Take charge of the personnel
transition
“Assuming the due diligence has been
done correctly, I believe most mergers fail
for one of two reasons: either the cultures
of the merging companies fight each other,
or everyone focuses on systems integration
and they forget how to run the business,”
Cross says. “Beginning with day one following an acquisition, you have to protect
the quality of the product and the service
first.”
Cross breaks out post-M&A synergistic
opportunities into two categories: cost-saving opportunities and increased revenue opportunities. He uses different
strategies to exploit each opportunity,
while simultaneously minimizing the top
two perils he credits with producing assimilation failures. In some cases, he gets a
bonus, because the strategy results in long-term cost savings and market share gains.
Take his post-acquisition human capital
strategy as an example. Cross favors terminating most of the people in the acquired
company because downsizing achieves
cost reductions and eliminates the risk of
clashing cultures. But he doesn’t release
the staff immediately, so customer relationships and revenue streams are not only
preserved but also expanded through sales
of enhanced product lines.
“The key is to protect the customer base,
so aside from the sales force, everything
else pretty much goes away,” Cross says.
“When you try to bring the cultures together, everyone ends up working in silos, and
there’s a lot of resistance and internal competition. The risk to the strategy is in the
planning, because the business must continue during the transition period.”
Many CEOs fear telling acquired employees they’re going to be laid off because productivity,
morale and customer relationships may suffer during the critical transition period. Cross
advocates open dialogues with the soon-to-be released workers and gives them plenty of notice about
when their positions will be eliminated.
“I use an open, honest and fair approach with the people who are
part of the acquired company,” Cross says. “They normally remain
on the payroll for one year and know that at the end of that time
their positions will be eliminated. My experience is that people
respond well when they are treated fairly. While they may be sad
that they’re leaving, they have plenty of time to adjust.”
Cross offers retention bonuses to workers who stay through the
transition period as well as severance packages, because the
incentive plans assure that most of the staff will remain in their
roles and the business will run smoothly. In addition, retaining the
work force of the acquired company for a year gives DJO’s management team the necessary time to transition operational functions so they don’t get derailed by Cross’ second reason for assimilation failure: focusing on systems integration and forgetting how
to run the business.
Cross advocates one exception to his policy of terminating all
acquired workers: He keeps the acquired company’s sales force.
Building increased revenue through cross-selling opportunities
and driving sales force productivity is the goal behind every DJO
acquisition. To optimize the marketplace synergies and retain market share and customers, Cross says it’s vital to retain the sales
force. But leading salespeople is often like herding cats, so Cross
creates a marketing and retention strategy aimed at the sales team
as part of his assimilation plan.
“You have to quickly win the hearts and minds of the inherited
sales force, so they stay focused on the customers,” Cross says. “It
can be tricky because sometimes the merger results in reduced
sales territories, since you’re adding more sales staff. To get them
on board with the changes, it’s important to emphasize the upside.
For example, we’ve given our salespeople a continuous flow of
new products, so they have a lot more stuff to sell. This industry is
only growing 3 to 5 percent per year, but we’ve been able to
translate that into double-digit compounded growth, and that’s a
reason to stay.”
Cross counts on his VP of sales to do most of the heavy lifting
when it comes to winning the hearts and minds of the salespeople,
but he also crafts and delivers personal messages to the group
because their retention and performance dramatically impact the
return from the acquisition investment.
“In the past, I don’t think I personally invested myself enough in
the process from the beginning,” Cross says. “As a result, I think
our sales force and our customers were more confused about the
transition than they needed to be.”
