Growing pains: How insurers can better navigate acquisitions
Review the key steps to ensure a smooth integration of a newly acquired company.
The insurance industry is no stranger to acquisition activity. Companies choose inorganic growth for any number of reasons — whether to expand their market or geographic reach, grow their product and policy portfolio or better leverage technology and analytics to deliver solutions — often yielding strong returns as changes in the macroenvironment and regulations create new business opportunities.
Given the M&A activity, insurers can look to best practices for one of the most challenging elements of acquisitions: integration. Cisco even established a playbook for integrating its acquisitions, as the sheer volume and frequency of acquisition activity necessitated a tried-and-true approach to integration. It is a muscle that organizations need to build if they are to realize the full benefits of their strategy. Studies have concluded that more than 70% of all acquisitions fail to achieve their goals.
In addition to the financials of a deal, there are several factors that need to be considered when integrating an acquisition: Questions about cultural alignment, leadership capabilities, brand, business processes and supporting technology are matters that acquirers must answer early on. Lack of clear direction and alignment on these factors can create significant obstacles.
It’s best to establish an integration plan that includes the following key elements:
Transitioning leadership: When a buyer acquires a business, it is important to look beyond the actual purchase and define a strategy for integrating the acquisition’s management team.
A transition strategy for the acquired company’s leadership does not necessarily mean that those leaders would leave when the deal closes (though it may.) However, the context within which they lead will change significantly.
As part of a larger organization, they will need to represent the new enterprise, not just their line of business. They will need to influence decisions on business strategy and resource allocation — not an inconsequential reduction in authority and control.
On a personal level, they may perceive a reduction in status, particularly those in the C-suite whose reporting relationships shift as they and their teams are integrated into the parent company’s functions. Being transparent and communicative with acquired and incumbent leadership teams will be vital for strong relationships from the start.
Evolving culture: Companies should examine the culture of the acquired company to determine fit with the buyer’s culture. Many acquisitions fail to realize their value due to a clash of cultures.
Imposing a corporate culture on an acquired company can destroy the very things that make the acquired company desirable. By trying to understand what aspects of the acquired company’s culture are critical for its success and determine what to keep, what to add and what to shift, you can enable integration without destroying value. This might involve finding ways for the acquired company to stay nimble and not be weighed down by unnecessary bureaucracy of a larger enterprise. Remember: Culture isn’t just words on a page, it is realized through the way people work on a day-to-day basis — the business processes and technology/tools they use.
Merging corporate identities: The acquired company has an identity. The people at that company have business cards, email signatures, email addresses that connect them with that business. Do not underestimate the connection that employees and customers will have to the brand.
Assess the value of the brand — in particular, its recognition by customers and the talent market — to understand whether concerns about changes during the transition to the new enterprise, like a new brand, changing email addresses and signatures, are well-founded right away or not. Adjusting to different company names and reputations can be a mental hurdle employees need to overcome.
Telling a compelling story: There should be a compelling story for the leaders and employees of the acquired business at the time of the deal related to the benefits of this deal. Ensuring that it speaks to the mission and vision of the business for all stakeholders generates buy-in and overcomes concerns people may have about the impact on them personally right off the bat. What will the parent organization bring to the acquired business that the business would be unable to do on its own? What will the benefit be to customers, employees, etc.?
Acknowledge and express gratitude for everything people have done to make the company successful and speak to how they will leverage their strengths to grow both the business and their individual careers.
Timing matters
There are a few different approaches acquiring companies may take for integration. Sometimes, they will decide that the acquired business should continue to operate separately, which especially makes sense if the business will likely be sold rather than retained long-term.
The purchasing company may decide not to integrate the business immediately with a desire to maintain the speed, agility, customer-centricity and innovation capabilities underpinning that company’s success. There are trade-offs involved with this approach if there comes a time when it no longer makes sense to operate independently and needs to be integrated. This presents different hurdles compared to when a company is purchased outright, and quickly integrated into the acquiring company subsequently after the close.
Be mindful of this timing. If the business is not integrated promptly, the initial story of the benefits of the acquisition is no longer sufficient and there may be an “us vs. them” mentality, making integration more challenging. People will need to understand the benefits for their business and themselves after they have successfully run the business without fully integrating into the parent company; we observed this with one of our insurance clients that left its acquired businesses to operate independently for more than ten years. While there was a good case to be made by the parent organization for the benefits of integration (operational efficiency, economies of scale/purchasing power, cross-selling opportunities, sharing of expertise), for the people who had been operating just fine with a high degree of autonomy, they started asking “why?” and “why now?”
Working with the leadership of the parent company and its acquired businesses, we helped address concerns around the shifting roles of the executives and the cultural differences between the individual businesses and “corporate.” By coming together to share the new compelling story and clearly answer the “why now?” questions, leaders at all levels began to see the value of integration.
No matter when a parent company chooses to integrate its acquisitions, by attending to leadership, culture, identity, and formulating a compelling story — one that answers questions about “why?” and “why now?” and speaks to both the head and the heart — it will lay the foundation for the buy-in needed to overcome integration obstacles and realize the full value of its acquisitions.
Deborah Seidman is a principal at Kotter, a change management and strategy execution firm, with more than 25 years of experience in critical issues resolution and process improvement for clients across industries.
Opinions expressed here are the author’s own.
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