Mergers and acquisitions (M&A) provide a first-class opportunity to cut costs, increase profits and benefit from another company’s knowledge and expertise. Yet surveys consistently show that a high proportion of M&As do not fulfil their objectives. One study of senior business leaders conducted by the Hay Group earlier this year found that only 9 per cent of mergers were judged “completely successful” in achieving their aims. So what goes wrong?

Dave Aron, research director at Gartner, the technology research firm, says that studies of real-world disasters, such as the 1984 chemical leak in Bhopal, have found that three conditions tend to prevail before a disaster happens: that it is not business as usual; there are tight timeframes, with no slack in the system; and that the people making the decisions are biased in a particular direction. He argues that these conditions are also present in M&As – providing plenty of opportunity for things to go wrong.

Faced with those conditions, it is essential to have strong governance and clear aims. “The most successful deals,” he says, “are very clear about the primary goal. Is this about cutting costs through economies of scale? Is it about acquiring a specific capability or product and leveraging that through your existing channels?”

The hardest kind of deal is the “best-of-breed” merger with a competitor, which means bringing together two powerful management teams, merging two sets of IT systems and aligning two sets of working practices. “The first important task is getting governance right at the macro and micro level because there are not natural decision-making bodies that span all the parties,” explains Mr Aron. “You need to establish who is to be involved in decision-making, and what the lines of accountability are.”

Carolyn Firstbrook, European head of strategy at Accenture, the consultancy, agrees that setting clear targets is crucial, and emphasises the importance of managing a tight process. “In large complex deals,” she says, “integration efforts are likely to involve hundreds, if not thousands, of employees and third party advisers around the globe. Co-ordinating and sequencing their activities correctly is a mammoth task that requires customised tools and experienced practitioners.”

Not only do M&As involve making difficult decisions about complex issues at a time of change and uncertainty, they require those decisions to be made quickly. When fashion retailer Mosaic merged with Rubicon last year, Mike Wilks, the integration programme manager at Mosaic, had to make rapid decisions about which IT systems to retain if the benefits of the merger were to be realised. “My job was to keep everyone’s mind focused on the key dates that we need to get things done by, to protect those ‘go live’ dates,” he says.

The key to achieving a merger’s stated objectives – and to achieving them quickly – is to start planning even before the deal is signed, says Alan Jones, group HR director of Resolution, a life fund management company. Resolution expands through the acquisition of closed life funds, and was itself formed as the result of a 2005 merger between Resolution Life Group and Britannic Group.

When Resolution makes an acquisition, it involves the key functions at the stage when the deal is being considered. The job of the human resources team, for example, is to look at every detail of the company being acquired, including terms and conditions, pension schemes and attrition rates. This careful pre-planning enables the organisation to “hit the ground running” on the first day of the acquisition, says Mr Jones. When it acquired Abbey National Life, for example, early research found that, at the company’s Glasgow call centre, more than a quarter of staff recruited were leaving within 12 months. By creating a strategy to deal with that problem, Resolution was able to halve that attrition rate within three months of the acquisition.

Another frequent cause of failure, says Ms Firstbrook, is to underestimate the cultural difficulties in integrating two companies with very different working practices. When Hewlett-Packard (HP) acquired Scitex, a digital printer company based in Israel with 500 staff, it was taking over an organisation unused to big corporate practices.

“You’re telling a fairly small, agile company, which doesn’t invest a lot in processes or long-term planning, that they need to conform with necessary corporate processes that are totally alien to their culture,” says Pau Molinas, operations director for HP’s graphics and imaging business.

The danger is that morale will sink and people will leave the acquired organisation. In fact, says Mr Molinas, since the acquisition 18 months ago, only four of Scitex’s staff have departed. Partly, he says, this was down to the goodwill HP had already established in its acquisition of another Israeli firm, and partly it was due to the hands-off approach HP took towards Scitex: “It was a market HP didn’t have a lot of experience in. We wanted them to have a lot of freedom when it came to investment decisions. So they were teaching us, and they appreciated that.”

Cultural differences can even add value, says Ms Firstbrook. “A merger offers a window of opportunity,” she explains, “when all employees are expecting and prepared for change, to introduce new ways of working that neither side may have embraced in the past.”

The important decisions that need to be made in the wake of a merger can risk antagonising staff on both sides. In each of the companies involved, people hold partisan views on which IT systems to keep. “Everybody pretty much backs whatever is installed in their own business,” says Mr Wilks, “which is why the process needs to be transparent. You need to involve the people both from IT and from the general business in this process of analysis, so once the decisions are made there is no suggestion that there has been a hidden agenda.”

The principle of transparency applies not just to IT but across the board. Very often the acquiring organisation will bring in a third party to enable the process of decision-making to be more dispassionate and objective. Resolution, for example, uses Atos Consulting to advise on its acquisitions for this very reason.

George McCormick, the US director of the Hay Group’s M&A practice, gives the example of one acquisition when he worked for the purchasing company: “We were able to interview executives in both firms, and we realised that the company being acquired had some very fine best practices. We said, ‘These are the ones you need to adopt long-term.’ They were shocked. But eventually it worked out.”

Effective communication to all stakeholders (employees, customers, suppliers and shareholders) is an important part of making the process transparent. “We have always told them how it is, good and bad: when we tell them information it is factual,” says Mr Jones, emphasising the need to keep existing employees well-informed as well as ones from the acquired firm.

Mr Aron agrees: “Uncertainty is a killer in terms of strategy, operations and people’s morale.” While e-mails and meetings are the traditional means of communicating news to employees, he suggests using social technologies such as blogs and wikis as well, because they allow staff to have their say, too.

The trickiest question is: how do you know whether the merger or acquisition has been successful? Although many deals have disappointing results, it has to be remembered that a merger often happens when at least one party is already doing badly. “Ideally, if you want to know if the deal is a success you should be measuring the business value compared to what would have happened if you hadn’t done the deal,” says Mr Aron.