Merging organizations is a major undertaking – and you need to employ organizational design strategies to ensure a smooth transition and maximize your potential for success.
Executing a deal is only half the battle. Post-merger integration (PMI), including organizational design, is where everything will come together or fall apart. After all, merging two companies is no easy feat, especially if they have vastly different cultures, structures, or operating models. In fact, M&As have a 70-90% failure rate, underscoring just how vital organization design is in post-merger integration.
When done improperly, organization design can result in one business that is, at its core, still two misaligned organizations. Not only can this alienate valuable workers, but it can also hurt productivity and destroy value. On the other hand, if you do organizational design right, you can create a unified organizational framework that fosters collaboration, streamlines decision-making, and boosts operational efficiency, allowing you to set your newly merged organization up for long-term success.
In short, PMI can make or break a merger – and it relies heavily on solid organization design. In this article, we’ll discuss what is organization design, the common challenges of organizational design post-merger, and ways you can use organizational design to help you navigate the post-merger integration process.
What Is Organizational Design?
Mergers and acquisitions usher in major organizational changes – and you can’t keep everything just as it was. Organizational design is a process that focuses on identifying and improving aspects of a business’s workflow, structures, systems, and procedures, reworking and realigning them to match the organization’s post-merger needs.
What is the goal of organizational design? Ultimately, organizational design can facilitate better decision-making, increase efficiency, and accelerate growth. Key components of organizational design include:
- Structure: An organization’s structure not only outlines its formal hierarchy and reporting relationships but also covers the way responsibilities are divided within the organization. Your structure defines how your departments, teams, and individual employees are organized and connected. Since a merger or acquisition rapidly introduces many new elements into your organization’s structure, it’s the perfect time to reflect on and redesign your structure to ensure it aligns more closely with your strategy.
- Processes: Similarly, when reworking your organization design, you’ll want to look at your processes. These are the steps, tasks, and activities your organization takes to carry out work. Without efficient processes, you can’t have an efficient organization and run the risk of losing time, money, and energy, which could impact everything from profits to team morale.
- Reward Systems: People often overlook reward systems during organization design and are reluctant to make changes that may reduce accountability, negatively impact current performance dynamics, or result in high performers losing motivation and leaving. However, you can use rewards to encourage individual behaviors and actions that align with organizational goals and avoid things like role confusion and internal conflicts.
- Decision Rights: Establishing well-defined and transparent decision rights can help your organization adapt quickly. Once you have created decision rights, everyone will know which decisions will be made, who will be responsible for making them, and how they will be made. This reduces decision-making bottlenecks and confusion, allowing for streamlined decision-making processes and quicker responses to changes.
- Information Flows: Information flows determine how data and communications move within an organization. By revamping information flow during an organizational design in post-merger integration, you can significantly increase your organization’s effectiveness, efficiency, and decision-making processes.
By taking the time to understand and improve your organization’s structure, processes, reward systems, decision rights, and information flows, you can create a more collaborative and trusting culture among your employees as well as improve coordination, decision-making, accountability, and efficiency. A supportive and empowering design fosters a positive work environment and impacts business outcomes, including better customer service, higher profits, lower operating costs, faster growth, and more engaged and loyal employees. In fact, organizations with highly mature organizational design are thirty times more likely to adapt to change well, meaning they can more easily pivot to achieve their strategic goals.
Common Challenges of Organizational Design Post-Merger
Organization design can be challenging, especially following a merger. But amidst this complexity, there’s an opportunity for growth and transformation. While it’s true that merging organizations may not initially understand each other’s strengths and capabilities, this presents a chance for discovery and collaboration. Being aware of some of the common challenges encountered in post-merger organizational design allows teams to proactively address them and emerge stronger than before.
Let’s take a look at some of the common challenges companies may face when tackling organizational design post-merger:
Cultural Integration
Cultural integration, or merging separate organizational cultures, values, and ways of working, is essential to organizational design post-merger. However, it can be a complex and delicate process that requires you to navigate differences in communication styles, decision-making processes, and leadership approaches. When two organizations with distinct cultures come together, there can be conflicting values, traditions, and ways of doing things. This misalignment can lead to resistance, resentment, and a lack of cohesion among employees.
Leadership also plays a crucial role in navigating cultural integration challenges. Merging organizations often face uncertainty and ambiguity, requiring strong, decisive leadership to provide clarity, direction, and support to employees. However, leadership styles may vary between the two organizations, leading to conflicts or power struggles among executives.
Managing Change Resistance
Change can be intimidating, so there’s a high chance you’ll come across at least some resistance to change when conducting a merger or acquisition. Employees may feel uncertain about – or even threatened by – changes introduced by the merger, which can result in resistance.
If you don’t do anything to manage change resistance, employees will become increasingly anxious, distrustful, and disengaged. This can decrease morale, productivity, and performance. Employees may become divided and lose trust in leadership. Some may even leave your organization, which could set off a domino effect of employee resignations.
Aligning Different Systems and Processes
Aligning systems and processes from both organizations involved in the merger is vital, but it isn’t easy. Each company likely has its own technologies, workflows, and methodologies tailored to its specific needs, objectives, and personnel.
Integrating these disparate systems and processes requires careful planning, coordination, communication, and often significant time and resource investments. Not only can challenges arise in reconciling differences in software platforms, data formats, and other technical aspects of each organization, but they can also occur when dealing with operational procedures. You may encounter resistance to change from employees accustomed to their familiar systems and processes, further complicating efforts to align and standardize operations post-merger.
Using Organizational Design to Ease the Post-Merger Integration Process
To facilitate the post-merger integration process, organizations can employ various organizational strategies, including:
Streamlining Organizational Structure
Crafting the vision for your post-merger company can be an exciting opportunity for growth. It’s essential to streamline your organizational structure to ensure efficiency and effectiveness, which can involve:
- Evaluating Existing Structures: First, analyze the organizational structures of both companies involved in the merger. Identify strengths and weaknesses. Think about how each organization’s structure impacts communication, decision-making, efficiency, and morale.
- Designing a Hybrid Structure: Next, merge the strengths of both existing structures to form an integrated framework tailored to the new organization. Blend hierarchical, matrix, or flat structure elements for optimal performance. For instance, maintain hierarchical clarity while integrating matrix collaboration and flat autonomy. Achieving the right balance enhances efficiency, communication, and alignment with strategic objectives.
- Clarifying and Distributing Roles: You’ll also need to define roles and responsibilities within this post-merger organization clearly. If you understand and communicate what each role entails and who is responsible for what, you can boost efficiency and accountability. Think about which roles can help your company’s short- and long-term success.
Aligning Business Processes
To efficiently align business processes between both organizations involved in the merger, you’ll want to:
- Map and Integrate Processes: Map out all key processes from each organization to identify best practices and redundancies. This will give you a comprehensive understanding of current processes, enabling you to discover complementary, inefficient, and duplicated processes.
- Creating Unified Processes: After mapping and integrating processes, it’s time to develop a streamlined set of processes that support the new business objectives and organizational structure. Merge any complementary processes, taking the best features from each organization’s process to form a new, more efficient approach. Eliminate any inefficient or duplicate processes.
- Integrate Technology: Look at each organization’s technologies to find opportunities for integration or migration to common platforms. Take the time to understand why each company relies on a specific system or tool. Then, determine which one is best equipped to help your organization meet its post-merger goals.
Cultural Integration
As mentioned before, cultural integration is key to success. To help facilitate the merging of both cultures, you should:
- Assess Cultural Differences: Start by conducting a cultural assessment of each company to understand their core values and beliefs. Dive into each organization’s communication styles, leadership philosophies, attitudes toward work-life balance, approaches to risk-taking, and more.
- Develop a Shared Culture: The goal of post-merger integration is to create a single organization – and that means having a cohesive culture that embraces the best elements of both organizations. You should clarify shared values, create channels for open communication, develop a common language, recognize differences, lead by example, and involve employees in creating the culture to form a shared culture.
- Implement Change Management Programs: Change management programs can help employees adapt to the new organizational culture and practices quickly. This support not only facilitates a smoother transition but also reduces resistance to change and promotes employee engagement and buy-in. Training workshops, communication campaigns, and support resources can help employees navigate the cultural shift and understand the reasoning behind the merger, minimizing disruptions and fostering a more cohesive organization and culture.
Talent Management and Optimization
When it comes to talent management and optimization, you’ll want to:
- Integrate Talent Management Systems: First, assess the recruitment, onboarding, talent management, and performance management systems at each organization to determine how they are similar, how they are different, and where they excel vs. where they fall short. Then, with your integration goals in mind, consider which parts of each system will be most useful moving forward and establish a standardized process. Also, create a plan for migrating data from legacy systems to the one you’re moving forward with, and make sure to train all HR staff and employees on the new HR systems and processes.
- Create Employee Retention Strategies: Even if you do everything right, the post-merger phase is often tumultuous – and you might lose key talent, costing you time, money, and a valuable worker. That’s why having employee retention strategies is vital. Be transparent about the changes you’re making and the reasoning behind them. A raise or bonus can help, but even praise and reassurance from a manager can go a long way. Also, share what the culture of the newly merged company will be like and communicate how employees who stay can continue to grow at the organization.
- Develop Training and Development Programs: Many companies don’t include employee onboarding in their change management programs, but this is a mistake. By creating training programs for employees during a merger, you can help them quickly understand their new roles and the redefined organizational objectives.
Communication Strategies
You’ll also want to have a solid communication plan, which should include:
- An Internal Communication Strategy: Develop a comprehensive approach to keep all stakeholders informed and involved during the integration journey. Transparency and honesty regarding personnel decisions are paramount. Clearly articulate the rationale behind actions, which will help to foster trust and stability.
- Feedback Mechanisms: It’s also a good idea to establish channels for employees to provide feedback on integration efforts. Not only does this make them feel like they have a voice in a very stressful time, but it can also help you tweak strategies and resolve issues quickly.
Monitoring and Continuous Improvement
If you’ve done all of the above, that’s a great start. But the work doesn’t end there. You’ll also need to monitor your performance and systems and constantly strive to improve. This means:
- Setting Benchmarks and KPIs: You’ll need to define benchmarks and key performance indicators that will measure the success of your organizational design strategies. For example, you might track employee engagement levels, turnover rates, productivity metrics, and time-to-fill for vacant positions.
- Ongoing Evaluation and Adjustment: You should also provide a mechanism for ongoing review and refinement of organizational design to ensure it continues to meet strategic goals. Consider distributing surveys, having a suggestion box, or conducting focus groups and one-on-one interviews with employees, managers, and other stakeholders regularly to determine what’s going well and where there’s room for improvement.
Mergers and Acquisitions Consulting from SEI Can Make All The Difference
New acquisitions and mergers are exciting and offer a wealth of opportunities. However, they also present several challenges and risks, which could reduce employee morale and organizational performance. That’s where organization design can make a major difference. However, you don’t have to do it alone. Mergers and acquisitions consulting (M&A consulting) can help you navigate through the many challenges that mergers and acquisitions present.
If you’re looking for high-quality support throughout the integration and post-integration processes, SEI has you covered. Our experienced consultants are highly skilled in organizational design and can help you seamlessly navigate mergers and acquisitions to create a unified culture.
