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European Pharmaceutical Contractor

Shared Vision

There is no other sector this year that has captured the headlines for mega-deal mergers and acquisitions (M&As) as much as pharmaceuticals. From the US to Europe and Asia, the makers of drugs and compounds have been scouring the globe for deals in a hunt for the next blockbuster medicine. However, a recent survey by Korn Ferry found that the tasks leaders feel they are least equipped to deal with are to deliver on M&A and to drive strategic change. This, perhaps, explains why a KPMG study found over 80% of mergers fail to improve shareholder returns.

There needs to be a paradigm shift post-M&A and pre-integration – where the mindset of executive board members moves from the traditional approach of control-order-predict, to a more open one of collaborate-empower-create.

Collaborative Breakdown


Mergers can fail to meet expectations for a number of reasons. A key issue in many failures is the mindset differences between the merging parties. The acquirer calls the deal an acquisition, while the acquired calls it a merger. Having not yet worked out a shared vision, they come at it from different perspectives. The acquiring organisation has a built-in compulsion to install its people, systems and policies in the acquired organisation. But in order to preserve the relationship, it may promise polite autonomy instead.

The merging organisation colludes with the acquiring organisation, and buys into the promise of autonomy. However, it knows eventually it will be taken over, its systems replaced, people laid off and its identity diluted. In the end, the acquiring organisation does indeed follow its compulsion. Through a lack of honest communication, the businesses lose momentum in months of internal wrangling and realignments – thus jeopardising the value of the deal itself.

During a takeover situation, these issues are even more acute. The two organisations may sometimes be openly resisting each other. Particularly within the organisation being taken over, a ‘fight or flight’ mentality springs up among staff that is naturally loyal to their brand. Their first instinct is to fight against the other side and, if that fails, get out.

Counter-Measures

What needs to be done initially is be very precise about the commitment to results. Executives need to communicate clearly what the vision is for the outcome of the deal, and take brand identities out of it. This can then engender the sense that both sides are, in fact, one group of people trying to achieve something together.

In addition to having a shared mindset, board members need to also focus intensely on personnel issues. As Big Pharma has begun switching its attention to smaller companies and start-ups – to obtain specific drugs and R&D – they often overlook the fact that they are acquiring a whole set of people too.

With a merger, not only are two companies attempting to integrate under one corporate mission, but also two large groups of people – each with their own personalities, ambitions, behavioural traits and ways of working – are about to be brought together. The complexity increases massively when multiple branch offices, cross-border IT infrastructure and financial regulation are included.

In order to move a deal into a paradigm of collaborate-empower-create, one fundamental requirement is to realise that the deal affects people on both sides. It is not just the organisation being acquired that is undergoing a change: both sides are being transformed, and everything has to be reinvented. In short, while personnel issues are not a pharma company’s core competence, they must make the people dynamic work for a deal to be successful.

Teamwork

Neglecting staff and relying too heavily on setting workstreams in order to drive synergies and take costs out is a common mistake. Processes and systems that act as the glue between two organisations can only be successful if they are accompanied by an aligned mindset and commitment to embrace the change.

This needs to be led from the top, and it is crucial that board members put any personal advantages of the deal (such as greater empowerment and control of a larger organisation) to one side, to focus on the people that are going to make the deal happen. Once the company’s executives have infused management with the sense that both sides need to change, there is a much stronger common position, and the managers who are operationally implementing the deal can create a real environment of collaboration. The old brand identities can be more lightly held and the decisions that need to be made can be taken to create a new, reinvented organisation. This sense of genuinely being in it together also addresses the trust gap that so often springs up around any deal. The antidote to a lack of trust is greater collaboration and communication.

Meanwhile, on the acquired side – particularly in a hostile deal – emotions can run high. So board members need to remain calm and offer a voice of reason. Once it is clear that the deal is going to happen, they need, of course, to focus all their efforts on negotiating the best possible outcome for the business and the people in it. But beyond the strategic negotiations, they also need to consider how to move people through the natural reaction cycle (shock, negativity, fear, resentment, suspicion) as quickly as possible – to a new frame of mind that is practical and realistic about the situation: “The deal is going to happen – what can be done to make the most of it? What opportunities might arise?”

Assigning Responsiblities

Having a shared vision provides the people on both sides with a long-term goal, but to really get the most out of employees, there needs to be an acute understanding of who is doing what and when. This means having a road map with responsibilities assigned – or a so-called robust governance framework – that needs to be implemented as soon as possible, so that there is no doubt about roles, responsibilities, reporting lines and decision-making throughout the integration.

However, there is no one-fit structure and governance model. Indeed, the creation of the new organisation may mean creating new roles and responsibilities that did not exist before. Simply assigning the old roles to the new structure may not work. So the integration team will need to stand back and assess what is really needed – what has really been created – in the new organisation, and then work collaboratively to map out how to implement it.

If these steps are followed, a robust set of frameworks can be set out to give everyone clarity as to what their role is, who they work with and, ultimately, what they are responsible for. This then reduces the chance of confusion as to who does what in the new combined company.

Do Not Delay the Inevitable

Now that most mid-market players have been acquired, Big Pharma has begun switching its attention to smaller companies and start-ups. For instance, AbbVie’s $21 billion takeover of Pharmacyclics earlier this year will see AbbVie benefit from a fast-growing blood cancer drug. While this approach may lead to Big Pharma buying in products rather than performing as much R&D in-house, this may not be a bad thing, as smaller companies now tend to focus on innovation as the solution to Big Pharma’s problems – rather than being just an alternative intellectual property platform.

When it comes to acquiring these smaller players, an interesting approach has been observed by European pharma companies. Rather than consuming the smaller entity, there is the deliberate strategic decision to hold the newly acquired innovator separate, so that it keeps its brand name, its own systems and ways of working. It can be many years before the organisation is actually integrated in. This may be a sensible short-term decision – but is it in fact just avoiding the pain of merging for as long as possible? Fear of mismanaging integration and perhaps destroying the entrepreneurial culture of the smaller organisation is the reason the larger corporate hesitates. But, given the right approach, there is a strong case for merging much sooner so as to fully realise the benefits of the deal.

Data from Zephyr shows that the value of M&A transactions carried out in the global pharma sector jumped from £58 billion in 2007, to £239 billion in 2015. With this trend set to continue, there is an even greater demand on board members to equip themselves with the skills to ensure that the rising price of merging is a price worth paying.

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Mike Straw, Chief Executive Officer of Achieve Breakthrough, founded the company in 2003. It is an award-winning consultancy that provides organisations with new ways of thinking and acting to deliver better business and people performance. He has been designing and delivering award-winning change and transformation programmes for many local and global organisations since 1993, when he joined Breakthrough Technologies. In addition, Mike is an international speaker and author of Breakthrough – 7 Steps to Transformational Change.
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