Dial M for ‘Merger’
Editors Note: M Squared Consulting is structured around industry focused practice areas. Today’s post is from Sam Doying who is based in the Silicon Valley and leads our Technology practice area.
Conventional wisdom holds that mergers are good; good for the economy, good for companies, good for shareholders, good for employees, and good for customers. For years Wall Street seemed to say, “The Bigger, the Better!”
And in theory, a merger between two synergetic tech companies is a good thing. Product and service synergy and compatibility give customers a more user-friendly offering and a streamlined sales process. Organizational and system integration increase efficiency, while a wider employee pool offers more talent and innovation. In theory, a merger is a beautiful marriage of two companies each designed to ‘complete’ the other. Everyone involved will reap the benefits.
Oracle and Sun Microsystems
Currently in the works is Oracle’s acquisition of Sun Microsystems. Oracle has a seemingly brilliant case for post-acquisition synergy. They have the capacity to both integrate and align Sun’s and their own preexisting product lines, increase brand exposure, and take advantage of both a larger customer base and a broader pool of employee talent.
Oracle promises its customers that it will be able to deliver serious customer benefits as costs go down while product performance, reliability and security go up. The key is Oracle’s new ownership of two significant Sun software assets, Java and Solaris. Oracle Fusion Middleware is built on top of Sun’s Java language and software, making continued innovation and investment in Java technology a virtual no-brainer. The Sun Solaris operating system is the leading platform for the Oracle database, and by acquiring it Oracle will be able to optimize the Oracle database for some of the unique features of Solaris.
Sounds good for customers but what about employees and shareholders? Sadly, the objectives of these two constituencies are usually at odds when it comes to mergers.
The Talent Impact
Some experts estimate that Oracle will layoff 10,000 to 15,000 employees. Andy Greenberg at Forbes.com writes that Sun’s hardware divisions could also see major cuts, as analyst Patrick Walravens of JMP Securities wrote in a recent note to investors. “To make the deal accretive out of the box, we expect Oracle to very rapidly right size Sun’s hardware business, which is likely to have a fairly dramatic impact on Sun’s roughly 30,000 employees.”
Of course, layoffs are necessary to help produce the ROI that Wall Street is waiting for, and layoffs are unavoidable in the process of creating and guarding efficiency. Management and corporate support organizations, such as finance, HR, marketing, legal, etc. are commonly targeted to eliminate redundancy, although no department or organization is exempt.
Unfortunately, this is the area where the best laid merger plans often go awry. When dramatic employee reductions occur without proper insight and planning, the promised financial returns will not materialize. Simply put, if there are fewer employees, but the required work hasn’t changed to reflect it, quality will plummet and/or costs will rise as both fulltime and contingent workers are brought back to help get the job done.
Employee cut-backs may be necessary, but the integration and reengineering of processes and positions are requisite first steps to creating a successful merger. If jobs are changed and energies shifted to better handle the workload, the reduction in labor will optimize efficiency permanently and make use of that broad employee talent pool that was so recently acquired. If this can be done the long term rewards are endless.
So why don’t all synergetic mergers and acquisitions succeed, in light of this knowledge? Because I’m a genius and the first human being to effectively outline the keys to post-merger integration success? No. Because executing the integration process is tough. Most companies don’t view mergers and acquisitions as an annual expense. There is no reason, then, to train or retain a highly specialized team to handle post-merger integration. It wouldn’t be cost effective.
Enter M Squared Consulting
Where most people experience only one or two major mergers in their careers, we have consultants with multiple integrations under their belts. Supplementing the merging companies’ existing staffs with M Squared teams on a temporary basis, can help ensure that not only is the Return on Investment realized quickly (which makes Wall Street happy!), but also that the process runs smoothly and in a way that optimizes efficiency and productivity, ensuring long-term success.
Cutting costs is important to every business, especially in our current economic climate. In a post-merger situation, the most important move you can make is to invest in integration. Bringing in an experienced team of M Squared consultants can fast-track your company into the black, and help it stay there.
Contributor: Jillian Doying
