The biggest risk of all

It seems obvious - two successful companies marketing the same product should be even more successful if they merge. So why do 75 per ...


Thomas Kell and Max Landsberg argue that, although the answer is common sense, it is not yet commonplace: a large company needs more effective leadership than a small one. Confronted by change or contemplating an acquisition, surprisingly few companies measure whether the leadership capacity of their top teams will suffice. A structured leadership assessment may be the answer.

In early 2001 Volvo Group was at risk of a strategic and cultural collision. Management was planning to combine Volvo’s business with that of Renault Trucks, which had itself recently acquired Mack Trucks. The opportunity was to reap significant savings while enhancing customer service and retaining – indeed strengthening – the three well-known brands. The risk was a directionless enterprise with clashing corporate cultures and unrealised synergies. Why do mergers fail?

The question has been asked a thousand times and there are a thousand answers. Despite the fact that both names were leading vehicle manufacturers, Volvo executives were concerned that there could be some previously unidentified problem that was leading good companies to fail when they merged. So Volvo executives looked beyond the usual suspects. And they identified a risk that, unmanaged, could have robbed the Volvo-Renault merger of its value.

“Our bottleneck was leadership capacity,” says Kjell Svenson, senior vice president of human resources. “We had plenty of good technicians and finance people, but we knew very little about the leadership dimension.”

This mattered for Volvo, as increasingly it does elsewhere, because of the scale and complexity of the firm. The combined company would employ 75,000 people in Sweden, France and the United States. Senior executives’ technical skills, whilst important, are secondary. Their primary task is to engage, inspire and orchestrate the performance of thousands. Volvo’s culture, which emphasised how well it responded to the views and suggestions of employees, made such leadership skills all the more important.

Team dynamics were also crucial. “We needed high performers in a multicultural environment,” says Svenson. “If you’re very successful as a leader in one type of culture, it doesn’t necessarily mean you’ll be successful in another culture.”

The first step towards building an effective executive team that can realise a merger’s potential is to assess the prospective team members’ leadership skills. An increasing number of companies are doing what Volvo did in 2001: commission a detailed, interview-based executive assessment by a third party. A well-structured assessment will do several things:

  • Confirm the competence of key executives and “mark to market” their leadership skills
  • Gauge their degree of alignment with the intended strategy
  • Identify dysfunctional elements in prospective teams.

The third point can be a particular issue in merged boards, which are often led by headstrong individuals (usually CEOs of other companies). Such leaders have strong leadership skills, but often find it difficult to collaborate on an equal footing with peers and absorb new philosophies or cultures.

While the emphases may vary, the common element in both executive assessments and board reviews is the structured interview. This is indispensable. A skilled impartial interviewer who is also a good judge of character can quickly build a schematic of an individual’s strengths and weaknesses in remarkable detail. Standard questionnaires very rarely elicit honest responses to contentious or sensitive issues.

Svenson organised interview-based assessments of 97 senior executives at Volvo, Renault and Mack over an 11 week period using a third party. “We were very satisfied with the recommendations we received, although we’ve learned that you can’t guarantee a 100 per cent hit rate,” he says. “You’re dealing with people.”

Renault contraire

Volvo/Renault has been one of the few merger successes. “I’d describe the impact of our work as ‘results’ and ‘values’,” says Svenson. “On the results side, the whole financial market was looking at us. Three quarters of mergers don’t deliver. But we more than delivered what we promised on synergies and savings. On the values side, we wanted to keep our top performers but also develop a strong performing team. We did both.”

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