Most mergers and acquisitions add no value to the partners over time. Most top managers can readily cite examples of failures in this arena. They often use the term murders and acquisitions instead of mergers and acquisitions.

Two Strategies

Decisions to merge assume that synergy will develop between two organizations that combine resources and talent and achieve economies of scale and integrated technologies. More often than not synergy never occurs and the marriage remains unconsummated years after the merger.

The financial picture drives the vast majority of mergers. While this may avoid economic disaster in the short run, people often misunderstand or neglect other critical aspects of the merger, such as mission, planning, and the all-important people equation.

The fifteen percent of successful mergers and acquisitions use a different sequence. Instead of finances, mission and strategic plans drive the integration. If the strategic plan fits, structures, systems, and people can be redesigned with anticipated success. During this process, specific action plans can be developed for synergetically integrating strategy, structure, systems, technology, equipment, facilities, and people.

If the initial plans predict success and if both sides still speak, then financial analysis can test the plans.

Synergy and Stages

Whenever two separate organizations merge, they want synergy. Each side hopes to benefit from the merger and, initially, willingly ascribes benefit to the other. However, synergy does not occur easily or without effort. A legal merger may change the name of the company, a financial one may affect money management, but the real benefits occur when people ascribe to merged goals and ideals.

Developing synergy requires the partners to go though five stages. Each stage has seductive pitfalls that can prevent the full transformation of each partner into a new, synergetic whole.

Stages Toward Synergy

Stage	Challenges: what must happen to move ahead?	Pitfalls: common illusions
I: Awareness	At least one partner is aware of strong goals/needs best met by a suitable partner.	Looking outside to achieve goals when you have the internal resources. Using only financial criteria in the search for a partner.
II: Romance	Possibilities are sensed. Excitement builds.A shared vision and commitment emerges.	Wanting it will make it happen. Fear that conflict will destroy the vision.
III: Power Struggle	Partners learn to accept different needs and perceptions. Partners clarify and expand who they are and what they do.	Trying to change the other to fit our expectations. Resisting/retaliating when we don't get our way.
IV: Team	Partners work with mutual respect and trust. Partners learn to live with the differences.	Since we really work well as a team and enjoy one another, we don't need to focus on the work ahead.
V: Results	We learn how to use our synergy to better interact with our environment.	Focus on the work will sufficiently build the relationship.

To reap the benefits of a merger and avoid an unanticipated backlash, the challenges and pitfalls of each stage must be proactively identified. Specific, organization-wide procedures for working through the challenges and avoiding the pitfalls can then be developed.

Organizational Icebergs

The Stages Toward Synergy will be different for the partners at each level. We think of the two merging partners as romantic icebergs, some distance from one another. The tips of the bergs see one another and decide to join. As the tips move slowly through the early Stages Toward Synergy, each iceberg experiences the full romance of the potential merger. Eight-ninths of each iceberg, hidden from view, collide (Stage I).

The tips sense the possibilities and the potentials of the merger and begin to create a shared vision with strong commitment. When the lower organizational ranks (or icebergs) make contact, they are not sure whether they have goals or needs that the outside partner could meet. They decide the best strategy is "wait and see." (Stage II)

If the tips of each berg romantically engage (Stage II) and enter Stage III, accepting their different needs and perceptions becomes the challenge. The partners begin to clarify who they are and how they will work together. Negotiating the power struggles of Stage III can only be achieved by the tips if the lower reaches of the organizational iceberg engage. But the lower levels have not even begun to move through Stage I. The reaction at the tip is to try to change the other while resisting changes requested by the merger partner. This message flows downward to create a model for behavior at the lower levels of the organization.

Organizational Life Cycle and Culture

Successfully managing the creation of organizational synergy through a merger gets additionally complicated because each partner and its subunits may be at different stages of organizational maturity. Culture is one of the most profound qualities of an organization's independent growth. When organizations of differing cultures attempt to move through the five Stages Toward Synergy, each will be predisposed to certain methods, standards, and procedures. By neglecting to clarify, quantify, and understand the different organizational cultures, progression to synergy becomes increasingly difficult.

Fortunately, we can now accurately measure the culture of an organization and its subunits. Top management can use the information to design the appropriate culture and create synergy in the merged organization.

Eight Phases to Facilitate Merger Synergy

PHASE ONE: Organizational Diagnosis

The first phase to improve the chances for a successful merger is an organizational diagnosis, which includes structured interviews, group process sessions and an organizational diagnostic questionnaire (ODQ). Based on well-defined models of organizational life cycles, key factors found in excellent organizations, and proven methods for creating change, the ODQ indicates evolving organizational cultures, problems, and their causes.

The diagnosis includes four analytical areas:

1. Life Cycle Analysis: Using the life cycle model developed by Ichak Adizes, the analysis identifies the developmental stage(s), existing cultural components, and the direction in which the organization is evolving.

2. Future Success Predictors analyze the future value, or strength, of the organization, pinpoints specific elements of the organization's culture, and areas that need effort.

3. Key Challenge and Major Strength Analysis identifies and categorizes the organizational strengths and weaknesses into cause/effect patterns and relationships. Knowing these patterns make it possible to pinpoint problem areas, identify their causes, and set priorities for action.

4. Item Analysis provides a summary of the group's responses to the individual items.

In addition, strategic management experts provide a Diagnostic Summary and Prescription for each partner participating in the ODQ. This explicates an in-depth analysis of the major themes and dynamics uncovered in the diagnosis. It clearly identifies the elements, both positive and negative, in the culture(s), the key organizational challenges, and the steps necessary to change performance.

Based on the diagnosis, facilitates executive team sessions to review the data and conclusions, to develop a prescription outlining the major activities that will remove organizational barriers for a successful merger. Executive team sessions identify where synergy between partners is likely and how it's blocked. The product of this team work is specific action plans for making positive changes within the organizations.

PHASE TWO: Culture Change

Phase One and Two occur simultaneously. The work of Phase One causes the management team to increase organizational literacy—to come to know the organization more holistically—and to gain a new respect for challenges faced by their colleagues. This provides the opportunity to examine the culture and to support the proposed merger. We identify and use gaps between current and desired culture as input to the following phases.

PHASE THREE: Shared Vision, Common Values, Unified Mission

A merger's most powerful unifying force is a shared vision of the future. Creating this vision involves a top management team drawn from both organizations. The building blocks of Phase One diagnosis begins to illuminate key elements of a shared vision and helps leaders understand both common and divergent values of the partners. Designing the correct sequence of activities, asking the right questions, ensuring maximum participation leads to focused discussion and the highest possible degree of commitment.

PHASE FOUR: Structure

Once the direction is clear, the leadership team redesigns the organization's structure to support the mission. A high degree of participation increases the chance that implementation will be successful.

PHASE FIVE, SIX, SEVEN: Systems, Resource Allocation, and Rewards

Redesigning management information systems, redeploying resources and restructuring reward systems logically follow the new vision and structure. Again, top leaders of both organizations struggle together over these issues, which becomes increasingly easier as trust and mutual respect grows. As strategic decisions in Phases One through Seven are made, policies and plans can cascade through the organization into operational areas, involving partnership teams from both organizations. Ideally this all happens before the actual merger occurs.

PHASE EIGHT: Problem Solving and Team Work

Phases One, Two, and Three enable the partners to define the desired culture. Phases Four to Seven identify the changes needed to produce merger synergy and design the plans to make it happen. As areas of potential improvement are identified, converted into tasks and worked by joint teams, we expect two results. The first is the resolution of specific problems; the second is a change in the organization's culture among the team participants. The desired culture specification, developed in Phases One, Two, and Three, is used throughout to design solutions consistent with the new culture. We use this process as the organizations take on the regeneration of a wholly new organization.

For a true merger, cultural change must be achieved. To change the culture, the old culture must be clearly specified, the new one consciously defined to support the new vision, and the new culture must be instituted bone-deep and rock solid. Superficial cultural change, exemplified by motivational speeches, memos, brochures, and exhorting the staff, have a half-life shorter than a pint of Argentine strawberries. Only when the change gets welded into the solutions of important organizational problems can significant cultural change occur. The desired culture eventually becomes the acknowledged behavioral standard for everyone working on both strategic and tactical tasks identified for resolution during Phases Four to Eight.

Impacting Cultural Change: How Culture is Created and Changed

The early phases of successful mergers design, in writing, the desired organizational culture. Installing the new culture and spreading it throughout the organization requires creative and continuous effort over many years.

Leaders create the culture of an organization and implement it through systems, structures, and work processes. Leadership values and philosophy can be seen in their actions and decisions. What is emphasized? Rewarded? Measured? Who is promoted? Protected? The culture embodies the organization's values and philosophy as manifest in action. Ultimately, the culture tells everyone:

• What's important.
• How things really work around here.
• What's expected of people.

If a leader fails to consciously design the culture, a very definite culture will nevertheless emerge. A leader's laissez-faire attitude creates a power vacuum and individual managers will step in and play a major role in creating departmental cultures. The weaker the leader at the top, the farther flung individual departments are likely to be. Employees know that what the leader does is more important than what s/he says. To the degree that the culture is created by the behavior of the leader(s), it can only be changed when the behavior of the leader(s) changes.

Step One: Face to Face Meetings

The first task for the leader is, to meet with all employees in small groups. In this meeting, the leader explains the new, desired culture and its rationale. Examples and simulations reinforce and clarify the new culture. Pose a number of situations to the group for them to solve or respond to, considering the new culture. Choose situations typical of those that occur in your organization.

—Step Two: Leadership Behavior—Walk the Walk

Personal Behavior: Every employee watches their boss to find out what's important in the workplace. It's not what the boss says, or how neatly the memos are organied in the personnel handbook, or the clarity of the mission statement that tells the tale. It's what the boss actually does that matters. The board, director, and department heads further build and maintain the culture through day-to-day actions by:

1. What they say.
2. What they do.
3. What questions they ask.
4. Where they spend their time.
5. What and how they reward and punish (e.g., with smiles, frowns, promotions, recognition, raises).

Usually, in a change effort, the leader must consciously design behavior to support the desired culture. If not, s/he may, knowingly or not, support a different culture.

Feedback: When a culture of mutual interest, trust, and respect is consciously being been achieved, leaders can safely ask for feedback from the board, staff, and other stakeholders. Is their specific behavior supporting the desired culture or not?

Step Three: Problem Solving

Solving problems with a process that supports the desired culture is the single most powerful way to change. The problems selected must be of real concern. If there is poor interdepartmental teamwork and the desired culture specifies team work, choose a significant problem between two departments and solve it by ensuring task teams work together effectively. This may require a trained facilitator to ensure that the team follow the basic guidelines for working as a team, as agreed to in Phases One, Two, and Three.

Task teams results are two: solving problems of real concern and developing an approach that embodies the new culture. Teams build and reinforce the new culture. Include these two results as objectives for all teams launched, and you will involve a significant part of your staff in changing your culture.

Step Four: Support and Maintain the Culture

The design of the organization and its structure, processes and systems can support or block changes in the culture in six broad areas:

1. Purpose: Does the organization have a purpose that is clear, agreed upon, and meaningful to all? Is the emerging culture consistent with the purpose?

2. Structure: What are people held accountable for? What is the job description? Who reports to whom for what?

3. Information Systems: What is measured? What is reported? If you measure and report nothing tied to the culture, its lack of value will quickly become apparent. If you measure only the bottom line, that becomes the main theme of the culture.

4. Budget: What gets resources? Is resource allocation aligned with the culture?

5. Incentives: On what are people evaluated? What do they get promoted for? What do people do to get raises or bonuses? If someone fails to support the culture, is this identified as a gap with appropriateguidance? If lack of support for the culture persists, are they fired?

6. People: Who gets hired? How are they trained, integrated into the organization?

Organizational alignment occurs when the above elements support the culture and one another. Obviously, changes made and the process of change in these areas must be in synch with the desired culture. Thus, if your desired culture encourages open communication and teamwork, use a team process to create change in the above six areas wherever needed. If you ask key people to be open team players, don't change the organization's structure without involving them. They will see "teamwork" and "open communication" for the sham that it is. It takes several years to change systematically and align these six elements. When this alignment occurs, the new culture is on its way to being institutionalized.It works it's way into the organizational genes.The culture can now be transferred to new generations of managers.

Without this in-depth support, the old culture will reassert itself. Leaders and responsive staff must stay alert and intentional about shaping and integrating the desired culture.

Step Five: Cultural Communications

The terms of the culture must be expressed continuously through a variety of methods. These range from the least effective such as announcements, logs, and memos to more powerful avenues such as rituals, ceremonies, stories told and modeled by highly respected people within the organization.

Justification of Behavior: Whatever the culture you want, be clear about why others should support it. Otherwise, people are likely to pursue the culture simply because it is required of them, as a way to get ahead. People need to know the inherent worth of the new culture. Sometimes, the values may be obvious; other times, market or other research shows the need for specific cultural elements. (e.g., a customer service orientation).

Step Six: The Cultural Review

Serious cultural change efforts need regular monitoring and review. Several types of review are possible:

Executive Review: Monthly review of team progress: are they operating in ways that support the culture? Is the structure really working? How about processes and systems? Can minor re-engineering help? Does some area need a major overhaul?

Quarterly, Semi-Annual or Annual Review: A multi-level task force can be assembled every three to six months to review major decisions, changes, and any crises that the organization responded to. Gauge these issues against the statement of the desired culture to see if, in fact, the culture influence organizaional response.

Annual Rediagnosis: The Organizational Diagnostic Questionnaire (ODQ) provides an easy-to-use, objective tool to assess the organization's culture and identify the components necessary to continue progress. A rediagnosis hones a keen perspective and renews the creative energy.