During this period, the deal team needs to work quickly and effectively to identify issues, determine solutions and plan for closing across a diverse group of stakeholders. Yet, only 35% of respondents agreed decision-making authority was delegated in a clear and appropriate way. Further, at this time of heightened emotions, feedback channels are more likely to be absent: only 42% of transactions had formal mechanisms for questions to be raised, with just 37% having a formal assessment of the workforce’s emotional state and readiness.
Actions to navigate turning points
During the announcement to close period, it is important to rapidly form the deal team and progress at pace while supporting the leadership and workforce across the organization. A strong project management office (PMO) must operate with disciplined freedom to address both the rational and emotional progress of the deal. Clear transition leadership, governance, timelines and ways of working must be put in place to enable decision-making and accelerate progress. Respondents said using service providers which offer leadership capabilities, technology, tools and data was the most impactful way to accelerate deal progress.
Simultaneously, the PMO must also plan for and monitor the emotional journey of the workforce by supporting leaders and establishing formal feedback mechanisms, paying close attention to increases in negative emotions: 30% of respondents said lack of emotional support was an issue. By implementing feedback tools, such as pulse surveys, engagement surveys and anonymous mailboxes, PMOs can flag heightened emotional energy, such as anxiety or frustration, and address them before they disrupt the progress of the deal.
With the confidence of the workforce likely to waver during the announcement to close period, leaders also need to nurture psychological safety across the organization. One way is openly recognizing the challenges and uncertainties associated with the transaction, which enables more open, honest feedback. Leaders who do this, while exemplifying a growth mindset, are 3.7 times more likely to successfully navigate turning points. Some may tell the story of their own experience, even going as far as expressing their initial doubts about the deal. Sharing their own account gives permission for others to acknowledge the transaction is as much an emotional experience as it is a business experience.
Middle managers are also critical as they can allow employees to speak up without fear and will likely be the ones to identify potential issues first. Having effective engagement with middle management helps leaders pick up warning signals and develop solutions earlier.
Transparency in how decisions are made is important across all levels. Without this, it is difficult to navigate structural tensions. “If you’re going to communicate and not be transparent, that’s where distrust of management happens,” an HR executive at a multinational ride-hailing company told us. To foster trust, leaders need to equip middle managers to answer questions on how decisions were made at leadership level.
Many of the factors above can be captured and identified through what the HR executive labeled “cultural due diligence.” “Factors like your leadership style, decision making, work culture, communication, employee engagement … all of it needs to be looked at.” This takes humility from leaders, who will likely need to acknowledge the status quo is unsustainable in the future state. These factors need to be dealt with as soon as possible, the executive said, “because the moment you get into the whole post-transaction activities, it’s too late.”
Finally, as closing approaches and brings new scaling challenges, clarity on the design of the go-forward organization and leadership roles is key. This will help ensure confidence in the future state governance model and settle leaders into their positions. The director of the digital payments company told the story of trying — and failing — to engage with the chief human resources officer (CHRO) of a company being acquired: “She was so incredibly resistant because she was thinking that she was going to be fired.” On the other hand, when leaders are in place early, the organization not only has a tangible structure, but leaders are no longer as worried about their personal situation. They can lead through the next scaling point and beyond.
Stage 3: Post-close
How do you create the conditions to deliver transformation?
Causes of turning points
The deal is legally closed, but the biggest mistake leaders can make is presume the work is done. The new leadership team needs to align and scale up organizational activity to achieve deal objectives. Significant turning points in deals are often triggered by operating model issues, most commonly ineffective organizational structure: cited in 31% of deals.
By this stage, people across the organization are also likely to be fatigued. A lack of emotional support for the workforce is cited in nearly one-third of transactions and even among successful deals, only 40% of people experience positive emotions post close.
People may also find it difficult to embrace a new identity, especially those who had a strong connection to the pre-transaction company. Of workforces, 31% said culture and new ways of working proved a significant challenge, compared to 19% of leaders. As a result, letting go of legacy ways of working or business practices may be difficult. The risk of poor cross-functional collaboration also remains, with different teams potentially resisting sharing information amid uncertainty over roles and responsibilities. And, critically, capability gaps among the workforce need to be identified and addressed early to maintain the momentum that the deal has created.
This is the point of the transaction where true transformation can be achieved. Creating the conditions for success in the next phase is vital.
Actions to navigate turning points
First, it is crucial for the new leadership team to align with the vision of transformation and develop new ways of working. The HR executive at the ride-hailing company said this is key to successful cultural integration as it ensures consistent messaging and actions from the top down. “They have to walk the talk. And as long as management is aligned, it gets cascaded down.”
Furthermore, learning and development programs can help integrate cultures. These can acclimatize the workforce to the new ways of working, values and leadership styles. Organizations which adjust processes to encourage learning, as well as experimentation and innovation, are nearly three times as likely to successfully navigate a turning point: especially if the new learnings and opportunities are tied to the emerging, transformed entity.
Meanwhile, EY research (via EY.com UK) has found that on average, 75% of people in key roles quit within three years of a deal closing. To minimize departures and maximize confidence in the new organization, leaders need to maintain a psychologically safe environment. In acquisitions, part of this is not assuming the people in the acquired company have been happy to join the acquiring company. Leaders therefore need to “re-recruit” the workforce, engaging employees and communicating the opportunities of being in a combined organization. It is at these moments when a transformation agenda can be launched to re-energize and galvanize the teams with a new strategy and focus.
Finally, the purposeful vision that leaders started with needs to be brought to life after the deal closes. Celebrating the initial successes of the new entity is an important — but often overlooked — factor. If part of the transaction’s strategic initiative was combining two companies to increase geographic footprint, or bringing a product to a new geography, leaders need to celebrate the successful delivery of that first shipment or completed purchase in the new country. It shows the workforce the new organization has made an incremental but important step toward achieving unified success.