October 24, 2017
The media and telecommunications sector is undergoing rapid, fundamental change that is erasing the traditional boundaries between various subsectors. Until recently, content creation, content aggregation and content distribution were clearly distinct areas with well-defined business models. This is no longer the case as digital technologies advance and customer demands change.
The result is a wave of transformational acquisitions that are forcing media and telecom companies to integrate very different products, customers, business models and cultures. There are many examples throughout the industry, as traditional telecom and wireless providers venture into advertising, technology and content; traditional cable/distribution companies attempt to transform into content companies; and advertising companies further diversify by moving into technology development and business services.
Not surprisingly, the expectations for transformational deals – those that involve acquiring new markets, channels, products or operations in a way that significantly changes the fully integrated organization — is high. At the same time, the risks inherent in such deals make achieving strategic success harder than ever. The recent PwC 2017 M&A Integration Survey found that a meager 17% of media and telecom executives said they had achieved their goals for market share growth after an acquisition.
The people problem
At the root of these strategic frustrations are challenges with people integration. According to the survey, only 50% of media and telecom executives say they’ve achieved their people objectives, such as accessing the type of talent they intended (Figure 1), after an acquisition. Meanwhile, only 50% report significant success with retention.
But perhaps the most eye-opening statistics from the survey are around employee morale. Fear, indecision and just plain confusion can often paralyze companies until people have some sense of where — and even whether — they fit within the new organization and what will be expected of them. Just 28% of media and telecom executives report very favorable morale after an acquisition, and only 33% report that employees clearly understood the company’s direction (Figure 2).
For large traditional media and telecom companies looking to purchase innovative startups and benefit from an entrepreneurial culture, these are sobering statistics. Not only are acquired employees more likely to leave, but the especially tight-knit nature of the sector and the current state of the economy means many will have plenty of opportunities to pursue other career paths. The risk for large acquirers that don’t get the change management aspects of integration right is that they may lose the talent-based intellectual property they’ve just purchased. This failure might be masked at first by quick, synergistic wins, but longer-term strategic goals can falter.
To achieve strategic goals, it’s important to foster an integration approach that focuses on retaining critical talent and engaging them in the new company’s mission. Monetary compensation is critical to retention, of course. But companies must also think in non-monetary terms, such as allowing flexible work hours and fostering a casual, collaborative atmosphere that engages all levels of the organization and stimulates new thinking and problem solving. For example, an acquirer could leverage existing accelerator programs to demonstrate growth opportunities to high-potential, highly motivated individuals.
Drivers of change management in M&A
Even when a company shines a light on integration change management during an acquisition, the approach is often viewed narrowly as a communication or human resources issue. This “soft” approach is typical during change management initiatives that don’t involve integrations. But in the deals environment, change management extends more broadly across the business, deep into the product development and operations of a company, and it requires a concrete set of actionable items.
To help companies address this significant challenge, we’ve identified seven critical drivers of success for change management programs that can significantly improve employee commitment and productivity, speed and effectiveness of decision making, and confidence in the direction of the integrated business. The drivers are Culture, Communications, Leadership, Organization, Policies and Procedures, Employee Onboarding, and Incentives. A company should consider all these drivers when planning its integration and create a centralized team to coordinate the effort. Each driver should be in sync with each other and aligned with the overall integration strategy and objectives.
Good talent is hard to come by and even harder to replace. People issues must be a priority before and after the transaction closes. By committing to a thorough change management program built on these seven critical drivers, media and telecom companies undertaking transformational deals will likely have a much better chance of meeting their people objectives and achieving long-term strategic goals. As with any industry in a state of flux, the media and telecom sector will require the best people to anticipate and respond to consumer behavior and drive development of future business models, re-inventing companies as the sector continues to transform.
We recently spoke with a series of executives on success factors for M&A Integration. Hear more in our new video.
You can also read our full 2017 M&A Integration Survey Report, which explores the evolving challenges for dealmakers and offers our insights to assist you in making decisions when choreographing your company’s next big performance.