What the Military Health System Can Learn from Private Sector Mergers and Acquisitions

What the Military Health System Can Learn from Private Sector Mergers and Acquisitions BACKGROUND The National Defense Authorization Act (NDAA) for Fiscal Years 2017 and 2018 likely represent the largest healthcare management consolidation in recent history.1 This consolidation effectively merges the operations of three distinct services (Army, Air Force, and Navy) with over 9.4 million geographically dispersed beneficiaries under the management of the Defense Health Agency (DHA) to create the 7th largest healthcare delivery system in America. As directed by the NDAA, the medical departments of the three services will retain responsibility for recruiting, training, and equipping their respective military medical forces while the DHA will assume responsibility for managing overall healthcare delivery across the Military Health System (MHS).1,2 This realignment of control of healthcare delivery poses many challenges across the MHS. In this paper, challenges, pitfalls, and failures experienced during private-sector mergers and acquisitions will be used to shed light on areas in which the MHS can focus current and future efforts to maximize the likelihood of successfully aligning healthcare delivery. For clarity, the terms merger and acquisition will be used synonymously in this paper. In actuality, mergers and acquisitions (M&A) represent very different concepts with vastly different structures and implications for the involved organizations. Simply defined, a merger is the joining of two independent companies to create a new entity. In contrast, an acquisitions occurs when one company purchases another and assumes responsibility for managing the assumed organization.3 In the context of the MHS, the NDAA has created a unique situation in which the DHA will acquire, as of October 1, 2018, the responsibility for managing the healthcare delivery across the service branches. This is one of the largest and most diverse examples of M&A in the healthcare industry and this diversity brings the task of aligning efforts, to maximize potential synergies across the MHS. The purpose of this paper is to provide a review of the available literature relating M&A, specifically assessing cultural management and leadership’s role in the pre- and post-merger environments. The attempt will be to explain reasons for the high rate of private sector M&A failures, the impact of M&A on human capital, and the role of middle managers in the success of M&A to focus attention throughout the MHS. Key points will be further clarified through the use of the Nissan–Renault M&A case study. This topic is novel in that the author is unaware of prior research comparing private sector and federal/military M&A, especially in the healthcare industry. This topic is also important as the implementation of the NDAA will lead to strategic, fiscal, and culture changes across the MHS with an impact on the readiness of the nation’s fighting forces. FACTORS AND RAMIFICATIONS OF M&A FAILURES Private sector M&A fail at alarming rates and often with a dramatic loss of value to stakeholders. Several key factors have been identified as explanations for the dismal record of M&A success. The factors to be discussed in this paper include: (1) What is organizational culture and why is it important during the M&A process? (2) Why is it important for leaders to acknowledge and facilitate early cultural integration through the pre- and post-merger environments of each organization? (3) What is the role and importance of human resource management (HRM) and middle managers in communicating change in the M&A process along with the new organization’s shared vision? And, (4) How can leaders leverage a comprehensive acculturation model to guide their organization through the M&A process and toward achieving value creation? Corporate growth strategies commonly rely on M&A to develop value-based synergies despite data showing that as many as 83% will fail to achieve their proposed value for stakeholders4,5 and in fact, as many as 53% of M&As lose value.6 M&As have also been shown to have an alarmingly negative effect on talent management and human capital. In many cases, the acquired firm’s personnel experience elevated stress associated with M&A, causing as many as 70% of executives to leave the acquired organization within 5 yr post-M&A. This turnover of personnel results in a costly loss of human capital7 as well as a loss of priceless institutional knowledge.5 Despite these significant negative impacts, corporate strategists continue to advocate for M&As, citing the potential for enhanced growth, increased efficiency, elimination of redundancy, and increased profitability.8 WHY IS ORGANIZATIONAL CULTURE IMPORTANT TO THE SUCCESS OR FAILURE OF M&A? Organizational culture significantly influences M&A outcomes8 and is described as a pattern of shared assumptions a group learns as it solves problems of external adaptation and internal integration.9 These shared assumptions are verified and then taught to new members as the correct way to think, perceive, and behave in relation to future problems. Culture has also been described as a system of beliefs, values and assumptions shared by an organization’s members allowing the organization to adjust and filter perceptions of the environment.8 This system provides necessary continuity and stability in the face of stressful and traumatic perceptions of change. By their very nature, M&A are traumatic events that often reduce trust, satisfaction, and productivity among the members of the involved organizations.7 Simon,10 in his book, Start with Why: How Great Leaders Inspire Everyone to Take Action, notes that trust is earned by leaders clearly and transparently communicating and demonstrating the organization’s shared values and beliefs. Conflicts arise when corporate planning focuses too heavily on financial and strategic factors of M&A with less emphasis on cultural issues. This pattern can lead to overestimations of revenue gains and cost savings while underestimating human resource requirements and their potential effects on human capital. Sinek10 recommends that leaders first develop a strong “why” statement for their organization. This statement is the shared vision which creates a foundation to align actions toward the organization’s main objectives. Sinek notes that, organizations become great because the people inside the organization feel protected and accountable. When leaders establish a meaningful shared vision, they are taking the first and most important step toward establishing an enduring organizational culture. This statement builds the foundation by which cultural due diligence can be conducted by providing all employees with a belief statement through which all the organization’s actions and decisions can be filtered for continuity. Cultural due diligence, as discussed later in this paper, is an important component during the pre-merger phase of M&As where cultural integration continues to be more important than even strategic initiatives.7,11 It has been shown that executive analysis of cultural differences between organizations is commonly neglected in the pre-merger phase with two common misconceptions persisting.7 The first misconception assumes that cultural integration will occur naturally as the structural components of the M&A process evolve. This misconception is detrimental because it develops a passive mindset regarding cultural integration between the involved organizations. Cultural differences must be analyzed deliberately in the pre-merger phase and actively managed by leaders throughout the acquisition process. The second misconception is the belief that the new leadership team can immediately establish a strong culture across the new organization.8 These misconceptions and the resulting miscommunications leave many employees frustrated and fearful, especially if they fear for the loss of their jobs.6,8 It has been shown that the new organization’s culture may take up to 3 yr to fully mature and stabilize allowing this misconception to persist for considerable lengths of time causing significant delays to cultural integration and harm to the M&A process.12 Effective leadership, from the strategic level down through middle management, is critical to the success of any M&A. Middle managers are frequently tasked with making sense of, and communicating their organization’s culture and strategy during the M&A process.13 DHA’s approaching acquisition adds to the hierarchical culture of the military medicine making it increasingly difficult to determine which positions constitute middle management (e.g., clinical or departmental leadership versus medical treatment facility (MTF) command teams). Key middle managers in each organization must be quickly identified as vital conduits for information from the top levels of the organization down through the MTF while simultaneously from the clinical level of each MTF up toward higher levels of command and control. Without this continuity of messaging, personnel frustration and fear will persist and potentially hinder the M&A process.13 DEVELOPING AN ACCULTURATION MODEL TO GUIDE ORGANIZATIONS The MHS acculturation model (Fig. 1) is developed based on the conceptual framework of the Donabedian model with its “structure, process, outcome” categories. This proposed acculturation model adds the category of “cultural due diligence” as the precursor to categories of “organizational structure,” “strategic process alignment,” and “strategic outcome measurement.” Together, these four categories span the pre- and post-merger periods, providing all leaders with the requisite tools and perspectives necessary to effectively facilitate change management during the complex M&A process. FIGURE 1. View largeDownload slide MHS acculturation model. FIGURE 1. View largeDownload slide MHS acculturation model. CULTURAL DUE DILIGENCE Cultural due diligence is the active and deliberate review, analysis, and integration of values and beliefs across the involved organizations. Ideally, this process should take place during the pre-merger phase and guide the organization in the development of a new set of shared values and beliefs (culture). This process has been proven to be more important to the success of post-M&A efficiencies and value-generation than even the development of financial, operational, and strategic processes. Successful acquirers have been shown to be 40% more likely to perform cultural due diligence as compared with unsuccessful acquirers.6 The desired outcome of cultural due diligence is the development of a synergistic, joint culture whereby organizational beliefs, assumptions, and values of the previously independent organizations are cohesively merged.11 To achieve a successful transition, the DHA must first develop a strong “why” statement based on a clear, shared vision of the future of the MHS. Next, the DHA should strategically analyze the cultural environment of each service to better understand specific needs while evaluating how current processes can synergistically merge with the DHA’s vision of the future. Finally, DHA leaders must establish a clear and consistent message regarding expectations and accountability for the M&A process and cultural integration. A successful M&A must emphasize financial processes and metrics while paying careful attention to cultural factors which may complicate or derail the expected value-generation of the acquisition.6 ORGANIZATIONAL STRUCTURE An analysis of the link between organizational culture, structure, and performance should ideally begin with sound HRM. HRM facilitates the development and maintenance of organizational culture through alignment of practices and processes critical to meeting business strategies while managing valuable human capital.4 As further described by Gill,4 an example of HRM’s role in developing a robust organizational culture is seen in the case of Nissan–Renault. In spite of the belief by some executives and analysts that Nissan–Renault’s problems were financially derived, Chief Executive Officer, Carlos Ghosn proposed that the most fundamental issues were actually culturally based. Through sound HRM strategies, Mr. Ghosn focused on the implementation of permanent and temporary cross-company teams (CCTs) and cross-functional teams (CFTs). Like Nissan–Renault, the DHA can use similar teams to rapidly identify and address any lack of accountability or lingering organizational silos. Team selection should be based on both vertical and horizontal representation to create a powerful environment, which allows middle managers to see beyond their functional or regional boundaries and focused on total organizational integration. In the traditional M&A model, most members of CCT/CFTs come from financial, analytical, or strategic backgrounds. In order to maximize diversity and leverage skills, CCT/CFTs benefit from augmentation by technical, clinical, operational, and HR personnel. Diverse teams staffed through robust HRM strategies can combat crippling decision traps such as biases, escalating commitments and cognitive overload.6 By constructing diverse CCT/CFTs, managers will be empowered to lead critical aspects of change while increasing strategic process alignment which defuses “Merger Syndrome” before it negatively impacts the organization. STRATEGIC PROCESS ALIGNMENT As mentioned above, Merger Syndrome results from the natural uncertainty which accompanies M&A-related organizational change. This change ultimately affects the dynamics of cultural integration such as interpersonal relationships, perceptions of the M&A, and most importantly, employee stress.6 Leadership can mitigate Merger Syndrome by establishing a system of “merger previews.” These previews provide transparent communications relating to the M&A process aimed at decreasing stress throughout all levels of the organization by providing important details and expectation management. By utilizing a system of timely, transparent merger previews, DHA and service leaders can effectively shorten the post-merger rebound period, combat costly “talent drain,” and improve performance. These previews can be in the form of email messages, town hall events, consistent messaging through pre-existing staff meetings, and training seminars aimed at middle managers and other key leaders. The previews should also contain information valuable to all personnel across the organization, such as, employment and staffing decisions, cultural expectations and accountability, and other strategic decisions aimed at aligning actions and behaviors. While cultural integration is not immediately obtained and may require up to 3 yr to fully develop and stabilize,12 by identifying cultural factors and empowering middle managers to work toward full cultural integration, an organization is more likely to achieve alignment of strategic processes leading to efficiencies which cannot be achieved by development of strategic processes along. This alignment must also be supported by active, frequent, and consistent messaging of the shared vision and cultural expectations across the organization. By developing accountability for upholding shared values and guiding principles, active leadership strategies can further mitigate mistrust, alleviate anxiety related to organizational change or job security, and decrease the loss of human capital.10 STRATEGIC OUTCOME MEASURES As with any change management process, development of outcome measures and metrics is vital to overall success. One such tool for measuring performance and strategic management is the Balanced Scorecard (BSC). The BSC emphasizes the link between measurement and strategy giving managers tools which allow them to shift from simply managing tangible assets to focusing on knowledge-based strategies and ultimately creating value for their organization.14 It is plausible that this fourth category in the MHS acculturation model (Fig. 1) represents one of the most important factors which, if overlooked, can lead to a loss of the value creation initially sought by the M&A process. Kaplan and Norton15 list such things as innovative products and services, high-quality and agile operating processes, and strategic maintenance and development of human capital as just a few of the critical ways organizations can create value during the M&A process. Embedded in the Balanced Scorecard concept are five principles of a strategy-focused organization. – Principle #1: Translate the strategy into operational terms – Principle #2: Align the organization to the strategy – Principle #3: Make the strategy everyone’s everyday job – Principle #4: Make the strategy a continual process – Principle #5: Mobilize leadership for change The concepts of the BSC, as described in the five principles above, nest well with this paper’s acculturation model. These concepts provide a concrete approach to managing the complexities of the M&A process and likely raise the chances of post-merger success. To further enhance success, DHA leaders must ensure that all components of the BSC align with the new culture, shared values, expectations, and accountability established by the steps performed prior to this stage in the acculturation model. SUMMARY/RECOMMENDATIONS As the NDAA acts as the catalyst and statutory guide for change across the MHS, the DHA and medical components of each service branch have a tremendous opportunity to integrate healthcare delivery and create true value for stakeholders. Even in light of the dismal record of private sector M&A success, federal sector healthcare leaders can learn from their civilian counterparts and increase the likelihood of a prosperous merger and acquisition. First, leaders must identify, develop, and manage an actionable and inspiring “why” statement to focus alignment toward a shared vision for the new organization. Next, HRM and diverse cultural due diligence teams should be leveraged to assist in articulating a consistent message of the shared vision by creating opportunities for middle and upper level leaders to message and support the burgeoning cultural integration. Finally, by utilizing a acculturation model guided by well-documented strategic outcomes, the new organization can develop the organizational culture, strategic processes, and outcome measures to ensure both cultural and operational integration. Without developing a strong cultural framework, the new organization will likely overestimate revenue gains and cost savings while underestimating human resource requirements and the potentially negative effects on human capital. Inspiring organizations start with “why” by first establish an enduring culture of alignment, accountability, and productivity which makes them unique in any industry. Simon Sinek summed up this concept by his words, “people don't buy ‘what’ you do, they buy ‘why’ you do it.” Acknowledgements This work is the product of the author with no outside acknowledgements to be presented. Funding There were no funding sources needed in the development of this document. References 1 Smith DJ, Bono RC, Kiyokawa GT, Place RP, Dinneen MP, Slinger BJ ( 2017). A Roadmap to an Integrated System of Readiness and Health: Strategic Logic of the National Defense Authorization Act for Fiscal Year 2017. A Roadmap to an Integrated System of Readiness and Health: Strategic Logic of the National Defense Authorization Act for Fiscal Year 2017, 1–11. Washington, Distric of Columbia, United States: DOD. 2 Congress, U. S. National defense authorization act for fiscal year 2017. ( 2017). Available at https://www.congress.gov/bill/114th-congress/senate-bill/2943/text; accessed August 1, 2018. 3 Healthcare, F. M. A. P.: Mergers and acquisitions: what has changed. Healthc Financial Manage  2011; 65( 1): 105. 4 Gill C: The role of leadership in successful international mergers and acquisitions: why Renault‐Nissan succeeded and DaimlerChrysler‐Mitsubishi failed. Hum Resour Manage  2012; 51( 3): 433– 56. Google Scholar CrossRef Search ADS   5 Haleblian J, Devers CE, McNamara G, Carpenter MA, Davison RB: Taking stock of what we know about mergers and acquisitions: a review and research agenda. J Manage  2009; 35( 3): 469– 502. 6 Marks ML, Mirvis PH: Merge ahead: a research agenda to increase merger and acquisition success. J Bus Psychol  2011; 26( 2): 161– 8. Google Scholar CrossRef Search ADS   7 Weber Y, Tarba SY: Mergers and acquisitions process: the use of corporate culture analysis. Cross Cult Manage Int J  2012; 19( 3): 288– 303. Google Scholar CrossRef Search ADS   8 Duvall-Dickson S: Blending tribes: leadership challenges in mergers and acquisitions. SAM Adv Manage J  2016; 81( 4): 16. 9 Schein EH: Organizational Culture and Leadership , Ed 2, San Francisco, Jossey-Bass, 1992. 10 Sinek S: Start with Why: How Great Leaders Inspire Everyone to Take Action . New York, Penguin, 2009. 11 Larsson R, Lubatkin M: Achieving acculturation in mergers and acquisitions: an international case survey. Hum Relat  2001; 54( 12): 1573– 1607. Google Scholar CrossRef Search ADS   12 Mercer Bing C, Wingrove C: Mergers and acquisitions: increasing the speed of change. Employment Relations Today  2012; 39( 3): 43– 50. Google Scholar CrossRef Search ADS   13 Valentino CL, Brunelle FW: The role of middle managers in the transmission and integration of organizational culture. J Healthc Manage  2004; 49( 6): 393. Google Scholar CrossRef Search ADS   14 Kaplan RS, Norton DP: Transforming the balanced scorecard from performance measurement to strategic management: Part I. Account Horiz  2001; 15( 1): 87– 104. Google Scholar CrossRef Search ADS   15 Kaplan RS, Norton DP: Transforming the balanced scorecard from performance measurement to strategic management: part II. Account Horiz  2001; 15( 2): 147– 60. Google Scholar CrossRef Search ADS   Author notes The views expressed are solely those of the authors and do not reflect the official policy or position of the U.S. Army, U.S. Navy, U.S. Air Force, the Department of Defense, or the U.S. Government. Published by Oxford University Press on behalf of the Association of Military Surgeons of the United States 2018. This work is written by (a) US Government employee(s) and is in the public domain in the US. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Military Medicine Oxford University Press

What the Military Health System Can Learn from Private Sector Mergers and Acquisitions

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Association of Military Surgeons of the United States
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Published by Oxford University Press on behalf of the Association of Military Surgeons of the United States 2018.
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Abstract

BACKGROUND The National Defense Authorization Act (NDAA) for Fiscal Years 2017 and 2018 likely represent the largest healthcare management consolidation in recent history.1 This consolidation effectively merges the operations of three distinct services (Army, Air Force, and Navy) with over 9.4 million geographically dispersed beneficiaries under the management of the Defense Health Agency (DHA) to create the 7th largest healthcare delivery system in America. As directed by the NDAA, the medical departments of the three services will retain responsibility for recruiting, training, and equipping their respective military medical forces while the DHA will assume responsibility for managing overall healthcare delivery across the Military Health System (MHS).1,2 This realignment of control of healthcare delivery poses many challenges across the MHS. In this paper, challenges, pitfalls, and failures experienced during private-sector mergers and acquisitions will be used to shed light on areas in which the MHS can focus current and future efforts to maximize the likelihood of successfully aligning healthcare delivery. For clarity, the terms merger and acquisition will be used synonymously in this paper. In actuality, mergers and acquisitions (M&A) represent very different concepts with vastly different structures and implications for the involved organizations. Simply defined, a merger is the joining of two independent companies to create a new entity. In contrast, an acquisitions occurs when one company purchases another and assumes responsibility for managing the assumed organization.3 In the context of the MHS, the NDAA has created a unique situation in which the DHA will acquire, as of October 1, 2018, the responsibility for managing the healthcare delivery across the service branches. This is one of the largest and most diverse examples of M&A in the healthcare industry and this diversity brings the task of aligning efforts, to maximize potential synergies across the MHS. The purpose of this paper is to provide a review of the available literature relating M&A, specifically assessing cultural management and leadership’s role in the pre- and post-merger environments. The attempt will be to explain reasons for the high rate of private sector M&A failures, the impact of M&A on human capital, and the role of middle managers in the success of M&A to focus attention throughout the MHS. Key points will be further clarified through the use of the Nissan–Renault M&A case study. This topic is novel in that the author is unaware of prior research comparing private sector and federal/military M&A, especially in the healthcare industry. This topic is also important as the implementation of the NDAA will lead to strategic, fiscal, and culture changes across the MHS with an impact on the readiness of the nation’s fighting forces. FACTORS AND RAMIFICATIONS OF M&A FAILURES Private sector M&A fail at alarming rates and often with a dramatic loss of value to stakeholders. Several key factors have been identified as explanations for the dismal record of M&A success. The factors to be discussed in this paper include: (1) What is organizational culture and why is it important during the M&A process? (2) Why is it important for leaders to acknowledge and facilitate early cultural integration through the pre- and post-merger environments of each organization? (3) What is the role and importance of human resource management (HRM) and middle managers in communicating change in the M&A process along with the new organization’s shared vision? And, (4) How can leaders leverage a comprehensive acculturation model to guide their organization through the M&A process and toward achieving value creation? Corporate growth strategies commonly rely on M&A to develop value-based synergies despite data showing that as many as 83% will fail to achieve their proposed value for stakeholders4,5 and in fact, as many as 53% of M&As lose value.6 M&As have also been shown to have an alarmingly negative effect on talent management and human capital. In many cases, the acquired firm’s personnel experience elevated stress associated with M&A, causing as many as 70% of executives to leave the acquired organization within 5 yr post-M&A. This turnover of personnel results in a costly loss of human capital7 as well as a loss of priceless institutional knowledge.5 Despite these significant negative impacts, corporate strategists continue to advocate for M&As, citing the potential for enhanced growth, increased efficiency, elimination of redundancy, and increased profitability.8 WHY IS ORGANIZATIONAL CULTURE IMPORTANT TO THE SUCCESS OR FAILURE OF M&A? Organizational culture significantly influences M&A outcomes8 and is described as a pattern of shared assumptions a group learns as it solves problems of external adaptation and internal integration.9 These shared assumptions are verified and then taught to new members as the correct way to think, perceive, and behave in relation to future problems. Culture has also been described as a system of beliefs, values and assumptions shared by an organization’s members allowing the organization to adjust and filter perceptions of the environment.8 This system provides necessary continuity and stability in the face of stressful and traumatic perceptions of change. By their very nature, M&A are traumatic events that often reduce trust, satisfaction, and productivity among the members of the involved organizations.7 Simon,10 in his book, Start with Why: How Great Leaders Inspire Everyone to Take Action, notes that trust is earned by leaders clearly and transparently communicating and demonstrating the organization’s shared values and beliefs. Conflicts arise when corporate planning focuses too heavily on financial and strategic factors of M&A with less emphasis on cultural issues. This pattern can lead to overestimations of revenue gains and cost savings while underestimating human resource requirements and their potential effects on human capital. Sinek10 recommends that leaders first develop a strong “why” statement for their organization. This statement is the shared vision which creates a foundation to align actions toward the organization’s main objectives. Sinek notes that, organizations become great because the people inside the organization feel protected and accountable. When leaders establish a meaningful shared vision, they are taking the first and most important step toward establishing an enduring organizational culture. This statement builds the foundation by which cultural due diligence can be conducted by providing all employees with a belief statement through which all the organization’s actions and decisions can be filtered for continuity. Cultural due diligence, as discussed later in this paper, is an important component during the pre-merger phase of M&As where cultural integration continues to be more important than even strategic initiatives.7,11 It has been shown that executive analysis of cultural differences between organizations is commonly neglected in the pre-merger phase with two common misconceptions persisting.7 The first misconception assumes that cultural integration will occur naturally as the structural components of the M&A process evolve. This misconception is detrimental because it develops a passive mindset regarding cultural integration between the involved organizations. Cultural differences must be analyzed deliberately in the pre-merger phase and actively managed by leaders throughout the acquisition process. The second misconception is the belief that the new leadership team can immediately establish a strong culture across the new organization.8 These misconceptions and the resulting miscommunications leave many employees frustrated and fearful, especially if they fear for the loss of their jobs.6,8 It has been shown that the new organization’s culture may take up to 3 yr to fully mature and stabilize allowing this misconception to persist for considerable lengths of time causing significant delays to cultural integration and harm to the M&A process.12 Effective leadership, from the strategic level down through middle management, is critical to the success of any M&A. Middle managers are frequently tasked with making sense of, and communicating their organization’s culture and strategy during the M&A process.13 DHA’s approaching acquisition adds to the hierarchical culture of the military medicine making it increasingly difficult to determine which positions constitute middle management (e.g., clinical or departmental leadership versus medical treatment facility (MTF) command teams). Key middle managers in each organization must be quickly identified as vital conduits for information from the top levels of the organization down through the MTF while simultaneously from the clinical level of each MTF up toward higher levels of command and control. Without this continuity of messaging, personnel frustration and fear will persist and potentially hinder the M&A process.13 DEVELOPING AN ACCULTURATION MODEL TO GUIDE ORGANIZATIONS The MHS acculturation model (Fig. 1) is developed based on the conceptual framework of the Donabedian model with its “structure, process, outcome” categories. This proposed acculturation model adds the category of “cultural due diligence” as the precursor to categories of “organizational structure,” “strategic process alignment,” and “strategic outcome measurement.” Together, these four categories span the pre- and post-merger periods, providing all leaders with the requisite tools and perspectives necessary to effectively facilitate change management during the complex M&A process. FIGURE 1. View largeDownload slide MHS acculturation model. FIGURE 1. View largeDownload slide MHS acculturation model. CULTURAL DUE DILIGENCE Cultural due diligence is the active and deliberate review, analysis, and integration of values and beliefs across the involved organizations. Ideally, this process should take place during the pre-merger phase and guide the organization in the development of a new set of shared values and beliefs (culture). This process has been proven to be more important to the success of post-M&A efficiencies and value-generation than even the development of financial, operational, and strategic processes. Successful acquirers have been shown to be 40% more likely to perform cultural due diligence as compared with unsuccessful acquirers.6 The desired outcome of cultural due diligence is the development of a synergistic, joint culture whereby organizational beliefs, assumptions, and values of the previously independent organizations are cohesively merged.11 To achieve a successful transition, the DHA must first develop a strong “why” statement based on a clear, shared vision of the future of the MHS. Next, the DHA should strategically analyze the cultural environment of each service to better understand specific needs while evaluating how current processes can synergistically merge with the DHA’s vision of the future. Finally, DHA leaders must establish a clear and consistent message regarding expectations and accountability for the M&A process and cultural integration. A successful M&A must emphasize financial processes and metrics while paying careful attention to cultural factors which may complicate or derail the expected value-generation of the acquisition.6 ORGANIZATIONAL STRUCTURE An analysis of the link between organizational culture, structure, and performance should ideally begin with sound HRM. HRM facilitates the development and maintenance of organizational culture through alignment of practices and processes critical to meeting business strategies while managing valuable human capital.4 As further described by Gill,4 an example of HRM’s role in developing a robust organizational culture is seen in the case of Nissan–Renault. In spite of the belief by some executives and analysts that Nissan–Renault’s problems were financially derived, Chief Executive Officer, Carlos Ghosn proposed that the most fundamental issues were actually culturally based. Through sound HRM strategies, Mr. Ghosn focused on the implementation of permanent and temporary cross-company teams (CCTs) and cross-functional teams (CFTs). Like Nissan–Renault, the DHA can use similar teams to rapidly identify and address any lack of accountability or lingering organizational silos. Team selection should be based on both vertical and horizontal representation to create a powerful environment, which allows middle managers to see beyond their functional or regional boundaries and focused on total organizational integration. In the traditional M&A model, most members of CCT/CFTs come from financial, analytical, or strategic backgrounds. In order to maximize diversity and leverage skills, CCT/CFTs benefit from augmentation by technical, clinical, operational, and HR personnel. Diverse teams staffed through robust HRM strategies can combat crippling decision traps such as biases, escalating commitments and cognitive overload.6 By constructing diverse CCT/CFTs, managers will be empowered to lead critical aspects of change while increasing strategic process alignment which defuses “Merger Syndrome” before it negatively impacts the organization. STRATEGIC PROCESS ALIGNMENT As mentioned above, Merger Syndrome results from the natural uncertainty which accompanies M&A-related organizational change. This change ultimately affects the dynamics of cultural integration such as interpersonal relationships, perceptions of the M&A, and most importantly, employee stress.6 Leadership can mitigate Merger Syndrome by establishing a system of “merger previews.” These previews provide transparent communications relating to the M&A process aimed at decreasing stress throughout all levels of the organization by providing important details and expectation management. By utilizing a system of timely, transparent merger previews, DHA and service leaders can effectively shorten the post-merger rebound period, combat costly “talent drain,” and improve performance. These previews can be in the form of email messages, town hall events, consistent messaging through pre-existing staff meetings, and training seminars aimed at middle managers and other key leaders. The previews should also contain information valuable to all personnel across the organization, such as, employment and staffing decisions, cultural expectations and accountability, and other strategic decisions aimed at aligning actions and behaviors. While cultural integration is not immediately obtained and may require up to 3 yr to fully develop and stabilize,12 by identifying cultural factors and empowering middle managers to work toward full cultural integration, an organization is more likely to achieve alignment of strategic processes leading to efficiencies which cannot be achieved by development of strategic processes along. This alignment must also be supported by active, frequent, and consistent messaging of the shared vision and cultural expectations across the organization. By developing accountability for upholding shared values and guiding principles, active leadership strategies can further mitigate mistrust, alleviate anxiety related to organizational change or job security, and decrease the loss of human capital.10 STRATEGIC OUTCOME MEASURES As with any change management process, development of outcome measures and metrics is vital to overall success. One such tool for measuring performance and strategic management is the Balanced Scorecard (BSC). The BSC emphasizes the link between measurement and strategy giving managers tools which allow them to shift from simply managing tangible assets to focusing on knowledge-based strategies and ultimately creating value for their organization.14 It is plausible that this fourth category in the MHS acculturation model (Fig. 1) represents one of the most important factors which, if overlooked, can lead to a loss of the value creation initially sought by the M&A process. Kaplan and Norton15 list such things as innovative products and services, high-quality and agile operating processes, and strategic maintenance and development of human capital as just a few of the critical ways organizations can create value during the M&A process. Embedded in the Balanced Scorecard concept are five principles of a strategy-focused organization. – Principle #1: Translate the strategy into operational terms – Principle #2: Align the organization to the strategy – Principle #3: Make the strategy everyone’s everyday job – Principle #4: Make the strategy a continual process – Principle #5: Mobilize leadership for change The concepts of the BSC, as described in the five principles above, nest well with this paper’s acculturation model. These concepts provide a concrete approach to managing the complexities of the M&A process and likely raise the chances of post-merger success. To further enhance success, DHA leaders must ensure that all components of the BSC align with the new culture, shared values, expectations, and accountability established by the steps performed prior to this stage in the acculturation model. SUMMARY/RECOMMENDATIONS As the NDAA acts as the catalyst and statutory guide for change across the MHS, the DHA and medical components of each service branch have a tremendous opportunity to integrate healthcare delivery and create true value for stakeholders. Even in light of the dismal record of private sector M&A success, federal sector healthcare leaders can learn from their civilian counterparts and increase the likelihood of a prosperous merger and acquisition. First, leaders must identify, develop, and manage an actionable and inspiring “why” statement to focus alignment toward a shared vision for the new organization. Next, HRM and diverse cultural due diligence teams should be leveraged to assist in articulating a consistent message of the shared vision by creating opportunities for middle and upper level leaders to message and support the burgeoning cultural integration. Finally, by utilizing a acculturation model guided by well-documented strategic outcomes, the new organization can develop the organizational culture, strategic processes, and outcome measures to ensure both cultural and operational integration. Without developing a strong cultural framework, the new organization will likely overestimate revenue gains and cost savings while underestimating human resource requirements and the potentially negative effects on human capital. Inspiring organizations start with “why” by first establish an enduring culture of alignment, accountability, and productivity which makes them unique in any industry. Simon Sinek summed up this concept by his words, “people don't buy ‘what’ you do, they buy ‘why’ you do it.” Acknowledgements This work is the product of the author with no outside acknowledgements to be presented. Funding There were no funding sources needed in the development of this document. 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Google Scholar CrossRef Search ADS   Author notes The views expressed are solely those of the authors and do not reflect the official policy or position of the U.S. Army, U.S. Navy, U.S. Air Force, the Department of Defense, or the U.S. Government. Published by Oxford University Press on behalf of the Association of Military Surgeons of the United States 2018. This work is written by (a) US Government employee(s) and is in the public domain in the US.

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Military MedicineOxford University Press

Published: May 8, 2018

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