By Charlie Mayes, Managing Director, DAV Management
The announcement of Microsoft’s acquisition of Nokia’s Devices and Services business for $7.2 billion back in September last year sparked plenty of debate around the future direction of both companies. Marking the end of an era for struggling Nokia, the move was deemed by analysts as a necessary gamble amid Microsoft’s failed platform only approach to the mobile market. Technology strategies aside, top analysts also highlighted in particular the significant challenge that Microsoft will inevitably face in integrating Nokia should the deal be approved – especially at a time when Microsoft is in the middle of its own mammoth re-organisation.
Last month the European Commission cleared the deal, bringing the acquisition closer to completion, which is expected in the first quarter of 2014. At that point the really interesting question will be, how will Microsoft execute on its wider strategy and how will it manage a business integration of the magnitude the Nokia acquisition represents at the same time?
The truth is it won’t be easy. History is littered with failed integration efforts of this magnitude. The stats relating to successful acquisition outcomes in general aren’t encouraging either. According to a report by McKinsey & Company more than 70% of all mergers and acquisitions fail to produce any benefit for the shareholders, and over half actually destroy value.
With these kinds of odds (and I’ve seen figures quoting that up to 90% of mergers and acquisitions fail), companies have to do significantly more than due-diligence on the tangible assets of financial structures, IT and IP to ensure success. Successful acquisitions are dependent on many different factors, most of which are subtle and complex.
From experience it’s the intangible assets that tend to cause the most challenges. These include people, politics and culture (more on this later) – all of which can put a damper on a positive outcome. Identifying and managing the post acquisition integration of business operations along with the people, processes and technology elements involved is key. And the planning for this must start early in the process.
For Microsoft, making a success of the integration will be hard work but, as I’ve written before, the approach needed to carry an acquisition through to success is in fact very similar to what is required in any large-scale programme of change. Get the approach right, ensure it’s planned and managed by people who know what they are doing, have a clear and well communicated vision for the acquisition and break this down into tactical chunks of work that can be delivered as part of a structured programme of change.
However, the size and magnitude of the people element in this acquisition will add an extra dimension. For Microsoft, not only will 32,000 additional employees be added to their ranks, their own reorganisation initiative (coined ‘One Microsoft’) is also in play. There’s also the fact that CEO Steve Ballmer who conceived Microsoft’s transformation strategy is leaving in 2014 and won’t be around to execute on the vision. Challenging times ahead – and especially for a new incoming CEO.
One of the most interesting aspects arising out of this is the integration of the two cultures. There is a belief that cultural issues are less important if the acquisition target is principally product or software based and to some extent this is true. But Nokia represents a whole new ball game to Microsoft and there will be a high reliance on the skills and experience embedded in the former’s business for the outcome of the acquisition to be successful. So, whilst there will inevitably be staff rationalisation, most likely at the management level, I’d hope to see Microsoft working hard to preserve something of the culture of Nokia, or at least smoothing the way to accepting its own over time.
Microsoft is ultimately looking to transition from a software provider to a devices and services company and is going through change on a massive scale. The industry will be watching developments over the next year closely. Will Microsoft’s purchase of Nokia join the list of acquisition casualties or will it be a triumph of transformation? Only time will tell. Interesting times ahead though to say the least.
McKinsey&Company, Perspectives on Merger Integration, June 2010