#170 - Why Most Mergers Fail After the Deal Closes: David Fubini

Speaker A: Welcome to the Outthinkers podcast. Plug into fascinating minds and breakthrough ideas

Speaker B: that are transforming industries and the world.

Speaker A: I'm your host, Kion Krippendorf, founder of Outthinker, a global ecosystem comprised of strategy and transformation officers who are shaping the future of business. If this describes you, join us@, ah,

Speaker B: outthinker.com now let's dive into this week's

Speaker A: episode with David Fubini.

Speaker C: I know it sounds counterintuitive, uh, because everybody says, oh, just give me the playbook that you've done. You know, there is no playbook. I mean there are certainly basics that you know, like any cookbook. Yes, there's certain basics about how you cook, but how you combine the ingredients and how you actually do it yourself is incredibly bespoke and important to realize, ah, that there can be no playbook because even those who have acquired companies before don't have an institutional knowledge of how they actually did it. Unless they're really unique in that they are serial acquirers, that they have a process that they're applying. Those who just buy companies, you know, one or two at a time, those people who have done that work go off to do other jobs. That institutional knowledge doesn't exist within people. And some will say, yes, well, we have an M and A staff. Well, that M, M and A staff is probably does one deal and then moves on.

Speaker B: What if the deal itself was never the hard part and the real make or break moment happens in the messy months after the ink is dry? David Fubini spent more than 34 years at McKinsey Co. Where he was a senior partner and co founder of the firm's worldwide merger integration practice, leading dozens of the world's largest M and A transactions. Now he's a senior lecturer at Harvard Business School where he co leads the mergers and acquisitions program. He's the author of Post Merger Integration Building the Mindset, Skills and Discipline Needed for Deal Success along with his earlier book, Hidden Truths what Leaders need to Hear but Are Rarely told. In this conversation, we dig into why so many companies treat the integration management office as an afterthought instead of the actual engine of the deal. Why the most capable executives, the ones everyone says are too important to spare, are exactly who should be running it and why. David deliberately resists giving leaders a playbook, arguing that real integration success comes from a mindset, not a checklist. We also get into the strange granular decisions that quietly make or break a merger. From seniority pins to training centers to call signs, and why decision Velocity matters more than perfect information when two companies are coming together. If you're navigating a merger, leading a transformation, or just trying to understand why so many deals fail to deliver the value they promise, this conversation will change how you think about what actually happens

Speaker A: after the deal closes. David, thank you so much for being here with us. Where are you joining us from today?

Speaker C: I'm joining from Brookline, Massachusetts.

Speaker A: Ah, great. And do you live in Boston?

Speaker C: Well, I live in Brookline, so you're calling me in my home office? Yes.

Speaker A: Okay.

Speaker C: All right. Excellent. It's alumni day at Harvard and it's near to impossible to get parking. I see.

Speaker A: I got. Just escaping the traffic. Great. I have so much that I'd like to cover with you. We probably won't get through all of it, so I'll just jump in. But I want to start with the same two questions I always ask my guests. The first, that may have nothing to do with your work. Just to get us to know you a little bit personally, could you complete this sentence for me? If you really know me, you know

Speaker C: that, uh, you would know that I have four incredible children and a wife who's far smarter than I am. She has two masters, one in traditional MBA and then another in divinity studies, which means that. Which defines sort of our household. We're both, uh, you know, business oriented folks, but yet have a very religious underpinning to much about who we are and what we do. So that would. You certainly would find that about us.

Speaker A: And how old are your children?

Speaker C: Our oldest is 35 and our youngest is 24.

Speaker A: Okay.

Speaker C: Yeah. We have three boys and a daughter who's about to be married in two weeks time.

Speaker A: Congratulations.

Speaker C: And so I just tell you it's really great because there's just no stress in the house at all about this.

Speaker A: You know, the only daughter. The only daughter getting married.

Speaker B: Wow.

Speaker C: I was thrilled to be able to do this with you because it takes me away from the stress of the what's going on outside these doors.

Speaker A: Okay, well, we will. We'll make sure that we give you space to talk about other things that are less stressful just post merger integration. Second question. What's your definition of strategy?

Speaker C: It's fundamentally choosing and making the trade offs that are required for those choices. Uh, where to compete and how to compete. And the how is often ignored. And the where is way gets way too much attention.

Speaker A: I got you. I can see how that, how that's going to integrate in with your work. So as I was reading your book, what I came to Realize is it is about post merger integration. But I kind of see it. Tell me how off I am. It's almost like a use case for transformation, like a special type of transformation. So we can apply this even. Not post merger.

Speaker C: Oh, absolutely. Because uh, most transformations have a big, huge project management component to them. They're multifaceted, they have contextual challenges and they actually take a fair bit of time and they require lots of part time work from full time employee people. All of which are similar to a post merger situation. You're right by saying one's a subset of the other.

Speaker A: Okay. And what's unique about the situation of a post merger? What makes.

Speaker C: Well here the unique part is you're generally dealing with something that you would previously have not owned and not worked with. So it's a whole different entity that you're having to now work with as opposed to a transformation which is uh, you're trying to transform something that's frankly within the family.

Speaker A: Yes.

Speaker C: So radically different in that context.

Speaker A: Yeah. And I guess the time pressure and sort of a lot of people looking at clear results that.

Speaker C: Yeah. And you know, and similar challenge in that you're trying to keep the base business whole while you're doing this as well, but much more challenging because you're often dealing with disparate parts of operations which are, you know, have never worked together before. So it, it really is the difference between I guess, you know, a marriage, uh, of two different things versus basically trying to change a group of people who were already a team.

Speaker A: Yes, got it. So you mentioned that it has a big project management element. Right. So. So talk us a little bit about that. The Integration Management Office, the imo. What do companies get wrong when they think about the imo? You know, is it the same thing as a pmo?

Speaker C: Yeah, they have the same title, but in the context of a merger they're quite different because one, the first thing they get wrong is that the integration office has to be on top of a integration operation that is separate and distinct from running the base business. And many people commingle them. And that's the first place of error. When you commingle, what happens is that you have, you know, I've had clients literally say to me, listen, we'll just tack this onto the, our uh, bi weekly, sorry bi monthly executive committee meetings. We'll take the last 20 minutes and we'll talk about the integration. That's just a disaster because you have a lot of people who don't have anything to do with the integration pining on it. Two, you don't have enough time. And three, you're the CEO is getting way too involved too soon because you need somebody actually doing a lot of work before you actually get into having to make clear decisions. The second is the imo. The very selection of it is indicative of what you are doing with the, with the transaction. If you put the person, if, uh, you choose an IMO leader who is a retiring executive who everybody knows is, you know, this is his last assignment or last assignment, you're basically saying this is a nothing. You know, if you choose the most, you know, the future leader of the company to run the integration, it signals the incredible importance of the actual effort. So that's, it's an enormous signaling value and also really important that you have chosen the best talent. Then the question is, are you running these as a co led IMO or is this a single led? And that also signals are you actually really merging this or is this basically, you know, we said it's going to be merging, but frankly we're taking you over and you signal that by having a single leader. So without even getting underway, just the sheer establishment signals, lots of things. And the final major issue I'd say about the IMO is that once it's formed, and I've said this often to IMO leaders, is that the thing you have to go back and tell the CEO is that everybody who would then try to and run them, they will all the integration operate, all the BU people, all the functional people will say, yeah, I'll go talk to the CEO about that, you know, because my thing is slightly different. So I'm going to end run the IMO and go talk to them. The IMO leader has to say to the CEO, you turn them back to me and if you don't, that IMO will become really powerless. And that's something else they get wrong. So those are a few of the things that are different things.

Speaker A: Yeah, I liked your point. You talk about the leadership imo, you know, the signaling of who you pick, but also this idea. I loved your set phrase. I was something like that. They often staff it based on availability rather than capability.

Speaker C: Absolutely. And I often again, when I m have the opportunity to do this, uh, I would say look at, I really want the person that you will tell me. Absolutely. The moment I mentioned their name, you'll say not available, can't, could possibly operate the core business. And you say, that's the person I want. And very often that is not the person that is put into these jobs.

Speaker A: And why is it important to have that very capable person?

Speaker C: Well, one, one, they're capable.

Speaker A: Yes.

Speaker C: Two, they actually care about the future of the company because they're there. They have a future. Right. Um, and third, they're signaling to the rest of the company. This is really important. Look who they put in charge of this thing.

Speaker A: Gotcha. Yeah. And it's a good development opportunity for them as well.

Speaker C: Oh, and enormous. It is. It is a gift.

Speaker A: Yes. Yep. So I'm going to jump back just a little bit because when you talked about, you know, signaling, is this a merger or is this a, a takeover? I thought your case of US Air versus American Airlines was interesting. Because if in my reading of it is almost kind of like that, it could be sort of a counterpoint to that. Could you talk to us a little bit that.

Speaker C: Well, first of all, you have to remember that this started as a very hostile deal. Okay. American Airlines is in bankruptcy. US Airways figures out a way to sort of end run the bankruptcy process, cuts a deal with the unions, and the bankruptcy court literally has to say to them, well, you've already agreed with the unions, you know, you win. And Americans furious, because they, they felt like they should be able to come out of bankruptcy, as many airlines did. I mean, frankly, every airline went bankrupt, every major airline that they would come out and as their own restructured company. So this stops, starts with a very hostile environment. Second, remember, US Airways is located in Phoenix, and of course, American, as we all probably know, is in headquarters in Dallas. And so what traditionally happens in these contexts is that the winner is the, is where the headquarters goes. So everybody in Dallas is panicked that they're now going to have to move to Phoenix, which is where US Airways is headquartered. And on top of that, US Airways is a third, uh, to 40% smaller than American. And they hate the fact that they're being taken over by a smaller airline. So it's as messy as can be. So the first act of the integration operation was to say, one, we have to settle this and say we truly are going to act. Not that we are. We have to get rid of the hostilities or act because we're going to be like a merger, and we are going to truly be a merger. And we're going to look to see what of the two pieces of the airline we can put together. We'll start by announcing that, you know, and the CEO said, literally in the first two days, I'm moving to Dallas. I'm going to Dallas. Uh, you know, actually, you know, quite remarkable. Parker stands up and says, not, uh, only M, are we going to Dallas. Here's the neighborhood. I bought my house and here's where my kids are going to go to school. And they could do this at that time, probably wouldn't do it now. And by the way, here's my church. And the whole Dallas group settles down quite comfortably. And then it becomes clear that his senior team is going to move with him. And suddenly now, okay, so at least the big issue about, you know, the geographic one is put to bed. And then any signals look at this is going to be a merger of equals. And everything we did was around trying to say this would be, uh, at least a merger. We could say equals because they weren't equals. But certainly a merger context. So that's part of the signaling values also that took place there.

Speaker A: Talk about like in this first, I don't know, days or the beginning. Right. You talk about how if you don't create the narrative, which we've got to kind of hear you saying we're going to present the narrative, in the absence of that, people are going to make up their own stories. So what are the components that we need to think about having in place? And you also point out it can't be detailed org charts on day one.

Speaker C: Right.

Speaker A: Talk to us about how do you think about what the messaging is?

Speaker C: Well, first of all, the key thing, and this is always frustrated my, my consulting colleagues when I go and meet a new CEO or do two CEOs for the first time and say, tell me the real reason you're doing the deal. And they said, well, geez, didn't you read the press release? I said, of course I read the press release. I'm talking, I don't, I'm not talking about that. Tell me the real reason you've done this transaction. I know much of that cannot be said publicly, but there's always an underlying reason that somebody's done the transaction. And that's the essence that you have to start with. Just since we're talking about American Airlines and US Airways, there were several underlying things going on here. One, there was a belief that scale would win the day, and indeed that we've seen that. Second is that Parker and his team thought they were better operators. They fundamentally thought that the American Airlines was, uh, a poorly at that time operated, largely done, uh, on the belief that business flyers would be appreciative of their flexibility, even though it blew the schedule constantly. And the third, and probably not said publicly, is that Parker came from American Airlines. You know, he very much he was. He was spawned there. He wanted to go back and own this airline and tried to buy it several times. That is the real reason the deal happens. It's hard to say that in a press release. It actually comes out over time. And so what you have to do is start there, because everything in the integration has to be in service of that narrative. And that's the first thing you do when you sit down and you really talk about this with the integration leaders and the CEOs, and.

Speaker A: Simple. Yeah, in simple language. And, um, I might be getting the terminology wrong here, but it's just making me think of your. This term integration architecture, which you talk about. And, um, what I get away from your work is sort of is you seem to really, like, look at it as a system. It's not. I was really happy to hear. It's not a. Here's a playbook of the seven steps you do this first and that first. So talks a little bit about how you set the context or.

Speaker C: Yeah, I think that this notion of a playbook, I know it sounds counterintuitive because everybody says, oh, just give me the playbook that you've done. You know, there is no playbook. I mean, there are certainly basics that, you know, like any cookbook. Yes, there's certain basics about how you cook, but how you combine the ingredients and how you actually do it yourself is incredibly bespoke and important to realize that there is. Can be no playbook. Because even those who have acquired companies before don't have an institutional knowledge of how they actually did it. Unless they're really unique in that they are serial acquirers, that they have a process that they're applying. Those who just buy companies, you know, one or two at a time, those people who've done that work go off to do other jobs. That institutional knowledge doesn't exist within people. And some will say, yes, well, we have an, uh, M and A staff. Well, that M and A staff is. Probably does one deal and then moves on. So the issue is that there's no institutional knowledge. That's the first thing. And the second is that even if somebody has. If I. If you've done a massive integration of, you know, uh, of take an airline, the American Airlines and US Airways, and you've done that. And I said, oh, we're going to do another airline. I'd like you to lead the next one. You're going to say, hell, no. I mean, you know, I mean, no, I want to go on with my career. So there's very little institutional Knowledge that exists. The second thing is the reason third is that they're bespoke, because every, every organization is different. Every deal is different. The context is different, the skill set of the people is different. So therefore there's no real playbook here that could be really used. There are principles that can be applied, but no playbook. And that's why I talked about this integration mindset. And we've already talked, uh, about two of the important things. One is you have to basically separate the two, Integration for running the base business. And two, the choice of your integration and how you actually do it has to be based on why you did the deal. And everything flows from that.

Speaker A: Talk to me a little bit about the first point. You know, it reminds me we've had a few, you know, Clayton Christensen collaborators on the podcast about this kind of dual operating system and the, uh, ambidextrous organization. But in the merger context, I think what's interesting is sort of on the innovation context is sort of, you know, you have your horizon one, and then you have your horizon two. But here you talk about that, there's real urgency to make sure that you keep the ship, the core ship running.

Speaker C: Yeah, I mean, well, the first thing that can undo a deal is losing the base business because you basically are running two companies at the same time while you're studying how to put them together. And again, there will. There are some constraints on what you can and cannot do during that time period, obviously, as you wait for regulatory approval. But what happens is so many people get so excited about the new deal that they forget about running the businesses. And there's some examples in the book about people get some who get in real trouble while they're so focused on the deal, the new deal, they lose sight of the base business and the base business wanes. The second thing is, please remember competitors are looking at this and saying, hey, you're going through a major transaction. What a wonderful time to come attack you. You know, and I assure you I've been hired by, uh, by banks in one case, you know, who says, hey, I see these two banks in this major city are actually merging. I see an opportunity to come in now and steal market share away from them because they're going to be so wrapped up in the merger and that. So people are actually, you know, working against you. And by the way, that also happens, uh, all the time on the talent side. Every search firm is saying, hey, look at. Do you know, you do really want to move from Phoenix to Dallas. Oh, you don't well, maybe I've got something for you, you know, so you're with talent as well. So you know all that's going on while you're trying to do this. So it's not an easy act.

Speaker A: I think that like, maybe to bring it to life. You, uh, you mentioned the HP Compaq merger as an example of that. Maybe could illustrate your point a little bit with that example.

Speaker C: Yes, it's a little bit of going back in history here, but people may remember that HP buys Compaq and it sort of made sense if you think about. Compaq was terrific. Uh, at PCs, HP had the, uh, printer market pretty much sewn up. Middle market stuff was really confusing. So it was like, oh, we have a three part deal here. You know, Compaq will take over all the PC business from hp. HP will take over the printer business from Compaq, and we'll worry about the messy middle. And that's sort of how we got started. The problem is that the, the family that makes up the Hewitts and the Packard got into a bit of a tussle over, over the, the structure of the go forward company. At the time, the CEO was Carly Fiorina. She was having trouble keeping the whole focus on the, on running the business and doing the integration. Also the Gulf War, as I remember, was at work. So you had some huge external, uh, challenges. And so what happens is that framework I just gave you stops working. And at the time, so many people were involved in the actual transaction that they forgot and they lost. I think at the end the calculation was about. I'm, um, not so sure this was accurate, but it was at least quoted in a research paper that we use $2 billion of market cap during that time frame. So that's a challenge. I mean, the other is I was helping at one time. Rio Tinto bought Alcant. In the middle of that transaction, BHP decides to take a, hey, look at, let's take a run at BHP at, uh, Rio Tinto. So, so lots of things can happen in this timeframe. And so it's a very vulnerable time for companies.

Speaker A: Got it, got it. So we have kind of this bifurcation of like the core and the new, the existing and the merged and, and I can see that they different, different rhythms. But one thing you talk about is just decision velocity and that, and she talks a little bit about that. And what do companies who aren't able to create the decision velocity that is needed, what do they do wrong?

Speaker C: Yeah, uh, so I talk in the book about having 70% confidence on taking action. Because when you separate the two businesses, you run the base business as you always have, and that's probably with 90% confidence level at least. Most organizations work at that level. But on the other side of the house, where you're doing the integration, you're trading off time for data and you need to, you know, you may m. Move quickly because you have limited time to actually during this regulatory period after announcement, before you legally own the asset, to actually get planning done. So you have limited time and you really want to just get, well, at least some level of confidence, but not perfect confidence. You don't have the time and effort to do it. It just takes too much time. So you have to get into a mode of this is. This makes sense, it's implementable, and we're going to move on, and then we'll use continuous improvement to change it over time. And that is the mindset. And it's hard sometimes for operational management to put that aside and operate with that mindset in the integration.

Speaker A: I was wondering why you picked 70%. Where I was going was, you know, at McKinsey, how they teach us the 80% solutions kind of ingrained into us. And so is 70%, you're saying, even,

Speaker C: uh, a little bit less than that? Yes, of course, AI has not changed some of that 80%, but that's okay. We'll come back to that later day.

Speaker A: Oh, really? Okay. No, we'll have to. We'll have to click on that.

Speaker C: Yeah.

Speaker A: Great. And you talk about sequential decisions, interdependent decisions, and making those in time pressure. Just give in mind making. Explaining that. Yeah.

Speaker C: So sequential ones are. If I'm in charge of the HR function or the public relations function, I have to worry about my function. And, uh, clearly I'm working with you. We have duplicate functions. We have to figure out, you know, who does what, who does it better than the other. We'll figure out how to actually blend the two together. And at some point, somebody will make a decision about whether or not you or I are going to be the ones that continue in this role, which is why it's challenging. But that's just. That's just one thing. The question is if I. There are. Much of. Most of the decisions are integrative in the sense that they impact other parts of the business. And so you have to think about how you can actually flow those through and any big change that you make, how that flows through the rest of the decision process. That's underway. Again, since we've talked about the Airline. I'll just go back to that. You know, Pittsburgh was the home of a major training center from US Airways. It goes back to when it was Allegheny Airlines 100 years ago. It's been a, it's been in Pittsburgh every, all the pilots go there for their training and it's antiquated. And American has a far better one. So Bitcoin. So it sounds like it's easy. Just, let's just get rid of the Pittsburgh one, you know, and then. But if you do that suddenly. Now the problem is that the Dallas one doesn't have enough capacity. So. And also, you know, the plane types are different between the two airlines, so we don't have the right simulators. And so if we don't have the right simulators, then we're going to. We won't have as many pilots as we need. So now we have a pilot issue. And so therefore we can't actually have to think about actually the root structure in light of the fact that we have a pilot issue. And before you know it, you can see how just the cascades right along what seems like a simple decision turns out to be highly complicated. And that's the integrative type of thing we're talking about. And I've chosen a very specific operational thing just to say that's the level that you deal at. I mean, really very micro.

Speaker A: Yeah, yeah, I got it. Which then goes to your point, which you've returned to over and over again about, about governance structure. And that that sort of jumped out at me. I hadn't thought about that. I mean, obviously I don't think about this as much as you do, but in the little bit that I've read. So just talk to us a little bit about it seems to me you're saying that designing governance structure is something that often is not given enough thought. And why is that? And what should we be thinking about?

Speaker C: Well, it starts actually in the due diligence process, uh, where often, certainly any deal of any note has a big financial due diligence component to it. The bankers and auditors and others take a look at and make sure that to the degree they can, through the data rooms, what the financial perspective is going to be terrific table stakes. For me, what they need to do is also do due diligence on the operations and the governance structure and how the different companies run and work together. And that often is not done well. And so therefore, when you start to think about how you're going to put together a governance structure, you're surprised. Like, oh, My God, you think do things so differently than we do. And an example would be PNG Gillette. By any stretch of imagination, they feel as similar in what they do. Both big packaged goods companies, you know, one more male oriented, one more female oriented. But the scent, um, the fact is that they're pretty similar. They hire from the same types of schools, they run brand management organizations. However, when you get behind the scenes, PG operates entirely differently than Gillette does. You know, PG is far more disciplined. Gillette was much more looser. And so you think about a governance structure, you have to relate. You have to say, well, which governance structure are we going to emulate? And it'd be really good if you had known that at the beginning, before you even struck down the deal, because you could have even negotiated some decisions about who you're going to keep. And in sort of the focal point, uh, even during the decision process of doing the deal, most don't do that. But that's the level of type of stuff I'm saying you get into. And you have to really think about in the context of the governance structure.

Speaker A: So you laid out like two very different cultures and the governance structure is kind of choosing one. But what's your view on culture? What is culture? Uh, is it values or what?

Speaker C: Well, culture is how things get done in the context of what I'm trying to say. It is not the science that's on the, you know, on the walls. It's not some of that's important, but it's really how things actually fit. You know, really people operate and how they get things done. And one of the things that is certainly true, and this is no big, big surprise, every consulting firm will do a study of, you know, failures of transactions and they'll say culture is the number one failure model. Okay, because it captures so many ills. But the problem with culture is that it tends. People tend to sort of say, well, since I can't really measure it easily, I'll just assume it's going to come along as we do the rest of this other integration. And that's a failure mode. You have to actually explicitly say, no, we have to agree what type of culture we're trying to drive towards. Again, let me drive. Go back to the US Airways American Airlines case. Parker said, look, we're going to leave on time. We are being, we are going to. That's our operational mode. We are leaving on time. That means everything is structured around that culture of time focus. So American Airlines, which said, well, wait a moment, that we think we're business oriented airline, we're going to hold the plane and therefore pilots have the ability to hold the plane for a certain length of time. No, that's, that's eliminated because that's a culture that we're trying to instill that we don't continue. When you do that, America gets very upset. So you have to think about how you're going to play through that changing culture in a very fundamental way. You just can't dictate it, you know, and so that, that's just one example of uh, thousands that make up a culture. And so culture tends to be underinvested in and at times actually sometimes you know that you're really in trouble if you start an integration. Somebody says, don't worry, we have a culture team that, you know, you're really trouble because that's, that's.

Speaker A: Yeah, that's not part of the imo.

Speaker C: Oh yeah, but that would say, oh, we have a culture team. And they're going to worry about, you know, and we're going to run ropes courses and we're going to run, you know, you know, lots of training programs and get everybody aligned. Never works. Every integration team has to worry about assimilating the culture that you're looking for in the combined company. And that is part of the governance question you asked me earlier. That's got to be decided pretty early on.

Speaker A: Yeah. So we had Mike Tushman on also Harvard and you know, he has this famous congruence model. Task is for me is kind of what you're saying the way how work gets done. Then you have the formal structure and informal structure. What have you've been actually like practically in and you've seen what did your go to or uh, what do you think some of the go to levers are that a company should consider when they need to shift cultures quickly.

Speaker C: Well, uh, Mike's brilliant. I mean I've taught with him and he's really understands this. And in academics in a practical sense, you know, the things that really make a difference are one, how you as a leader role model, the behaviors you want to have happen. So I'm going to show you what I mean by doing, by acting the way I want you to act. Second. Yeah, there's no doubt about rewards and compensation systems drive change in uh, the culture. So that's the second thing that's really important. Third is how you, who you choose, the people you choose will actually help you define culture substantively. And so that's a third part of this as well. And fourth is Sort of how you actually make decisions. The whole process by which the decision process itself happens can also help define culture because if you are choosing to actually have a, uh, sort of a. Again, back to the P and G example. PG has a culture which is the one page memo. And they basically use a one page memo and they use it as a basis for having conversations about a decision. Most people would find that really very disturbing and not helpful. But for them it works. Gillette had an entirely different approach to how they're going to make decisions. We, I would say to you is in this case as lafleet or whoever was going to be in charge, um, of the. Say we have to decide how are we going to play this forward Here we have a whole. We have a third of the company is now Gillette who thinks that they should operate this way. Rest of the company thinks this way. We need to decide. And so that's part of the cultural change that we're talking about here.

Speaker A: And I guess the right culture, it could be the acquirer, it could be the acquiree, it could be a company nature be. So third could be a new. And I guess what I'm hearing is it that comes from the original case or the premise of the right.

Speaker C: It does.

Speaker A: Okay.

Speaker C: It almost always flows from that. And remember it's, you know, it's either sort of a takeover context or sort of a best of both type context or at least, you know, for the most part we're going to have this operational, you know, North Star that we're all driving towards and we'll figure out how to combine around that North Star.

Speaker A: Got it. Okay. Where I think I want to go is kind of on this. I don't know if you're going to have something to say here, but you've seen it. So I'm going to see like I bet something about people and teams and the beginning and then the middle and then the end of the thing. So all, uh, right, so one of our outthinker members, he may be a great case study for you. He's. He worked with your former firm as a consultant and now as he's head of strategy. And there was a big. His company was acquired and they had 12 months to run the integration. They got it done in three months and now he's not sure what he wants to do. And so uh, tell us about the types of people that are good at driving or designing the change. Are they the same as the people who can run the change and what's different about the type of work the type of people that you need for the different phases.

Speaker C: Yeah. So designing, so the whole integration process is largely a design effort. We have to remember is we can't actually execute any of the, any of the designs and plans we're making because we're post uh, the announcement of the deal but pre the legal close and regulatory approval. So you're designing something now, you're designing that with operational people who actually understand what is implementable. And that's where the 70% number comes in. And because it's 70%, you know. Right. But 100% implementable, it's got to be implementable. That's the other thing that's critical to that trade off. So that does not necessarily mean you're good at implementing it. So those who plan sometimes aren't great at implementing. And so it's a challenge. It's also why most of the imo, uh, leaders and people who work on it are not generally that senior. They can be, they can, the leader is generally quite senior but the people who work below it are the high potential people who primarily go back out and they repopulate into the now combined company and they act as you know, more learning and also getting apprentice so they themselves grow. You really are designing something for the newly named management that has to actually then implement it. And so therefore it sounds like an Adolphin can feel like, hey, I've designed it, I'm throwing it over the fence to you, the operator, you're going to catch it and run with it. There's some of that truth. There is some of that truth. So back to your friend. He, you know, he either uh, goes and does that another the next deal which as I say most don't want to do that or he goes back into the operation and says, okay, I'm now going to try and learn how to actually implement that which I plan for.

Speaker A: Yeah, I got it. And it seems like there's. When does the IMO end? Yeah, because you know, I would imagine that there's parts that continue on.

Speaker C: Well the IMO really does end generally about 3 months after you, you've closed the deal usually because it takes three months to sort of impart all the planning that's been done to the new management team that's been selected. You talk, you answer questions. They have to buy into it and own it. And for the most part you also want to start tracking both the revenue and costs and balance sheet synergies to make sure that they're underway so that management, when they go back and they assuming It's a public company and tell the analysts, hey, here's how we're doing on uh, all that money we spent for that new entity. They have a basis for judging, but it generally doesn't last much more than three to four months post to close. Because if it continues for a while now, you have frankly two books that are being managed. One is the operational book and the second is the uh, here's the integration plan book and you have two different accountings taking place. If I'm then head of the new BU of this particular division where I merged, I'm saying to my IMO guys and gals, thank you for all the work. I don't need you around anymore. I have to go implement with the plan. I don't need you looking over my shoulder and I frankly don't like reporting to you either. So IMO's tend to sort of sunset 3 to 4 months afterwards. I have been on some that have stayed on for years. They tend to fall into project based efforts. Not efforts.

Speaker A: Okay, yeah.

Speaker C: So, oh my God, we have a system change, you know, we got to do. So it takes time.

Speaker A: Yeah. And I imagine the culture component also takes even longer.

Speaker C: That longer and that. But the key on the culture is you want to embed that in the new align operating people that uh, they've got to own it and believe it.

Speaker A: Got it. And you mentioned synergies and you know, cost capture and things like that. So just talk to us a little bit about your views on synergies, chasing synergies and metrics.

Speaker C: Yeah, well, first and foremost, the most important thing about synergies I have to tell you is you start with the baseline because without a baseline it's against something to measure. You have no idea what you've achieved. And so, and it sounds simple and, but it's incredibly difficult and most people don't like doing it. Which is to say the first thing you have to do is tell me how many people do we employ and where are they employed and by the way, how much do they spend? So if I have done that now I can say, you know, um, on balance I'm looking for about a 20% reduction. Well, now I have a baseline against which to measure the 20%. It's really hard to do this whole process if you don't have that baseline. And this takes time. Um, we've had clients where I'd say, well, how many people do you employ? And they go, we really don't know. I said, well, you have payroll records. Oh yeah, we do. But you know, it's, you know, it's not always accurate. And so sometimes they say, well, how many HR people do you have? Well, I have halves and 2/3 people. How do I count them? So this baselining process is difficult. So what you have to have baseline two, you have to think that there really are three various types. We certainly cost are obvious, right? This combination of cost synergies. We all know that there's efficiencies that come from, you know, basically being able to take skills that one group had that the other one didn't and, um, port them over the cost. Synergies are always the easiest to identify. They are generally not the easiest to get because it costs money to get them. So what happens is the synergy that's identified on, uh, a cost basis. Generally you don't see the value until the third year. One year to identify it, one year to actually execute it and pay for it, and then third you get it. That's often hard. And people, you know, will slip that to four years and before you know it, you're not getting the cost synergy. So that's part of the challenge with them. Revenue synergies tend to be, you know, it's where everybody gets excited and look that we have the sumno wonderful opportunity. On the other hand, it's also one which is most difficult to find because the real truth about finding revenue means that you have to come up with some new, innovative, a new segment, a new pricing strategy, a new value proposition. And there's a lot of double counting that happens on revenue. So you have to really parse that and balance sheet is often ignored. It's like, oh, yeah. I mean, because things like tax and tax advantages that you. This is where the auditors thank God. You know, I've worked with any number of, you know, tax, foreign tax and tax advisors, and they often find things that I can never imagine where it came from, where they can just find ways to actually pay less taxes and, or have less assets. And so therefore a better cash flow. And those tend to get ignored. So those are the three basics that you're looking for. Having base on a baseline.

Speaker A: Got it, Got it. I've got a number of other questions to ask you, but I know we're reaching sort of the top of our time with you, and as we're recording this in 2026, you know, we can't avoid talking about AI.

Speaker C: Oh, right.

Speaker A: And so I'm wondering, like, you know, how do you think is AI going to make integration easier? Is it going to drive Us to make mistakes faster. How do you see it?

Speaker C: Well, I think there's no doubt AI is going to help immeasurably because in the integration you're dealing with huge amounts of data. And whenever you're dealing with huge amounts of data because you're trying to look across various different entities, AI, ah, will help you accumulate that data and actually analyze it much faster, much rapid, much more rapidly. So in, you know, I just wrote something from one of the major consulting firms that talked about, you know, double digit increases in speed around integration using AI tools. That's terrific. Problem with AI is it does not read the room. It will never tell you that you're nodding knowingly and saying yes, that makes sense. Well, my point about AI is it really, it's a great analytic tool. It is not a great tool when you're talking about having to put together two organizations where human interactions and belief systems are being challenged. AI doesn't help you there, it gets you there much faster, which is great. It frankly makes it a little more tolerable for those who have to do this work because otherwise this work can be very intense, a lot of data, and quite challenging to do in the time frame it has to be done in. So AI helps a lot and it gets us to have more conversations where I can say, okay, now that we understand each other, what are we really going to do here? And that AI cannot do, but it frees you the opportunity to do it though. Yeah.

Speaker A: And I think as you said before at the very beginning, who is making the decision? Who is. You know, I trust a person and it's not. The answer's right almost when the right person says it's right. Beautiful. Okay, I have other questions for you, but we've reached the top of our time with you. Is there something that you didn't get to say?

Speaker C: Um, micro and macro. Micro. Thing I really get to say was, you know, there are so many decisions that have to be made in integration. And it just, it always shocks me that, you know, even the most minor decision can sometimes take forever to deal with. And it was, reminded me just, uh, literally two days ago I was talking to a, um, head of an IMO of a massive food company who's bought another one. And they were talking about. And I said, so what's tripping you up, Willie? Just today. And they said, oh, you can't imagine. Today's issue is the pins that the, that the company that we acquired wear that it signifies how long they have been with the company and they want to know how we're going to count that now that we're joining another company, are they resetting the timing or do I get to still wear my pin? And it was just an example of the type of thing. We talk in the book about warm nuts in American Airlines, or we talk about call signs at American Airlines. How, uh, challenging it was. Little things can trip up people. It just shows you how granular all these things are that the IMO is dealing with.

Speaker A: And you can't know this at the time of the deal.

Speaker B: Right.

Speaker A: That can't be in the original plan. You discover it as you are one

Speaker C: of the thousands of things you discover. It's just, you know, it just. But it just was an interesting and lovely moment when we shared that together. The, the big macro point is to say that in today's world, and the strategy people that you have on this podcast that listen to it knows this. It used to be that you could think about growing organically as your primary strategy. Nowadays, you cannot. Everybody has a basic question about how do we actually inorganically grow? Because we know we have to build stuff. That's the organic growth, but we have to buy stuff and then we have to borrow stuff in this sense of doing joint ventures as well. And, well, all the stuff we're talking about is going to be so much at the feature of every company because strategy now requires you to be integrative and do deals. It just is. So that's why this is so important and why I'm, uh, so happy to have had this opportunity to be with you.

Speaker A: Good. Well, thank you for. Yeah, I mean, you've packaged 35 years of practice and teaching and thank you for putting it together in a book that is, I think, well, social, structured and easy to follow and yet doesn't give us a step by step playbook and, uh, acknowledges the complexity and the paths to successful.

Speaker C: Well, thank you. I wish I could take all credit for that, but that's also where Patrick, who's the. Who helped me with this, gets a lot of his. A lot of his input was right into that arena. So thank you, Patrick.

Speaker A: Awesome. Yeah, thank you, Patrick. Thank you, David, for being here.

Speaker C: Thank you.

Speaker A: It was great meeting him.

Speaker C: Nice to meet you.

Speaker A: Thank you to our guest, David Fubini. Thank you to our executive producer, Zach Ness, our producer, Nazanin Humayun Jam, our editor, James Pierce. If you like what you heard, please follow, download and subscribe. I'm your host, Kaihan Krippendorf. Thank you for listening. We'll catch you next time. With another episode of Out Thinkers.