Merger is a course of action that will only succeed if its aims are clearly defined from the start, warns Phil Kenmore
The deadline for strategic health authorities to set out how all trusts will become foundation trusts - or another alternative - is approaching.
Successful merger leaders set out a vision: This is what it is going to be like. Do you want to be part of it?
The most discussed solution to date has been for FTs to take over failing trusts. But doubts about this approach are rising in the light of the acquisition of Good Hope Hospital Trust in 2007, which negatively impacted on the overall performance of the Heart of England Foundation Trust; and with the implication that previous mergers contributed to problems leading to the scandals at Maidstone and Tunbridge Wells and Stoke Mandeville hospitals.
The challenge of undertaking successful mergers exists in all sectors. Our research has shown that only 9 per cent of corporate mergers achieve their original objectives and a poorly conceived or implemented acquisition was a leading explanation in 17 per cent of FTSE100 companies which have been delisted in the past decade.
Valuable lessons, however, can be learned from the private sector. Our research also found that one of the most common reasons for mergers not delivering expected value is a failure to focus on the intangible capital alongside the usual pre-merger priorities such as finances and IT.
Intangible capital includes factors such as culture, leadership capability, talent management, service quality and partner relationships.
What should FTs and others taking on another organisation be thinking about?
Establish a clear, measurable and defensible business case for both organisations
A merger cannot be successful if success is not defined. It should be defined in terms of both short and longer term organisational improvement showing real changes in service quality and outcomes. In particular what - if any - are the benefits to the acquiring institution and its stakeholders (not just its management team) and how will these be delivered and measured?
Be honest if it is an acquisition not a merger
Honesty always helps major change proceed more quickly and ultimately smoothly. If one organisation is going to be taking the lead (“acquiring” the other), then it is best to be clear about that fact so that expectations are managed.
Assess the underlying causes of failure
It is more than just financial - what is the story behind the figures? Is it genuine management failure or a combination of trends in the external environment? Does this story match the strengths and achievements of the lead organisation? All too frequently, previously successful organisations stumble when they become overconfident and believe their approach can solve any challenge.
Audit the intangible assets of the other institution before integration
In the early planning, the lead organisation team needs to understand what makes the other organisation tick. What is the culture? How good is its leadership? Who are the “must keep” individuals? What is the quality of relationships with stakeholders and the public? How to align the cultures of the two organisations is particularly important and should be a primary focus to help enable quicker synergies and rapid service improvements.
Make quick decisions about the future leadership team and management population
Confusion about leadership is a prime cause of merger failure. It distracts leaders from the difficult task of integration. It is best to rapidly evaluate leadership quality; take swift decisions about the leadership team and announce it publicly - ideally using the best people from both institutions.
Set out clearly and early the principles and values of the new organisation and enforce them rigorously
If one institution is to spread its culture and approach to its new partner, it needs to ensure these are taken up; compromise is dangerous. Successful merger leaders set out a vision for new working practices and have clear conversations: “This is what it is going to be like; do you want to be part of it?”
Measure morale and engagement continuously
Morale is at risk during a merger and needs to be measured regularly. This measurement should be fine grained enough to spot potential trouble spots in particular departments, and to gauge qualitative perceptions of what is going on. Where are the misconceptions? What are the rumours? Where have we failed to make our case? Who are the champions and resisters?
Appoint a high profile and talented integration leader
Managing integration is usually too intensive for a chief executive to spend a great deal of time on the detail; yet it needs someone of similar influence and profile. Sometimes it is seen as a useful proving ground for the next chief executive.
Taking on a failing organisation is a big risk and the benefits to all involved have to be clear. Managing these risks is possible but requires careful attention to the intangible as well as the tangible capital and a determination to see through the difficulties of cultural, leadership and talent integration.
Any trust contemplating taking on another needs to ask itself a number of searching questions:
- What is the real root cause of the difficulties in the other organisation? Are our skills, expertise and competencies genuinely the right ones to address this?
- What are the benefits to our own trust - to our patients and stakeholders?
- Is this really a merger or is it a takeover? Does everyone agree?
- Do we have the leadership capacity to devote to a difficult integration without compromising our own performance?
- What is the leadership and management capacity of the acquired institution?
- How similar are our cultures, values, operating procedures and ways of working? Where there is conflict, are we prepared to stand by our way of doing things?
- Can we realise real benefits and synergies from the merger to improve service quality and deliver added value to the patients and stakeholders of both organisations?