld two or companies into one from an internal standpoint. They write, “Only after the papers are signed and news of the merger goes public does their attention turn to the issue of making the deal work, of creating value for customers, for shareholders and for employees.”
Companies must plan ahead during the merger process to decide how they are going to handle identity, Kimberly and Bouchikhi suggest.
They have four choices: assimilation, confederation, federation, and metamorphosis.
In assimilation, one company takes on the identity of the other – the acquired company “is dissolved deliberately the identity of the new parent.” The acquired company’s management is taken apart and its employees are assigned new roles within the parent company.
Confederation and federation have both companies retaining their separate identities to an extent. In confederation, they belong in the same both organizations “preserve their historical identities,” as well as their names, legal independence, and management structure. In a federation, the two companies retain their independence under a new umbrella that each company identifies with as a parent.
And in metamorphosis, both companies are morphed into a new company with a new identity. “The key benefit of this approach is the avoidance of uncertainties and anxieties among people on all sides about who are the winners and losers in a merger,” write Kimberly and Bouchikhi.
They add, “Each model represents particular trade-offs between how to deal with legacy identities in building a common future.”
The key point that Kimberly and Bouchikhi make is that they questions of employee identity must be a part of the merger process. When leadership mistakenly ignores workforce identity issues going into a merger, the process is likely to be rocky and unfruitful. Leadership must send a clear message about “who” they are going to be when a merger occurs, and they have to follow through on that message.