Winning The Inner Game:
Leadership, Followership, and Partnership
The mergers, acquisitions and alliances wave is upon us once again. This is the 5th major period of corporate consolidation since the 1900’s. Unlike the previous waves in the 1900’s, 1920’s, the late 1960’s and the late 1980’s, this wave is driven by the globalization of competition and technological developments. The recent growth of merger and acquisition activity is enormous and increasing by more than 27% a year (Security Data Corporation). The dollar value of mergers and acquisitions announced in the US in 1995 was $518 billion. The figure for 1996 was $658.8 billion. The trend continues. In the first quarter of 1998, a 42% rise in mergers set a quarterly record of $469 billion and we will hit the trillion dollar mark for the first time in history. The trend continues.

There are many reasons for amalgamating companies: growth; product and service diversification; operational flexibility; cost reduction and efficiency. The main goal in combining organizations tends to be to create a synergy by uniting the strengths of the organizations to achieve strategic and financial objectives that neither could accomplish as successfully on its own.

If success in this endeavor is defined as bridging the gap between where you are and where you want to be; then success is measured by your ability to integrate partners throughout the ranks and effectively manage the various political and business conflicts that frequently arise during this type of activity.

Since mergers, acquisitions and alliances (referred to in the literature as "combinations") are such an important part of today’s global business environment, it is important for each of us to understand how to lead and participate in these partnerships that are designed to create value out of synergy.

The Challenge

First, many combinations are one-time events for the participating companies. So, often, they do not have a great deal of experience in managing the process. Since combinations frequently involve people in restructured responsibilities, changed careers, job displacement, diminished power and other stressful changes, there is a tendency to want to "just get it over with". There is not much deliberation on the "how to and with what results" part of the process. This is probably the main reason for the second challenge that we face: the dismal success rate of combinations.

  • Only about 15% of the mergers and acquisitions in the US achieve their financial objectives (American Management Association).
  • 65% underperform the industry in the years following the combination (Mercer Consulting).
  • About 75% of European mergers and acquisitions end in failure (Journal of European Industrial Training).
  • 70 % of strategic alliances fail (Coopers and Lybrand).
  • In 50% of all combinations the results are so disastrous, that the acquisition is divested or the alliance canceled (Academy of Management Journal).

With this kind of failure rate, it is important, at the outset, to understand the characteristics of a successful combination of organizations. Research suggests the following:

  • It is necessary to have a sound, sensible reason for joining forces.
  • A strategy and implementation plan must be put in place to join the companies together. This involves developing together a winning strategy; aligning the organization behind it; building a culture to support it; and getting people to deliver the desired results.
  • To make this happen, people in the organizations have to let go of what "was" and accept what "is". Attitude is important. Unfortunately, there is a tendency to focus on the negative – the losses instead of the gains. People have to see the glass as half full and not half empty.
  • Expect and plan for setbacks. Initial plans tend to be overly optimistic. There are so many decisions to be made, mistakes are inevitable. A transitional organizational structure, usually involving a Management Steering Committee and Transition Teams will limit the number of setbacks and keep the effort focused.
  • Do it right the first time. You either pay the price for planning time and effort at the beginning or suffer the consequences of frustration and failure down the road.
  • The ultimate resource in making it all happen is the human imagination and spirit. They must be nurtured throughout the process.

All of this is easy to say; but based on the failure rate, it can be very difficult to do.

The Solution

Well, what’s the solution? How do you bridge the gap between where you are and where you want to be in order to enjoy a successful combination?

Let me first underscore the idea that each combination is unique. Each has a one-of-a-kind business strategy; its own personality; and its own cultural issues. For this reason, there is no cookie cutter, one size fits all, approach to "getting it right". However, there are a number of insights that have been gained over the past 10 years that significantly improve your chances for success.

The first insight is that you must win two games in order to have a successful combination: the outer game, I am going to call Combination Objectives and the inner game, I am going to call Combination Dynamics.

The outer game is actually a numbers game and will ultimately determine the success or failure of the combination. It is about achieving the strategic and financial objectives that neither side could accomplish as successfully on its own. The outer game involves growing the business, and where appropriate, cutting costs and improving efficiencies.

The inner game, on the other hand, is about the dynamics of the combination. It’s about people. It is about your ability to integrate partners throughout the ranks and effectively manage the various political and business conflicts. The interesting thing is that you cannot win the outer game unless you win the inner game.

This inner game is also about a future of uncertainty and change, both positive and negative. It produces stress, affects perceptions and judgments, and tries relationships. It is played on three levels – the management level, employee level and culture level. If you want to know if you are losing the inner game, there are telltale signs at each level. You know you are losing the inner game:

On the management level when:

  • The senior management teams of the organizations become isolated; ignoring each other’s strategies and priorities.
  • The communication to employees becomes formal, limited and unsatisfactory.
  • The jockeying for position, budgets, projects and power bases sets senior management groups against one another.
  • The initial cooperation turns to aggression and defensiveness. (In some organizations, this is the norm at the management level; so, it is hard to use these characteristics as a benchmark for losing The Inner game)

On the employee level when:

  • People become preoccupied with what is going to happen to their jobs, incomes and careers.
  • Stress levels and anxiety increase with each new rumor that mixes fact and fancy.
  • Tension and conflict in the workplace and in the home become more frequent and pronounced.
  • Stress related sickness increases significantly.

On the culture level when:

  • People focus on the differences between the organizations rather than the similarities;.
  • A we vs. they relationship develops. The wagons start to circle.
  • Each side tends to attack the other, in subtle ways at first, e.g., "the bean counters from X" or " the Used car salesman from Y’, and then defends their view of the world.
  • The battle boils down to differences in values and philosophies, which can only be decided when one side is victorious.

Losing the Combination Dynamics game at any of these levels can be very costly, both in human and financial terms. It must be remembered that this inner game is being played on a field lined by employees experiencing the highest levels of cynicism and distrust of their leadership in modern times; as they encounter large scale layoffs during an economic recovery in which organizations are doing quite well. Employees also share a sense of frustration and weariness with constant change in the workplace and the increasingly intense pace required just to keep up.

The net result of losing the inner game, in human terms, is that the best and brightest human resources; those with the knowledge, skills and experience to really make a difference; are the most likely to walk away. Retaining these resources is the key to future business success.

In financial terms, add up the cost of distracted performance by employees (estimated at 2 hours a day); and higher health costs due to increased stress and increased worker compensation claims; and you will begin to understand why only 15% of combinations achieve their financial objectives. Losing the Inner Game is the primary reason why 50% of all combinations are so disastrous.

Well enough about losing!! How do we WIN THE INNER GAME OF COMBINATION DYNAMICS?

The answer in three words: LEADERSHIP, FOLLOWERSHIP AND PARTNERSHIP. Management must provide the leadership. Employees must embrace Followership and the cultures must forge a partnership.
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