Mergers & Acquisitions Payback In 100 Days

By Matthew McCreight and Wes Siegel, Schaffer Consulting

Acquisitions and mergers are central to the strategies of many companies in the pharmaceutical and related industries. Some companies view M&A as a way to increase their cost competitiveness, for example the merger of Roche and Genentech. Others see M&A as a way to gain access to new channels and markets, as with Bausch + Lomb’s recent market acquisition in Argentina. And still others use acquisitions to reinforce pipeline strength, as exemplified by the merger of Merck and Schering-Plough in 2010.

Whatever the underlying reason, M&A is seen as a major way to create value and strategic success.  Given the vital importance of such activities, why is the track record of achievement so uneven?  For every success story, there seem to be multiple examples of unrealized potential or of outright failure.

The shortfall is not for lack of trying. The effort expended to integrate two companies is often unprecedented in the life of an organization. Armies of people — from inside and outside a company — are involved in a broad array of activities to create unified structures and systems, take out costs, build integrated brands, harmonize R&D, and more. Time horizons, “temporary teams,” and financial charges can stretch for years, as with Pfizer’s $600 million impairment in its Q1  2012 reporting for its acquisition of Wyeth two and a half years ago. 

Steps Toward M&A Success
So, what does it take for leaders to ensure that their companies capture significant value from mergers and acquisitions?  From our work with many pharmaceutical companies, as well as in other industries around the world, there are several key steps leaders can take to ensure a high and rapid ROI from M&A:

1. Keep your eyes on the strategic prize: The transformation of your company’s future is the reason for the merger, not the integration of two organizations.
2. Don’t settle for passive acquiescence — build the entire top team’s commitment to the goal of achieving the aggressive value-creating aspirations underlying the merger — or get a new top team right away.
3. Champion a different kind of merger integration — where your focus is on rapidly multiplying talent and results at the front lines of the company, not on tracking a gantt chart of project activities. Speed of results achievement is crucial — major results should be delivered in the first 100 days, if not faster.

Leaders Should Focus On The Transformation
Perhaps the most important role for leaders of newly merged entities is to focus attention during all stages of the merger on the strategic goal of the transformation of the company. The reason for the merger is not (or should not be) to “bring two companies together into one” — that describes a marriage, not a strategic merger.  The reason for the merger is (or should be) to create a synergistic dynamo, a new company that is more competitive, capable, and successful than either of the predecessor companies could ever have been on their own. 

Focusing on transformation means driving for new levels of performance from the very start, even before “nuts-and-bolts” integration issues like organizational and systems integration are complete. For example, commercial leaders at Merck challenged managers of their top markets to drive incremental growth from inline brands from both Merck and Schering-Plough’s legacy portfolios. They created a rapid-cycle engagement strategy where local sales and marketing resources identified and committed to $500 million in recurring revenues, with minimal additional investments. This effort generated new revenue from the integrated portfolios and engaged the markets in a strategically important diversification of products that includes launch, growth, and inline brands.

Focusing on transformation also means investing the time and effort required for true leadership team alignment and commitment to realizing the sources of intended value. Many leaders end up making Faustian bargains about the commitment of their leadership teams, believing that with enough time even the most recalcitrant of team members will “get onboard” and support this all-important effort. Unfortunately, there is little relationship between length of time to “think about it” and the extent to which dissenting leaders make the required change of heart. Instead, the lack of commitment from top members can continue for months or years and erode the progress not just of the integration of the merged companies, but toward the much more difficult and important goal of transforming how the new company works.  One marked difference in how company leaders typically carry out their second major merger over how they drive their first is that senior team issues get addressed and leadership changes are made much faster the second time around.

How does a leader build top team commitment to the transformation of the company? While there is no one way, it is important to start with an honest assessment of the team members’ views and the transformational goals and areas for performance improvement that underlie the merger. Developmental and performance expectations and commitments then must be discussed explicitly with the leadership team. Once this is done, it is essential to translate these commitments into action quickly, so leaders start to learn how to work in this new mode and drive real value creation from the merger.

Driving real success in transforming the company requires leaders to take a much more active role as champions of value achievement. They must demand progress on key strategic, commercial, and operational goals while facilitating the learning and adaptation required to realize them throughout the integration. And they must support the development of a new culture, one that involves people working differently and breaking down previous silos, so the transformation can take place rapidly. Clarity about expectations and steadfast commitment to their realization will help to create the conditions where people learn how to collaborate to drive the transformation.

This can be done by demanding focused, rapid action initiatives that spearhead the realization of intended benefits through cross-silo collaboration. At the heart of this approach is a focus on driving for significant results in rapid-paced waves of 100 days or less. Our experience over the last 50 years has shown that this is the way companies break through long-standing barriers to change and create exceptional levels of performance. For example, J&J’s Regulatory Quality & Assurance group started its integration of two very different global quality groups by setting an aggressive goal to create common global processes for three major activities in 100 days. Previously, up to five different processes existed in the various groups. The initiative had a stretch goal to remove 25% or more of the effort from the processes, have them all fully documented, and all staff trained and working in all locations within the 100 days.  

Initiatives like this can be applied in a variety of areas. Rapid-cycle customer conversion and channel penetration efforts can establish beachheads of initial success that can then be scaled across the enterprise. Throughout an integration, leaders need to hold fast to cost-reduction commitments and timelines — while insisting that the affected areas maintain or surpass benchmark performance levels. These demands for breakthrough performance levels bring the transformation to life and develop a culture that is consistent with the strategic vision that originally inspired the merger.

Empowering Your Staff Is Key
Another key step toward transformation success is to frame the merger integration as an opportunity to multiply organizational talent. Talent can be developed by tasking high- potential managers to contribute to the realization of intended merger value. Putting talent on the front lines of the rapid-action initiatives described above has several benefits:

• Leaders can test capabilities of legacy and acquired talent.
• Managers who participate can be educated more deeply about the merged entity’s strategy and enrolled in communicating and distributing the strategy more broadly.
• Key opinion leaders are tasked to work across boundaries, promulgating a culture that fits the strategy of the new entity — and leverages the best of both legacy cultures.

By recognizing a merger as an organizational transformation, insisting on top team enrollment, and pursuing rapid results that both realize strategic value and develop talent, leaders can dramatically increase merger ROI. These shifts in mindset and behavior move beyond tactical integration management, recognizing the integration as a vehicle for organizational transformation and strategy execution. But to make this transition, leaders must recognize the opportunities that mergers present to renew and revitalize corporate strategy and engage people in executing and realizing it. Pharmaceutical leaders and their teams who build these capabilities will prevail in the new biopharmaceutical landscape.

About The Authors

Matthew McCreight is managing partner and Wes Siegal is senior partner at Schaffer Consulting, a management consulting firm specializing in strategy execution, leadership development, merger integration, and executive coaching.