Thomas F. Zenty III has presided over a remarkable run of success as CEO at University Hospitals, opening new medical centers and executing UH’s $1.2 billion, five-year strategic plan. The organization has nearly 30,000 employees and a $4 billion operating budget, a figure bolstered by a number of acquisitions made in recent years.
“UH has grown since 1866 from a charity hospital that started in a small Cleveland house to a super-regional health system with influence that spans the globe,” Zenty notes on the UH website.
That growth has been achieved by adhering to a carefully thought out strategy that attempts to address any unknowns before a deal is completed.
“Merging companies need to have alignment in their strategies,” Zenty says. “Deviating too far from your competencies can distract from your core business and erode positive momentum. Two similar companies joining efforts can led to a result greater than the sum of its parts.
Zenty spoke with Smart Business Dealmakers about his approach to dealmaking and explains why culture can make or break any transaction.
What role does culture play in an acquisition?
Culture is vital, perhaps more important than any other metric. To successfully align cultures, there are some key things to remember.
First, start early. You cannot begin alignment after a deal is completed. Address differences early on to improve the planning process.
Second, use data to assess culture. Data provides empirical information to identify similarities and differences which can help speed alignment.
Lastly, communicate and oversee change management. Mergers are difficult on employees, but thoroughly communicating what those changes will be and then helping employees adapt to those changes is crucial to aligning cultures.
What are some of the critical elements to making a successful acquisition?
Due diligence. Do the work up front to ensure there are no surprises. That allows both sides to be clear on where everyone stands. When the merger is completed, they are able to immediately begin the work of integration.
Cultural alignment. Effective leadership needs to be aware of structural, emotional and political factors that go along with mergers and acquisitions. If the parties are not aligned, it will be difficult to move forward at the same speed without one side slowing the other down.
Effective organizational growth. To achieve appropriate economies of scale, you need to identify the key areas that are crucial in making the sum of the parts greater than the individual parts. You must manage those areas effectively to gain early momentum and create buy-in for the integration.
Effective communication. To convey a strong vision and a clear understanding of desired outcomes, both parties need to be aware of the vision of the new organization. You need a clear understanding of expectations as well as outcomes. Communication must be ongoing and consistent to eliminate confusion.
Deliver on commitments. It is important that the promises made are upheld. Regardless of who the stakeholders are, following through on commitments that were made is critical to establishing trust and moving forward as a new entity. Not delivering on your commitments can erode faith and cause stakeholders to wonder if merging was in their best interests.
What are some things that can quickly derail a transaction?
Mismatched cultures. As I said earlier, culture is crucial to making sure a merger will be successful. Understanding cultures and identifying synergies early on will help both sides make informed decisions on how to move forward.
Poor strategic fit. Make sure both sides are aware of each other’s strategic vision. If the company you are acquiring is not an extension of your core competencies, why are you doing the deal? A merger should not over-extend or divert you from your strategy.
Lack of sound due diligence. The discovery process must not be rushed. An acquiring company must spend the time to thoroughly vet the acquisition – and vice versa – and ensure that all major points have been reviewed. Not uncovering key issues will at best delay closure and at worse cause one party to be severely damaged.
Stay focused on integration. Once a merger is completed, much of the real work begins. Thinking otherwise can be detrimental to the success of both parties. Resources must be identified and timelines communicated to ensure expectations are clearly understood.
Thinking all mergers are the same. Even if you are routinely active in M&A, you need to treat each one individually and remain vigilant in each of these areas in order to be successful.
Make assumptions at your own risk. Any merger should be viewed as a two-way process. Assuming that the company being acquired has nothing to contribute is shortsighted and dangerous to the success of the merger. There are lessons to be learned from both sides and those opinions need to be heard and vetted.
How to reach: University Hospitals, www.uhhospitals.org