This article considers change readiness and structural change.
Structural change can be risky business. That’s why change readiness is so important. Kevin Voigt of CNN estimates the failure rate of changes like mergers to be as high as 90%. The Deloitte Review (Issue 6, 2010) is less pessimistic – they put the failure rate at an even 50%. Either way, there is too much room for trouble.
The Deloitte Review conducted an in-depth review of merger performance from across the world accessing over 45 000 data entries. This extensive dataset revealed 4 main risk factors:
1. synergy risks (quality of financial figures, complexity of synergy goals, execution plan viability)
2. structural risks (organisational and management structure differences, business process differences)
3. project risks (lacking expertise, limited HR capacity)
4. people risks (realignment at executive level, changes at managerial level, extent and direction of downsizing).
The importance of change readiness
The more ready people are, the more able they will be to handle the varied and unpredictable issues that arise from changes like a merger.
The report emphasises the often unpredictable nature of the merger process. There are four different types of mergers, each with its own set of characteristics. Fortunately, 35% of mergers are reasonably straightforward, with compatible cultures and good planning. In such cases there is a 75% chance of success. Unfortunately, 65% of the time the chances of success are much lower, ranging from 27% down to only 1%.
The take-home message is this – you need to be ready for change if you want a merger to work.