In the dynamic world of mergers and acquisitions (M&A), the importance of organization design can’t be overstated. The process of organization design involves shaping an organization’s structure, processes, roles, and responsibilities to achieve its strategic goals and objectives. Truly understanding the role of org design in M&A will aid in a successful integration, ensuring the deal is accretive for the organization.
What Is Organization Design?
Organization design is a systematic approach to defining how an organization functions, including its structure, roles, processes, and systems. This process aligns the organization’s resources and capabilities with its strategic goals and objectives. At its core, organization design seeks to create an efficient and effective framework that supports growth, enables innovation, and enhances overall performance. We use the graphic below to illustrate systems within an organization. All six “sides” or systems must be aligned to achieve the organization’s strategy.
Key Elements of Organization Design:
Why Organization Design Is Important in M&A
During M&A transactions, two or more organizations with distinct operating models, cultures, structures, ways of working and systems come together to form a new entity. Without careful planning and execution, this integration can lead to significant challenges. The business landscape is littered with failed mergers and acquisitions – such as the 2019 Disney acquisition of 21st Century Fox, aimed to bolster Disney’s content library and expand its streaming capabilities. While Disney has successfully integrated many of Fox’s assets, the deal has been criticized for its high price tag and the challenges associated with managing a larger, more complex company impacting the deal’s overall profitability.
The Benefits of Well-Planned Organization Design in a M&A
Most often companies jump right from due diligence to integration.
While achieving deal synergies quickly is important, it needs to be done in a way that does not destroy long term value. Including an org design step complements achieving the deal synergies. If planned as part of the activities either before close or immediately after, it does not delay the integration.
Sophisticated organizations include an org design step as part of their M&A playbook, and a well-designed organization during a M&A can significantly enhance the combined company’s performance and long-term success. Here are some notable benefits:
- Enhanced Operational Efficiency:
By carefully designing processes and eliminating redundancies, the new organization can operate more efficiently. This leads to cost savings, improved productivity, and faster decision-making.
- Improved Employee Engagement:
Clear roles and responsibilities, combined with clarity on how the acquired talent fits into a bigger picture, boosts employee engagement. When employees understand their place in the new organization and see opportunities for growth, they are more likely to stay committed and motivated.
- Effective Cultural Integration:
M&A often involves blending different corporate cultures. A thoughtful organization design can facilitate this integration by promoting shared values, fostering collaboration, and minimizing cultural clashes.
- Greater Strategic Agility:
A well-structured organization is better equipped to respond to market changes and capitalize on new opportunities. This agility is crucial for staying competitive in a rapidly evolving business landscape.
- Risk Mitigation:
By addressing potential integration challenges proactively, a well-planned organization design can reduce the risk of disruptions and ensure a smoother transition.
The Risks of Poor Organization Design in M&A
On the flip side, poor organization design during M&A can lead to a host of problems that can undermine the success of the transaction. Some of the key risks include:
- Operational Inefficiencies:
Without a clear structure and streamlined processes, the combined organization may face operational bottlenecks, duplication of efforts, and increased costs.
- Talent Attrition:
Unclear roles and career paths can lead to employee dissatisfaction and higher turnover rates. Losing key talent can have a detrimental impact on the organization’s ability to achieve its goals.
- Cultural Clashes:
A lack of alignment between different corporate cultures can result in conflict, reduced collaboration, and a fragmented organization. The culture clash between T-Mobile and Sprint is a great example. T-Mobile, known for its aggressive marketing and customer-centric approach, clashed with Sprint’s more traditional and conservative culture.
- Strategic Misalignment:
If the new organization design does not align with the strategic goals, it can hinder the organization’s ability to execute its plans and achieve desired outcomes.
- Customer Disruption:
During the integration process, a poorly designed organization may struggle to maintain a strong focus on customer needs, leading to potential declines in customer satisfaction and loyalty.
How to Begin Thinking About a Process for Organization Design in M&A
To ensure a successful M&A integration, it is crucial to approach organization design thoughtfully and systematically. Here are some steps to guide the process:
- Conduct an Organization Assessment:
Begin by assessing the current state of both organizations. This includes analyzing their operating models, structures, processes, cultures, and capabilities. Identify areas of similarities, and areas that require alignment. For example, is the acquiring company aligned to customer segments and the acquired company mainly aligned to product technology?
- Define Strategic Objectives:
Clearly articulate the strategic goals of the combined organization. This is beyond the cost synergies and gets into new value that can be created. These objectives will serve as the foundation for designing the new organization structure.
- Engage Key Stakeholders:
Involve key stakeholders, including leadership teams, HR professionals and employees in the organization design process. Their input and buy-in are essential for successful implementation. Also, engage key leaders from the acquired company who are critical to the future state of the new combined organization.
- Develop a Detailed Plan:
Plan out an initial design workshop with the key stakeholders. Leveraging the organization assessment, start to plan out the most likely design workshops that will be required for each function and business line/division.
- Prepare Support Teams:
Identify a core team that will support the implementation and get them involved as early as possible. The core team roles typically include a program manager, change manager, HR business partner/people strategist and a finance lead. This is in addition to the experts who will be facilitating the org design workshops.
Conclusion
In the complex world of M&A, organization design is a critical element that can significantly impact the success of the transaction. Carefully planning and executing a systemic organization design process between the due diligence process and the M&A integration process will mitigate risks and ensure the deal is accretive. Ultimately, a thoughtfully designed organization can unlock the full potential of the combined company, driving growth and creating lasting value. Including org design in your M&A playbook will ensure this critical step is not missed in the eagerness to achieve the deal synergies.
Check back over the next two months, as we continue the conversation by discussing how thoughtful organization design can help you overcome common M&A hurdles and offer practical organization design tips that can help your merger or acquisition create value. Check back here or follow us on LinkedIn for the latest.
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