Accelerating Integration in Healthcare M&A
Mergers and acquisitions have significantly changed the healthcare landscape, with no signs of slowing. M&A is not for the faint of heart on either side...
Mergers and acquisitions have significantly changed the healthcare landscape, with no signs of slowing. M&A is not for the faint of heart on either side of the transaction. It is a complex journey that begins by defining outcomes for the enterprise at both a strategic and a financial level and continues through multiple legal hurdles. Too often, however, executives leading M&A neglect the organizational aspects of the journey: they focus on closing the deal rather than integrating the acquisition in ways that strengthen the whole.
That’s why, in M&A scenarios, executive talent and culture misalignment are the most frequent causes of underperformance. M&A is chaotic: it’s busy, messy, and unclear. It’s easy to postpone addressing the “softer” elements of executive talent and culture alignment. Ironically, facing these topics head-on accelerates performance because doing so lessens the emotional challenges that come with M&A – for both the acquirer and the acquired (or, in mergers, for both parties). These factors must be addressed to mitigate resistance and realize a transaction’s strategic, financial, and mission potential.
To do so, widen your focus to the expanded enterprise’s organizational and leadership requirements:
- Given both the strategy and the desired outcomes of the transaction, what do you need (from executive talent, from your new organizational design, and from your culture)?
- What do you have in your new (or existing) executive talent? How healthy is the organizational culture in your acquired (and legacy) businesses?
- How will you accelerate impact and mitigate risk to realize value?
Answering the above questions takes time and intentionality. Having recently partnered with systems that have grown their footprint, we recommend the following tips for embarking on the journey to successfully and impactfully integrate new leaders.
1. Define what “good” looks like. The same title can hide substantive differences: the role of a hospital president in a for-profit system is not the same job as that of a hospital president in a not-for-profit system or an academic medical center. Similarly, the role of a hospital president within two not-for-profit systems can vary meaningfully depending on the organization’s priorities. Priorities can range from stabilizing a tenuous situation to innovating for aggressive growth. The same goes for other critical executive roles, such as finance, operations, nursing, etc.
It’s easy to assume that new executives understand what the role requires. That’s a dangerous assumption. It’s made worse because the strategic imperatives of the deal may require more emphasis on different aspects of the role than previously needed.
Culture – or an organization’s “personality” – is often taken for granted, too. It’s hard to see the water you swim in. More often than not, though, the cultural attributes of two (or more) entities are different. Since culture is taken for granted, new executives are likely to continue operating in ways consistent with their previous culture – doing so is only natural.
It’s also dangerous: people look to their leaders during times of change. You need executives (regardless of their previous institution) to model behavioral expectations that will support the mission, vision, and strategy of the combined organization.
It’s risky for the executives, too. Though they may not raise it, newly acquired executives are hyper-tuned to risk. M&A creates an environment fraught with emotion at a deeply personal level: Will I succeed here? Am I still valued? Should I dust off my resume?
You can increase clarity and reduce emotional churn by defining “what good looks like.” Some tips:
- Prioritize the most important leadership roles for the first year – in one client, those were regional roles; in another, they were hospital presidents and CFOs.
- In the unique context of your strategy, identify year-one priorities and performance metrics: how will you and the executives in the role know they’ve succeeded?
- Step back and identify how executives need to behave in order to achieve those outcomes.
- Check these behaviors against your cultural expectations: are they aligned with your values?
2. Objectively assess executive talent to inform your decision-making. Organizations (rightly) spend significant time and energy on strategic and financial due diligence, poring over data, analyzing risk, and identifying ways to mitigate it. Yet, when it comes to executive talent, the only evaluation is often based on the seller’s self-report. Not only is that evaluation likely to carry bias (positive or negative), but it is also based on the performance of a different job (albeit with the same title) in a culture that may have prioritized different behaviors.
Apply some of the same due diligence used in financial decisions by using a thorough assessment process to enable you to make better (and more objective) executive talent decisions. The decisions you make at the top have an extraordinary impact on mission, engagement, and patients – you can’t afford to get this wrong.
If you suspect that the culture of new hospitals may be an issue, get an objective analysis of organizational health. In our experience, a simple survey provides deep insight into organizational strengths and weaknesses as well as influencers within the hospitals. This insight has helped clients prioritize initiatives, putting resources where they were most needed to avoid disruption during integration.
Some clients use executive assessments to inform selection decisions, while others use them to prioritize development opportunities once placed in a role. Either way, having an objective third party assess individual strengths and development areas – specifically against the requirements of your executive roles – provides you with insight quickly. In some cases, you may find that you don’t have the executive talent you need for an important role. If that’s the case, it’s a good time to use an interim executive while you go to search. Other clients, realizing they do not have a leader equipped to support M&A integration, used an on-demand (or fractional) leader to support this critical initiative.
Here are a few tips:
- Decide how you want to use the assessment (selection and/or development). This will inform the assessment approach and how you communicate (see below).
- To ensure accuracy, use a multi-method approach (personality and/or cognitive instruments, behavioral interviews, career history, reference checks).
- Review the findings with an open mind, using them to determine how best to maximize each executive’s strengths and to mitigate risk.
- Provide developmental feedback to each assessed executive, regardless of the decisions made – this sends a strong signal about your commitment to their development.
- Consider engaging in assessment yourself— doing so sets a tone of development and can provide team-level insights to support integration from the beginning.
- Provide support after the assessment phase is complete. This may include separation assistance, executive coaching, or team development. Use the assessment findings to prioritize your support for maximum return.
3. Communicate, communicate, communicate. You can’t eliminate the emotional challenges that new executives feel, but you can reduce them by providing as much clarity as possible.
Share the documented job descriptions proactively with those being assessed.
- Engage new leaders in dialogue about the new role expectations to help them understand what success looks like in this role, as opposed to the one they had before (even if the title is the same).
- Explicitly link strategy, culture, and expectations (for outcomes and behavior).
- Be crystal clear about the assessment process, how assessments will be used, and the benefits for assessed individuals – a kick-off call with the assessors can help reduce the anxiety of the unknown.
Start now
Creating continuity during a chaotic time for a growing health system relies on a fact-based, thoughtful approach to executive talent and culture. Ideally, the process we’ve described happens immediately after the close or as part of due diligence. Many systems, however, are still struggling with integration years after the close. In our experience, that’s often due to neglecting the organizational and leadership aspects in the heat of acquisition. That’s the bad news. The good news is that it’s not too late to provide increased clarity, evaluate executive talent objectively, and use these insights to make decisions that enable your organization to deliver against your mission for employees, patients, and the community.
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