Advertisement

Mergers Need Informal Networks to be Successful

Article main image
Apr 28, 2016

This month’s announcement that Alaska Airlines has won the bidding war to purchase Virgin America for $2.6B firmly put to rest the rumors that the era of airline consolidation is over. The combination of these two brands will earn Alaska a seat among the top five largest American carriers, alongside industry giants, including Delta, United and American Airlines — displacing Alaska’s rival in the deal, Jet Blue.

But as investors and airline consumers have seen in past M&A activity, grabbing a spot atop the industry charts is not enough to call any deal a success. This is especially true when considering the unique traits both Alaska and Virgin bring to the table — qualities that have earned these carriers strong customer trust and loyalty. The onus will be on the teams at Alaska and Virgin to ensure the future of the combined company is more than just additive from a financial and operational perspective.

The keys to getting M&A integration off to a strong start and ensuring the process sticks are twofold:

  1. First, craft a vision that clearly spells out the opportunity inherent in the change ahead of the organizations involved.
  2. Second, deliberately involve a diverse cross-section of the organization in leading an employee network structure (or dual operating model), to run alongside the traditional organizational hierarchy of the new combined company. This unique structure will help accelerate the transference of ideas, cultivate the energy and culture you want to foster within the new combined entity and move at an execution speed that a traditional organizational structure simply isn’t capable of doing on its own.

Lack of Vision

The single biggest pitfall that derails successful M&A transactions is a lack of vision for what the opportunity is for the combined entity following the integration process. Too often, leaders focus on ensuring the additive aspects of the integration are covered — melding operations and merging organizational structures — without challenging convention and asking, “What more could we become together?” Answering this question is the first step to building a collective sense of urgency, alignment around a shared goal and excitement throughout the organization that can produce a multiplier effect, rather than simply an additive effect.

Engaging the Human Capital

Crafting a vision for the opportunity ahead should start long before a deal is announced or even pursued. The process should be informed by an ‘expanded due diligence’ process that looks not only at traditional financial and performance metrics, but also includes an understanding of the people, unique processes and organizational culture that will need to be addressed during the integration of the two organizations. Considering what leadership values most from the human capital assets of each company will enable the team to look beyond the basic additive advantages of the deal and toward a broader vision for the aspirational opportunity ahead.

The vision for the future should be specific, both from a qualitative and quantitative perspective such that the organization can determine if and when the goal line is reached 18-24 months into the integration process. The vision of success can’t remain at the senior level alone; it needs to be understandable, tangible and compelling to employees throughout the ranks of both companies. It’s the responsibility of the combined senior leadership team to articulate an inspiring vision for the future that compels people to act in service of this vision.

The People Challenges

The trick then lies in determining how to empower your talent to work for the future good of the larger organization. Hierarchical organizational structures, the kind that make day-to-day tasks run smoothly in almost every mature company, are as critical in the combined organization as they were in two separate companies before the transaction. Yet these structures are terrible at driving transformational changes that don’t have a clear destination.

To address the people challenges of change, organizations, like a combined Alaska-Virgin America, need more informal networked groups to run alongside the hierarchy — a kind of dual operating system. And equally important, the acquirer (in this case Alaska) must keep an open mind to preserving many of the characteristics that fueled an almost cult-like fanaticism for the Virgin America brand.

Composed of leaders throughout all organizational levels, the network side of the system can infuse the company with more agility and adaptability than a hierarchy alone allows — critically important traits as two separate businesses gradually become one.

The Value of the Informal Network

The network can quickly adapt to new ways of working, innovate processes that drive toward the company’s future goals and disseminate new cultural norms much faster than is possible in a hierarchical structure. While more traditional structures will enable the combined Alaska-Virgin America to continue to deliver the daily reliability and service levels customers expect, an integrated, informal network will allow key cultural traits — Alaska’s devotion to ensuring on-time departures and Virgin’s premium customer service focus — to become ingrained in the culture of the new company, as well.

There’s no magic bullet that guarantees success in merging complex entities like regional airlines. But it’s safe to say that Alaska and Virgin will have the best chance at successfully integrating strategy, process and people if they come together to outline their opportunity and craft an ambitious but achievable vision for what’s possible.

Get articles like this
in your inbox
Keep up to date with the latest human resources news and information.
Advertisement