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A marriage made in the boardroom

  • Published at 06:13 pm April 28th, 2017
A marriage made in the boardroom

Despite 60-90% failure rate of mergers and acquisitions (M&A), it is still the most popular method of organisational development and growth among leaders of corporations.

In today’s hyper-competitive market, this popularity has taken a new dimension. A wave of M&A has also touched the growing market of Bangladesh. We are witnessing Robi-Airtel merger, which also happens to be the largest M&A in our country’s telecom industry.

With the final approval from the PMO, all the legal and formal issues are settled, and finally the two firms are ready for the long-awaited marriage. Like in any marriage, the real challenges in M&A show up after the deal is done.

Literature indicates that most M&As fail due to post-merger integration difficulties. Both Robi and Airtel management teams can anticipate a rough path ahead. To make this marriage a success, they must not make the same mistakes made by most management teams in the post-merger stage.

As both firms are from the same industry, overcapacity and expected cost-cutting synergy might have been the main motivations for this merger. Achieving cost-cutting synergy will depend on task integration and human integration.

Again, task and human integration will largely depend on the level of strategic fit and cultural fit between the firms.

Strategic fit is assessed based on similarities of the two firms’ customers, competition, cost economy and level, and context of the capabilities.

As much as it is seen from outside, both Robi and Airtel strategically fit with each other, which suggests that, theoretically, task integration wouldn’t be a big challenge. However, practically implementing task integration is always challenging. In this regard, the HP-Compaq merger could be a reference point. HP-Compaq, both from the same industry, presents some very good examples of a smooth task integration.

By activating clean teams, tasks forces, committees, and other programs, such as adopt-and-go, launch-and-learn, launch-the-moose, HP-Compaq could complete task integration successfully within a stipulated time.

Due to corporate cultural differences, human integration is more challenging. For Robi-Airtel, there are no national cultural differences which is a big plus.

Both Robi and Airtel management teams can anticipate a rough path ahead. To make this marriage a success, they must not make the same mistakes made by most management teams in the post-merger stage

But, differences in organisational culture, HR practices, reward systems, values, and decision-making may make human integration challenging and even impossible.

We have seen how difficult it is in the case of the infamous merger of Daimler (Mercedes) andChrysler (Jeep), two giant car manufacturers from Germany and US respectively. Differences in both national and organisational culture made it impossible to complete human integration and ultimately, the whole merger failed, resulting in Chrysler’s near death.

In contrast, the HP-Compaq merger set some good examples on how to carry out human integration, managing all cultural differences. Through cultural integration teams, buddy systems, and other programs, top management was able to bring people from both firms close to each other.

Successful integration of two companies is vital in keeping a merger alive. Unfortunately, successful integration alone does not guarantee the success of a merger. HP and Compaq did not create the expected synergy, but, at the same time, did not face any problems.

However, there is a twist: The HP-Compaq merger failed to achieve the objectives for which the deal was sealed. As reported in the media, by buying Compaq, HP CEO Carly Fiorina created a giant with tremendous scale and economies that came with it.

But she couldn’t fundamentally change HP’s ability to compete with Dell in the low-end of computing or match IBM’s sophistication in enterprise solutions.

In consequence, HP has come short against both of them.

To compete with GP, Robi must create the best possible cost synergies from this merger and also look forward to any possible ways to create revenue-enhancing synergies by leveraging the new scale and bringing more innovation.

If Robi could successfully do so, it might be able to rewrite the rules of the game in the country’s telecom industry, or maybe even could change the game forever.

SM Musa is doing research on Strategy, Innovation and Start-up Ecosystem. He writes from the Netherlands.