Extent of integration
The first consideration involved in post-acquisition integrations is the extent of the integration – how extensively should you look to combine the acquired firm with your company. Some companies opt to keep their acquired firms relatively distinct – possibly operating entirely separate of the original company. At the other extreme would be looking to fully integrate the acquired company.
Whether or not it makes sense to fully integrate the company, to keep it completely separate, or some combination in-between, is largely dependent on what the purpose of the M&A was, and how you expect to derive the benefit. If the indeed benefit will come from cost savings from reducing duplication, for example, then it may be necessary to engage in a high degree of integration to be able to realize those cost savings. If on the other hand the new product is relatively separate, bought to add under your portfolio of products (possibly bringing benefits to the customers of a greater product range, in turn increasing adoption of the entire lineup), then a more deep level of integration may not be required.
Levels of integration
Beyond simply the extent of integration, there is also questions on what dimensions you should integrate. There are three layers of integration – structural integration, operational integration, and cultural integration.
The first level of integration to consider following a merger is structural integration. Structural integration refers to the integration of the hierarchies of the firm – reporting relationships such as who your boss is. This is often the first stage of bringing the firms together – deciding on the extent that you will combine the hierarchies compared to leaving them as largely independent decisions of the firm.
Operational integration refers to combining the operations of the business together – integration of the actual activities, processes, and routines. This may allow the firm to achieve cost savings – actually reducing duplication of activities.
While operational integration may be where the benefits are derived from, it typically requires some degree of structural integration to achieve. It is hard to integrate the operations together unless you have hierarchies in place for this.
The final component of integration is cultural integration – combining the culture of the companies together. This comes with its own sets of challenges – just as it is difficult to change a company culture, it is difficult to combine the culture of two firms into one. Indeed, this stage is often a long one – potentially taking many years to achieve a unified company culture.
Determining the extent and nature of post merger and acquisition integration
There is no one right approach for integrating two firms. A key factor that should influence the approach towards integrating a firm post-acquisition is the intended purpose of the acquisition – what are the benefits you are hoping to achieve. Once you have determined the purpose of the acquisition, you can begin to consider the best approach to achieving that intent.