Philip Whiteley's Blog

January 31, 2012

Merger mania: the warnings were there

Filed under: Uncategorized — felipewh @ 2:49 pm

Published below is a further excerpt from Unshrink the People, in its tenth anniversary year. This one highlighted the extreme risks from merger activity. I must declare a double interest: the collapse of The Royal Bank of Scotland in 2008 was caused in large part by a huge cross-border merger and had to be rescued by the state. So as the co-author of Unshrink whose warnings were not heeded, and as a UK taxpayer, I feel doubly aggrieved.

From Unshrink, Max Mckeown & Philip Whiteley Pearson 2002:

In the light of the overwhelming evidence that downsizing and business process re-engineering led to some ghastly mistakes, even some of its architects have acknowledged that they “forgot the people element”.  This apology is a bit feeble. No one would cheer zoologists who announced that, after 20 years of study, they had recognised that the effort of termites was, after all, an important part of the process of making termite mounds.

Why is the recognition so muted? Because the myths are so firmly embedded that management thinkers, even the better ones, often try to insert people, or emotional intelligence, into the machine, instead of scrapping the machine.

The consultancy KPMG publicised the fact that 83 per cent of mergers fail … but can only timidly recommend that “soft keys” – the people issues – should at least be of equal importance to the “hard” matters[i]. This seems inadequate. After all, if it transpired that, say, 83 per cent of surgical interventions using a new technique failed; that the patients would have lived longer without going under the knife, would it be enough for the doctors to say “Well, that’s interesting; maybe we should tinker with the way we do the operation; adjust the balance a little”? A better reaction is to insist that there is something fundamentally wrong with an approach that nearly always fails.


[i] Unlocking Shareholder Value: The Keys to Success, KPMG 1999


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