Ensuring Stronger Acquisition Integrations for Insurers
(Image credit: Dylan Gillis/Unsplash.)
Insurers are no strangers to acquisition activity, especially in today’s age of consolidation. Companies may choose to pursue 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 in a differentiated way—with the intention of yielding strong ROI as shifts in the macroenvironment and regulations create new business opportunities. Amidst M&A activity, leaders should focus their attention on one of the most challenging elements of acquisitions: integration.
Studies have shown that more than 70 percent of all acquisitions fail to achieve their goals. In part, this is because too little attention is given to factors outside of finance: questions about how the different company cultures align, leadership capabilities, brand, business processes, and the supporting technology are matters that acquirers must answer early on. Like with many challenges for senior leaders, a lack of clear direction and alignment on these factors can create significant headwinds, impacting the agility of the organization to respond to rapid changes taking place in the industry.
An integration plan should consider and include the following key elements to guide a successful transition:
Changes to the leadership team
When a business is acquired, it is important to look beyond the deal and define a strategy for integrating the acquisition’s senior leadership team. Those leaders may not necessarily leave when the deal closes, but the context within which they lead will likely shift. As part of a larger organization, they will need to embrace the perspective of the new enterprise, not just their line of business. They will no longer make all the decisions for their business but rather will need to influence decisions on business strategy and resource allocation, which is not an inconsequential reduction in authority and control. From a personal standpoint, leaders may perceive a reduction in status, particularly across the C-suite where reporting relationships will change as they and their teams become more engrained in the parent company. Much of this involves peer relationships, making it vital to be intentional and thoughtful throughout the process. Being transparent and communicative with acquired and incumbent leadership teams will be vital for strong relationships from the start.
Evolution of culture
Imposing a different culture on an acquired company can destroy the elements that make the acquired company desirable. By trying to understand what aspects of the acquired company’s culture are critical for its success, you can determine what to keep, what to add, and what to shift to enable integration without destroying value. This might involve finding ways for the acquired company to stay nimble and avoid getting weighed down by any 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, including the business processes and technology or tools they use.
Keep in mind that the acquired company already has a well-established identity. The people at that company have business cards, email signatures, and email addresses that connect them with the business and the brand. First 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 introducing new logos or changing email addresses and signatures, are well-founded or not. Adjusting to different company names and reputation can be an emotional hurdle that employees might need time to overcome. Hearing and seeing leaders acknowledge this and recognize the adjustment on this front helps build trust and shows support throughout each step of the process, no matter how minor it may seem.
Sharing a compelling story that 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 themselves, 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, and other stakeholders? As leaders, it’s meaningful to 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.
The timing of integrations should be determined on a case-by-case basis. It might make sense for an acquired business to continue to operate independently if it will likely end up being sold rather than retained long-term. Or integration might be delayed to maintain the speed, agility, customer-centricity, and innovation capabilities underpinning that acquired company’s success. There are trade-offs involved with this approach because there might come a time when it no longer makes sense to operate independently. This presents different hurdles compared to when a company is purchased outright and then quickly integrated into the acquiring company subsequently after the close. If the business doesn’t get properly integrated, the initial message from the acquisition’s benefits will no longer cut it, and there may be an “us versus them” mentality, making later 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.
This was the case with a client in the insurance industry that left its acquired businesses to operate independently for more than ten years. There was a good case to be made by the parent organization for the benefits of integration (operational efficiency, economies of scale and purchasing power, cross-selling opportunities, sharing of expertise). However, for the people who had been operating just fine with a high degree of autonomy, they started asking “why?”, quickly followed by “why now?” Working with 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 and started to build relationships and share knowledge that was fundamental to the success of the integration.
Insurers provide confidence and security for their customers and must do the same with their employees, old and new. Timing for integration may vary but the important thing is that a parent company integrate its acquisitions by being intentional when it comes to leadership, culture, identity, and narrative—developing a message that builds trust and answers the questions of “why?” and “why now?” By keeping these factors in the forefront you can help overcome integration obstacles and realize the full value of acquisitions.
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