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Post-Merger Integration: The Balance of Forces

Pete McGinn for HealthLeaders News, March 6, 2009

Healthcare providers are witnessing the onset of another round of wide-ranging consolidation, with economic forces likely to continue as the main driver. To gain the hypothetical benefits of consolidation, healthcare CEOs should invest time in building structures and systems that work. Synergy may be a logical outcome of integration, but there are inherent forces in organizations that undermine it. CEOs must understand the natural forces that fight integration, as well as the tools they can use to create sustainable structures that keep the competing forces in balance.

No matter how you approach it, leaders of recently merged organizations must create balance. Building a stable and sustainable organization demands keen insight and effective action to manage opposing forces and competing priorities. Leaders of merged organizations seek stronger performance through market strength and effective organization and use of resources. Easier said than done. These lofty goals require more sustained attention than many results-driven executives want to invest on the front end.

Just as with designing buildings, designing organizational structures requires clear goals, careful specification of priorities, and the pragmatism to make trade-offs. In post-merger integration, leaders must create structures and systems that support strategy, streamline decision making, and align competence and responsibility. They should encourage freedom, innovation, and growth while exercising control and promoting accountability. And they must manage the conflict between appropriate specialization and desired integration of functions.

Pretty soon, it can seem distressingly bureaucratic. CEOs face concerns about centralization versus decentralization, process versus structure, and service and customer group compatibility. They will need to make decisions about reporting relationships, organizational layers, spans of control, communications, and interdependencies. Fortunately, there are a few basic principles that can help busy executives deal effectively with this complexity.

Buckets and system design

Designing an integrated system is a bit like swinging a bucket of water around your head. As you swing the bucket, you create centrifugal force that makes the bucket feel like it is pulling away from you. To keep the bucket from flying off, you need to have a strong rope attached to it and a firm grip on the rope. In the language of physics, the rope and your grip on it create a centripetal force that keeps the bucket moving in a circle around you. Centrifugal force is one that pulls away from the center, while a centripetal force is one that pulls toward the center. In the language of business, you have created a balance between decentralizing forces moving power away from the central authority and centralizing forces tending to concentrate power in the central authority.

 

 

 

 

 

 

 

Centrifugal forces in organizations

In business, just as in physics, there is a natural tendency for things to fly apart unless there are specific offsetting forces. Executives planning post-merger integration should be aware of the natural forces that would cause the system to disintegrate, and they should recognize and employ the necessary centralizing forces to counterbalance these.

Organizational cultures create the greatest centrifugal force. Financial and legal structures intended to segregate and protect the assets of individual organizations contribute to pulling it apart. Organizational silos, whether within or between organizations, create wedges that weaken integration efforts. Complexity or lack of clarity about mission, vision, strategy, or standards of performance add to the forces of disintegration. The common desire for organizational autonomy, managerial independence, control of unit resources, and freedom of action all tend to move authority and control away from the center. That is why organizational centrifugal force will lead organizations to split apart rather than integrate unless leaders create strong ties to hold them together.

Centripetal forces

To achieve successful post-merger integration, CEOs should employ design principles that offset the natural forces of disintegration. The first action is to create a strong, stable center. Just as with the spinning bucket, CEOs need to use a strong rope and maintain a firm grip so the integrated system does not fly apart. However, to continue the metaphor, if the rope is too short or if CEOs grip the bucket itself, movement and momentum can be stopped completely, and organizations stagnate.

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